Answered: On April 1, 2020, Purefoods Company… | bartleby

On April 1, 2020, Purefoods Company purchased a P1,000,000 face value 8% bond for P910,000 including accrued interest and commission. The commission to acquire the bonds was P5,000. The bonds are dated January 1, 2020 and mature on January 1, 2025, and pay interest semi-annually on January 1 and July 1. On December 31, 2020, the bonds had a fair value of P920,000. On April 1, 2021, Purefoods sold the bonds for a total consideration of P950,000. How much is the gain from the sale of investment in debt securities on April 1, 2021?

Intermediate Accounting: Reporting And Analysis

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

See similar textbooks

Related questions

Concept explainers

Question

On April 1, 2020, Purefoods Company purchased a P1,000,000 face value 8% bond for P910,000 including accrued interest and commission. The commission to acquire the bonds was P5,000. The bonds are dated January 1, 2020 and mature on January 1, 2025, and pay interest semi-annually on January 1 and July 1. On December 31, 2020, the bonds had a fair value of P920,000. On April 1, 2021, Purefoods sold the bonds for a total consideration of P950,000.

How much is the gain from the sale of investment in debt securities on April 1, 2021?

Expert Solution

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Blurred answer

Knowledge Booster

Capital Gains and Losses

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

On 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?
Refer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest. On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-years bonds with a face value of 12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to record the purchase of these available-for-sale securities.

Recommended textbooks for you

Intermediate Accounting: Reporting And Analysis

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

Cornerstones of Financial Accounting

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

CONCEPTS IN FED.TAX., 2020-W/ACCESS

CONCEPTS IN FED.TAX., 2020-W/ACCESS

Accounting

ISBN:

9780357110362

Author:

Murphy

Publisher:

CENGAGE L

Intermediate Accounting: Reporting And Analysis

Intermediate Accounting: Reporting And Analysis

Accounting

ISBN:

9781337788281

Author:

James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:

Cengage Learning

Cornerstones of Financial Accounting

Cornerstones of Financial Accounting

Accounting

ISBN:

9781337690881

Author:

Jay Rich, Jeff Jones

Publisher:

Cengage Learning

CONCEPTS IN FED.TAX., 2020-W/ACCESS

CONCEPTS IN FED.TAX., 2020-W/ACCESS

Accounting

ISBN:

9780357110362

Author:

Murphy

Publisher:

CENGAGE L

SEE MORE TEXTBOOKS