On January 1, Year 1 Narito Company purchased P100,000 face value 5-year bond of Wolverine Corp for P108,660, a price that yields 5% on a stated interest rate of 7%. Interest is payable annually at Dec 31.The bond investment is measured at amortized cost.On Dec 31, Year 3 after paying the periodic interest, Narito negotiated for a modification of interest from 7% to 4.5% for the remaining term of the bonds due to continuous decline in the market rate of interest. On this date, Narito Company had an allowance for expected credit losses relating to this investment in the amount of P1,500 after previously applying Stages 1 and 2 of the ECL model.Required:Give all entries in the books of Naruto for Years 1 to 4 as a result of the foregoing.

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3rd Edition

ISBN:9781337788281

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

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

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 7C

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Question

On January 1, Year 1 Narito Company purchased P100,000 face value 5-year bond of Wolverine Corp for P108,660, a price that yields 5% on a stated interest rate of 7%. Interest is payable annually at Dec 31.

The bond investment is measured at amortized cost.
On Dec 31, Year 3 after paying the periodic interest, Narito negotiated for a modification of interest from 7% to 4.5% for the remaining term of the bonds due to continuous decline in the market rate of interest. On this date, Narito Company had an allowance for expected credit losses relating to this investment in the amount of P1,500 after previously applying Stages 1 and 2 of the ECL model.

Required:

Give all entries in the books of Naruto for Years 1 to 4 as a result of the foregoing.

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