On January 1, 2022, BTS Company purchased as debt investments at amortized cost, P1,000,000 of JK Company’s 8% for 906,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2032 and pay interest semi-annually on January 1 and July 1. BTS uses the effective interest method of amortization.
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On January 1, 2022, BTS Company purchased as debt investments at amortized cost, P1,000,000 of JK Company’s 8% for 906,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2032 and pay interest semi-annually on January 1 and July 1. BTS uses the effective interest method of amortization.
In its December 31, 2022 statement of comprehensive income, what amount should BTS report as interest revenue?
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- Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.During 2021, Anthony Company purchased debt securities as a long-term investment and classified them as trading. All securities were purchased at par value. Pertinent data are as follows: The net holding gain or loss included in Anthonys income statement for the year should be: a. 0 b. 3,000 gain c. 9,000 loss d. 12,000 lossOn January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
- On January 1, 2018, an entity purchased bonds with face amount of P5,000,000. The entity paid P4,500,000 plus transaction cost of P168,600. The bonds mature on December 31, 2020 and pay 6% interest annually on December 31 of each year with 8% effective yield. The bonds were quoted at 105 on December 31, 2018 and 110 on December 31, 2019.The business model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in the open market. The entity has not elected the fair value option. On December 31, 2019, the entity changed its business model to collect only contractual cash flows. On December 31, 2020, the bonds are quoted at 115 and the market interest rate is 10%. find the following: 1. What amount of unrealized gain should be reported as component of OCI in the statement of comprehensive income for 2018? 2. What amount of unrealized gain should be reported as component of OCI in the statement of…On June 1, 2020, LM company purchased debt investment at amortized cost, 8,000 of P1,000 face value bonds for P7,383,000. The bonds were purchased to yield 10%. Interest is payable semi-annually on December 1 and June 1. On June 1, 2021, LM sold the bonds for P7,850,000. This amount includes the appropriate accrued interest. How much is the gain or loss on the sale of the debt investment?On January 1, 2019, ZZZ Company purchased bonds with face amount of P5,000000. The entity paid P4,500,000 plus transaction costs of P168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020. The business model in managing the financial asset is to collect contractual cash flows and also to sell the bonds in the open market. The entity has not elected the fair value option. On December 31, 2020, the entity changed the business model to collect only contractual cash flows. On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%. What mount of cumulative unrealized gain should be reported as component of OCI in the statement of changes in equity for 2020?
- On January 1, 2019, ZZZ Company purchased bonds with face amount of P5,000000. The entity paid P4,500,000 plus transaction costs of P168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020. The business model in managing the financial asset is to collect contractual cash flows and also to sell the bonds in the open market. The entity has not elected the fair value option. On December 31, 2020, the entity changed the business model to collect only contractual cash flows. On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%.what amount should be reported as interest income for 2021?Mercer Corporation acquired $400,000 of Park Company’s bonds on June 30, 2018, for $409,991.12. The bonds carry a 12% stated interest rate and pay interest semiannually on June 30 and December 31. The appropriate market interest rate is 11%, and the bonds are due June 30, 2021. Required: 1. Prepare an investment interest income and premium amortization schedule, using the: a. straight-line method b. effective interest method 2. Prepare journal entries to record the December 31, 2018, and December 31, 2020, interest receipts using both methods.On January 1, 2019, La Vida Company purchased 3,000, P1,000 face value term bonds with a stated rate of 10% as at amortized cost. The bonds pay interest annually on December 31 and will be redeemed entirely by the issuer on December 31, 2022. The bond investment was purchased for P2,819,100 at an effective rate of 12%.On January 1, 2020, the entity changed business model for managing its financial assets and this investment was reclassified as debt investments at fair value through profit or loss. On this date, the bonds are quoted at 101 What is the amount at which the debt investments at fair value through profit or loss shall be recorded uponreclassification?
- On January 1, 2021, Panama Company purchased 5,000,000 face amount 8% bonds for 4,562,000 to be held as financial assets at amortized cost. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2025 and pay interest annually on December 31 using effective interest method. Requirements: Prepare an Amortization table and the related journal entries.Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were issued to yield 12%, and are due January 1, 2022. Required: 1. Prepare an investment interest income and discount amortization schedule using the: a. straight-line method b. effective interest method 2. Prepare the July 1, 2021, journal entries to record the interest income under both methods.On January 1, 2021, Carrots Corporation purchased, as held-for-collection investment, P60,000 of the 8%, 5-year bonds of Cabbage, Inc. for P65,118, which provides a 6% market return. The bonds pay interest semiannually. Instructions: Prepare an amortization table from Year 1 through Year 5. Show the presentation of investment account in the balance sheet as of December 31, 2023.