1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To Journalize: The investment made by Company FM on January 1, 2018.
2.
To Journalize: The semiannual interest received by Company FM on June 30, 2018.
3.
To Journalize: The semiannual interest received by Company FM on December 31, 2018.
4.
To Calculate: The amount of investment to be recorded in the balance sheet of Company FM on December 31, 2018.
5.
To Explain: The effect of investment by Company FM on December 31, 2018, in the statement of
6.
To Explain: The effect of investment by Company FM on December 31, 2018, for the above requirements if the Company FM decided to hold the investment till maturity.
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Chapter 12 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
- Jona Company received P 5,300,000 for a P 5,000,000 face amount 12% bond, a price that yields 10%. The bonds pays interest on June 30 and December 31. The entity elected the fair value option. On Dec. 31, 2020, the fair value of the bond is determined to be P 5,125,000 based on market and interest factors. For the year-ended 2020 financial statements, what amount should be reported as interest expense, gain or loss from change in fair value and carrying amount of the bonds payable, respectively? *a. P 600,000, P 175,000 gain and P 5,125,000, respectivelyb. P 300,000, P 87,500 gain and P 5,125,000, respectivelyc. P 600,000, P 175,000 loss and P 5,125,000, respectivelyd. P 300,000, P 87,500 loss and P 5,125,000, respectivelyarrow_forwardFuzzy Monkey Technologies, Incorporated purchased as a long-term investment $220 million of 8% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $201 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2024, was $210 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)arrow_forward10. On January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31, 2022. The prevailing market rate for the bonds is 9% at December 31, 2020. If the bonds are classified as FA@FVTPL, the amount to be recognized as fair value adjustment loss in its 2020 profit or loss is Group of answer choices P33,900 P6,180 P26,180 P13,900arrow_forward
- 35. On January 1, 2020, Knit Company purchased 8% bonds in the face amount of P8,000,000. The bonds mature on January 1, 2025 and were purchased for P8,671,680 to yield 6%. Knit’s business model for this investment is to collect contractual cash flows composed of principal and interest, and sell the asset in the open market. Interest is payable annually every December 31. The fair value of the bonds on December 31, 2020 was P7,737,600 with an effective yield of 9%. What is the interest income for 2020?arrow_forward35. On January 1, 2020, Knit Company purchased 8% bonds in the face amount of P8,000,000. The bonds mature on January 1, 2025 and were purchased for P8,671,680 to yield 6%. Knit’s business model for this investment is to collect contractual cash flows composed of principal and interest, and sell the asset in the open market. Interest is payable annually every December 31. The fair value of the bonds on December 31, 2020 was P7,737,600 with an effective yield of 9%. What is the interest income for 2020? a. 780,451 b. 513,119 c. 640,000 d. 520,301arrow_forwardI ONLY NEED ANSWER OF 16,17 &18 PLEASE KINDLY ANSWER Problem 3:On June 1, 2021, VIXEN Company received ₱1,077,200 plus accrued interest for 12% bonds with face amount of ₱1,000,000. The bonds were sold to yield 10%. Interest is payable semiannually every July 1 and December 31. The entity elected the fair value option for measuring financial liabilities. On December 31, 2020, the fair value of the bonds is at 108. The change in fair value of the bonds is attributable to market factors.Requirements:E. Prepare all necessary entries for calendar year 2021.F. Compute or provide the answers for the following:14. How much is initial valuation of the bonds?15. How much cash was received upon the sale of the bonds?16. How much is the interest expense for the year ended December 31, 2021?17. How much is the gain or loss from change in fair value of the bonds for 2021? (In the google form, if loss, put a negative sign before the numerical figure.)18. What is the carrying amount of the…arrow_forward
- This is a variation of E 12–1 focusing on available-for-sale securities.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200million for the bonds. The company will receive interest semiannually on June 30 and December 31. Companymanagement has classified the bonds as available-for-sale investments. As a result of changing market conditions,the fair value of the bonds at December 31, 2018, was $210 million.Required:1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018.2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018, at the effective (market)rate.arrow_forward[This is a variation of E 12–2 focusing on available-for-sale securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018.Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate(yield) was 4% for bonds of similar risk and maturity. Mills paid $280 million for the bonds. The company willreceive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $270 million.Required:1. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018.2. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate.3. At what amount will Mills report its investment in the December 31, 2018, balance sheet? Why?4. Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell theinvestment on…arrow_forwardFuzzy Monkey Technologies, Inc., purchased as a long-term investment $120 million of 6% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $100 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2021, was $110 million.Required:1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 1, record fuzzys monkeys investment on bonds on january 1 2021 2. record the interest revenue on june 30 2021 3, record the interest revenue on december 31 20214. At what amount will Fuzzy Monkey report its investment in the December 31, 2021 balance sheet?5. How would Fuzzy Monkey's 2021 statement of cash flows be affected by this investment? (If more than one approach is possible,…arrow_forward
- 34.On January 1, 2020, FF Company purchased 12% bonds with face value of P5,000,000 for P5,380,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 2020, mature on January 1, 2025 and pay interest annually on December 31 of each year. The bonds are quoted at 120 on December 31, 2020 and 115 on December 31, 2021. The entity has elected the fair value option for the bond investment. What is the carrying value of the bonds for FF on December 31,2021?arrow_forwardFuzzy Monkey Technologies, Incorporated purchased as a long-term investment $240 million of 6% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $219 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2024, was $230 million. Required: 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the one that is most likely.)arrow_forwardPROBLEM 2: On January 1, 2020, Baymax Company purchased Mad Max Corporation, P1,000,000 12% bonds for P1,065,000, a price that yields 10%. The bonds pay interest semi-annually every January 1 and July 1 and they mature on January 1, 2024. At December 31, 2020, each P1,000,000 bond is selling at P1,055.42. A) Assuming that the securities are classified as debt investments at amortized cost, what is the carrying amount of the debt investment reported on December 31, 2020 statement of financial position? a) 1,000,000 b) 1,051,163 c) 1,055,000 d) 1,065,000 B) Assuming that the securities are classified as debt investments at fair value though profit or loss, what is the carrying amount of the debt investment reported on December 31, 2020 statement of financial position? a) 1,000,000 b) 1,051,163 c) 1,055,000 d) 1,065,000 C) Assuming that the securities are classified as debt investments at fair value through profit or loss, what is the interest revenue from the bond investment for…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning