Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Chapter F, Problem F.3AE
To determine
To compute: The present value of the price of bond investment by Corporation H using Excel.
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Use the following information for the next two questions:On January 1, 20x1, ABC Co. acquired 14%, ₱1,000,000 bonds for ₱1,099,474. The principal is due onDecember 31, 20x3 but interest is due annually starting December 31, 20x1. The effective interest rate onthe bonds is 10%. The bonds are classified as investment measured at amortized cost.
1. How much is the carrying amount of the investment on December 31, 20x2?a. 1,000,000 b. 1,036,364 c. 1,069,421 d. 1,044,312
2. Assume that half of the investment was sold on January 1, 20x2 for ₱480,000. Transaction costsincurred on the sale amounted to ₱15,000. How much is the gain (loss) on the sale?a. (54,711) b. (39,711) c. 16,341 d. (69,711)
HodsonCorp. purchased ten $1,000 8% bonds of Eagle Corporation when the market rate of interestwas 6%. Interest is paid semiannually, and the bonds will mature in four years. Using the PVfunction in Excel®, compute the price Hodson paid (the present value) for the bond investment.
Ma3.
Dino Company purchased a bond with a face value of $100,000 with a stated interest rate of 6% that pays interest semi-annually on June 30 and December 31. The bond was purchased on January 1, 20X1 and matures in 5 years. It was purchased at 91.889 when interest rates in the market were 8%. Record journal entries that the company would record during 20X1 if the company accounts for this investment under the amortized cost model. Indicate the amounts that would appear on the year-end statement of financial position with regard to this investment. Assume that market interest rate fell to 2% by January 1, 20X3. On that date the bond investment was sold. Record the journal entry that would be made at that time.
Chapter F Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
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- On July 1, 2002, Roger Co. paid P1,198,000 for 10% 20-year bonds with a face amount of P1,000,000. Interest is paid on December 31 and June 30. The bonds were purchased to yield 8%. Roger uses the effective interest method to recognize interest income from investment. What should be reported as carrying amount of the bonds in Roger’s December 31, 2002 balance sheet? P1,207,000 P1,198,000 P1,195,920 P1,193,050arrow_forwardnEEDED IN 10 MINUTES 8. On January 1, 20x1, ABC purchased 12% bonds with face amount of P5,000,000 for P5,380,000. The bonds’ effective yield is 10%. The bonds are dated January 1, 20x1, maturing on January 1, 2025 and pay interest annually every December 31, 0f each year. The bonds are quoted at 120 on December 31, 20x1, and 118 on December 31, 20x2. The entity has elected the fair value option for the bond investment. Compute the total amount that will be shown in ABC’s statement of financial performance for the year ended December 31, 20x2 related to this investment. (sample answer: 10,500 increase or 10,500 decrease)arrow_forwardOn January 1, 20x1, Sina Co. acquired 10%, ₱4,000,000 bonds for ₱3,807,853. The principal is due on January 1, 20x4 but interest is due annually. The yield rate on the bonds is 12%. How much is the interest income recognized in 20x1? 456,942 463,776 c. 471,429 d. 400,000 How much is the carrying amount of the investment on December 31, 20x1? 3,807,853 3,864,795 c. 3,928,571 d. 4,000,000 On May 1, 20x1, Shinuka Co. acquired ₱100,000 face amount, 10% bonds dated January 1, 20x1 at 102. The purchase price excludes interest. How much is the initial carrying amount of the investment? 102,000 99,500 c. 98,667 d. 105,333arrow_forward
- gwen purchased a $10,000 face value bond with a coupon rate of 4% payable semiannually. on the purchase date the bond had 12yearw remaining until maturity and market interest rate were 4.4%. gwen sild the bond 3 1/2 years later when the prevailing interest rate had climbed to 4.9% what was the capital gain or loss on the bond investment.arrow_forwardMonty Corp. invested in a three-year, $100 face value 9% bond, paying $95.11. At this price, the bond will yield a 11% return. Interest is payable annually. Prepare a bond discount amortization table for Monty Corp., assuming Monty uses the effective interest method required by IFRS. (Round answers to 2 decimal places, e.g. 52.75.) Bond Discount Amortization Table Date Cash Received Interest Income Bond Discount Amortization Amortized Cost of Bond Day 1 $enter a dollar amount End Year 1 $enter a dollar amount $enter a dollar amount $enter a dollar amount enter a dollar amount End Year 2 enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount End Year 3 enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount $enter a total amount $enter a total amount $enter a total amount Prepare journal entries to record the initial…arrow_forwardMK Limited has invested in a debt instrument, details of which are as follows: Face Value=10,000 Premium paid on the investment of the instrument =800 Transaction cost paid on the investment of the instrument =200 Coupon rate of the Instrument =12% Term of the instrument = 4 yearsMK Limited has a policy to classify Investment in debt instruments at Amortized Cost.IRR of the debt Instrument is 8.9188%Required Prepare the relevant entries for the whole tenure.arrow_forward
- Gold Corp. uses the amortized cost method (effective interest method) when accounting for debt investments. During the year, it purchased$140,000of 4-year,8%bonds, when the market interest rate was10%. 1. Calculate the price of the bond. Assume the bonds paid interest annually. 2. Record the purchase of the bonds on July1,2021. And accrual of interest on December 31, 2021. And receipt of interest on July 1, 2022. 3 What is the bond's carrying value on December31,2022?arrow_forwardIf company A wants to raise 20-24million through bonds, and company B wants to invest in company A. In the conditions company A currently pays semi-annual interest of $100, as the bonds age for 30 years and the value is $2000per bond and interest is 16%. 1) What cash flow would need to be expected for company B to purchase the bond in the fifth and the final payment. 2)If the value of the bond was equal to $2400 should company B invest in the bond of company A. Provide all calculations and formulas used for pricing.arrow_forwardHaddockCorp. purchased fifteen $1,000 7% bonds of Galvan Corporation when the market rate ofinterest was 8%. Interest is paid semiannually, and the bonds will mature in nine years. Usingthe PV function in Excel®, compute the price Haddock paid (the present value) for the bondinvestment.arrow_forward
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