Analysis of Investments in Debt Instrument PDF

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Analysis of investments in debt instrument (HTM)On June 1, 2014, Panday Corporation purchased as a long term investment 6,000 of the P1, face value, 8% bonds of Pira Corporation. Panday Corporation has the positive intention and ability to hold these bonds to maturity. The bonds were purchased to yi...

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Analysis of investments in debt instrument (HTM)

On June 1, 2014, Panday Corporation purchased as a long term investment 6,000 of the P1,000 face value, 8% bonds of Pira Corporation. Panday Corporation has the positive intention and ability to hold these bonds to maturity. The bonds were purchased to yield 10% interest. Interest is payable semi-annually on December 1 and June 1. The bonds mature on June 1, 2020. On November 1,2015, Panday Corporation sold the bonds for a total consideration of P5,887,500. REQUIRED: Determine the following: (Round off present value factors to four decimal places) 1. 2. 3. 4.

The purchase price of the bonds on June 1, 2014 The carrying amount of the investment in bonds as of December 31, 2014. The interest income for the year 2015 The gain on sale of investment in bonds on November 1, 2015.

SOLUTION: 1.

P5,467,992 PV of principal (P6,000,000 x 0.5568) PV of interest [(P6,000,000 x 4%) x 8.8633] Purchase price

2.

3,340,800 2,127,192 5,467,992

P5,507,237 Date 6/1/11 12/1/11 6/1/12 12/1/12

EI (5%) 273,400 275,070 276,823

NI (4%) 240,000 240,000 240,000

Disc. Amort. 33,400 35,070 36,823

Carrying amount, 12/1/11 (see amortization schedule) Add discount amortization, 12/1/11 to 12/31/11 (P35,070/6) Carrying amount, 12/31/11 3.

5,501,392 5,845 5,507,237

P459,911 Jan. 1 to May 31 (P275,070 x 5/6) June 1 to Nov. 1 (P276,823 x 5/6) Total interest income for 2012

4.

Amort. Cost 5,467,992 5,501,392 5,536,462 5,573,285

P120,352

229,225 230,686 459,911

Total proceeds Accrued interest (P240,000 x 5/6) Net proceeds Less carrying amount, 11/1/12: Carrying amount, 6/1/12 (see amortization schedule) Add discount amortization, 6/1/12 to 11/1/12 (P36,823 x 5/6) Gain on sale on investment in bonds

5,887,500 (200,000) 5,687,500 5,536,462 30,686

5,567,148 120,352...