An entity purchased 4 year debt instruments with a face value of P15,000,000 on January 1, 2019 to collect contractual cash flows that are solely payments of principal and interest and to sell the financial asset. Interest is paid annually at a nominal rate of 8% that is paid every December 31. The following information is provided as follows: Date Effective Rate without Transaction Cost Effective Rate with Transaction Cost 01/01/2019 8.5% 9% 12/31/2019 10% 10.5% 12/31/2020 13% 13.5% 12/31/2021 12% 12.5% 12/31/2022 11% 12% Requirements: What is the initial carrying amount of the bond investment? What is the December 31, 2019 carrying amount of the bond investment? What is the 2020 interest income? What is the cumulative unrealized gain/loss in equity on December 31, 2020? How much is the 2020 unrealized gain recognized in the statement of comprehensive income? If the entity changes its business model in 2020 to collect contractual cash flows only, what is the carrying amount of the bonds on December 31, 2021? If the entity changes its business model in 2020 to hold the financial asset for trading purposes, what is the total or net amount recognized in profit or loss in 2021?
An entity purchased 4 year debt instruments with a face value of P15,000,000 on January 1, 2019 to collect contractual cash flows that are solely payments of principal and interest and to sell the financial asset. Interest is paid annually at a nominal rate of 8% that is paid every December 31. The following information is provided as follows: Date Effective Rate without Transaction Cost Effective Rate with Transaction Cost 01/01/2019 8.5% 9% 12/31/2019 10% 10.5% 12/31/2020 13% 13.5% 12/31/2021 12% 12.5% 12/31/2022 11% 12% Requirements: What is the initial carrying amount of the bond investment? What is the December 31, 2019 carrying amount of the bond investment? What is the 2020 interest income? What is the cumulative unrealized gain/loss in equity on December 31, 2020? How much is the 2020 unrealized gain recognized in the statement of comprehensive income? If the entity changes its business model in 2020 to collect contractual cash flows only, what is the carrying amount of the bonds on December 31, 2021? If the entity changes its business model in 2020 to hold the financial asset for trading purposes, what is the total or net amount recognized in profit or loss in 2021?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 6P
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An entity purchased 4 year debt instruments with a face value of P15,000,000 on January 1, 2019 to collect contractual cash flows that are solely payments of principal and interest and to sell the financial asset. Interest is paid annually at a nominal rate of 8% that is paid every December 31. The following information is provided as follows:
| Date | Effective Rate without Transaction Cost | Effective Rate with Transaction Cost |
| 01/01/2019 | 8.5% | 9% |
| 12/31/2019 | 10% | 10.5% |
| 12/31/2020 | 13% | 13.5% |
| 12/31/2021 | 12% | 12.5% |
| 12/31/2022 | 11% | 12% |
Requirements:
- What is the initial carrying amount of the bond investment?
- What is the December 31, 2019 carrying amount of the bond investment?
- What is the 2020 interest income?
- What is the cumulative unrealized gain/loss in equity on December 31, 2020?
- How much is the 2020 unrealized gain recognized in the statement of comprehensive income?
- If the entity changes its business model in 2020 to collect contractual cash flows only, what is the carrying amount of the bonds on December 31, 2021?
- If the entity changes its business model in 2020 to hold the financial asset for trading purposes, what is the total or net amount recognized in profit or loss in 2021?
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