On January 1, 2020, Pony Company acquired P5,000,000, 12% bonds to be held as finaNcial assets at amortized cost for P5,250,000 plus transaction cost of P124,000. Interest is payable annually on December 31. The bonds amture on January 1, 2025. The effective interest method of amortization is used

On January 1, 2020, Pony Company acquired P5,000,000, 12% bonds to be held as finaNcial assets at amortized cost for P5,250,000 plus transaction cost of P124,000. Interest is payable annually on December 31. The bonds amture on January 1, 2025. The effective interest method of amortization is used

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 1MC

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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The effective interest method of amortization is used. The bonds have a 10% effective yield.

What is the interest income for the year 2020?

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