Intermediate Accounting Second Year Chapter 20 & 21 PDF

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Chapter 2020-On July 1, 2020, Conair Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held as financial assets at amortized cost.Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the effective interest method.What is the ca...

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Chapter 20 20-18 On July 1, 2020, Conair Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held as financial assets at amortized cost. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the effective interest method. What is the carrying amount of the bond investment on December 31, 2020? a. 1, 207, 900 b. 1, 198, 000 c. 1, 195, 920 d. 1, 193, 050 Interest Received (1,000,000 × 10% × 6/12) Interest Income (1,198,000 × 8% × 6/12) Premium Amortization

Acquisition Cost - July 1, 2019 Premium Amortization Carrying Amount - December 31, 2019

50,000 (47,920) 2,080

1,198,000 (2,080) 1,195,920

20-19 On July 1, 2020, Vicar Company purchased P1,000,000 of 8% bonds for P946,000, including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2026, and pay interest annually on January 1. The bonds are measured at amortized cost. On December 31, 2020, what is the carrying amount of the bond investment? a. 911,300 b. 916,600 c. 953,300 d. 960,600 Interest Accrued (P1,000,000 × 8% × 6/12)

P40,000

Interest Income (P906,000 × 10% × 6/12)

P45,300

Discount Amortization

P5,300

Acquisition Cost - July 1, 2020 (P946,000 - P40,000)

P906,000

Discount Amortization

P5,300

Carrying Amount - December 31, 2020

P911,300

20-20 On January 1, 2020, Pearl Company purchased P5,000,000 face amount 8% bonds for P4,562,000 to be held as financial assets at amortized cost. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2026 and pay interest annually on December 31. The interest method of amortization is used. What is the carrying amount of the bond investment on December 31, 2021. a. 4,680,020 b. 4,662,000 c. 4,618,200 d. 4,562,000 Investment balance, January 1, 2020 Amortization of discount for 2020: Interest income (4,562,200 x 10%) Interest received (5,000,000 x 8%)

P 4,562,200 456,200 400,000

Investment balance, December 31, 2020 Amortization of discount for 2021: Interest income (4,618,200 x 10%) Interest received (5,000,000 x 8%) Investment Balance, December 31, 2020

20-21

56,200 4,618,200

461,820 400,000

61,820 4,680,020

On July 1, 2020, Scheme Company purchased ten-year, 8% bonds with a face amount of P5,000,000 for P4,200,000 to be held as financial assets at amortized cost. The bonds mature on June 30, 2028 and pay interest semiannually on June 30 and December 31. Using the interest method, the entity recorded discount amortization of P18,000 for the six months ended December 31, 2020 . What amount should be reported as interest income for 2020? a. 168,000 b. 182,000 c. 200,000 d. 218,000

Interest received from July to December 31, 2019 (5,000,000 x 8% x 6/12)

200,000

Bond discount amortization for six months

18,000

Interest income

218,000

: 20-22 On January 1, 2020, Dumaguete Company purchased bonds with face amount of P4,000,000 for P4,206,000. The business model of the entity in managing the financial asset is to collect contractual cash flows that are solely payment of principal and interest and also to sell the bonds in the open market. The entity has not elected the fair value option of measuring financial asset. The bonds mature on December 31, 2022 and pay 10% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 95 on December 31, 2020 and 90 on December 31, 2021 1. What amount of unrealized loss should be reported as component other comprehensive income in 2020? a. 342,480 b. 406,000 c. 469,520 d. 0 Date

Interest Received

Interest Income

Premium Amortization

Carrying Amount

01/01/2020

4,206,000

12/31/2020

400,000

336,480

63,520

4,142,480

12/31/2021

400,000

331,398

68,602

4,073,878

12/31/2022

400,000

326,122

73,878

4,000,000

Market value - 12/31/2020

3,800,000

Carrying amount - 12/31/2020

4,142,480

Unrealized loss - 2020

(342,480)

2. What amount of unrealized loss should be reported as component of other comprehensive income in 2021? a. 473,878 b. 131,898 c. 200,000 d. 0 Market Value - December 31, 2021

P3,600,000

Carrying Amount per Table

P4,073,878

Cumulative Unrealized Loss - December 31, 2021

(P473,878)

Unrealized Loss - December 31, 2020

(P342,480)

Increase in Unrealized Loss - 2021

P131,398

Another Approach (depende if ilalagay pa or ie-explain pa) Market Value - December 31, 2021

P3,600,000

Carrying Amount per Book - December 31, 2021 (P3,800,000 - 68,602)

P3,731,398

Increase in Unrealized Loss - 2021

P (131,398)

3. What amount of cumulative unrealized loss should be reported in the statement of changes in equity on December 31, 2020? a. 406,000 b. 606,000 c. 473,878 d. 0

Market Value - December 31, 2020 (400,000 x 90)

P 3,600,000

Carrying amount per table (12/31/20)

4,073,878

Cumulative unrealized loss - 12/31/2020

P(473,878)

4. What is the carrying amount of the bond investment to be reported on December 31, 2021? a. 4,206,000 b. 3,600,000 c. 3,800,000 d. 4,673,878 Market Value- 12/31/2020

3,600,000

Carrying amount per book- 12/31/2020 (3,800,000-68,602)

3,731,398

Increase unrealized loss

(131, 398)

Cumulative unrealized loss

(473,878)

Carrying amount per bond

3,600,000

20-23 On January 1, 2020, Gelyka Company purchased 12% bonds with face amount of P5,000,000 for P5,000,000 including transaction cost P100,000. The bonds provide an effective yield of 10% The bonds are dated January 1, 2020 and pay interest annually on December 31 of each year. The bonds quated at 115 on December 31, 2020 The entity has irrevocably elected to use the fair value option 1. What amount of gain from change in fair value should be reported for 2020? a. 750,000 b. 250,000 c. 350,000 d. 0 Purchase Price Transaction Cost

5,500,000 (100,000)

Adjusted Cost

5,400,000

The transaction cost is expensed immediately if the financial asset is measured at fair value through profit and loss. Market Value

5,700,000

Adjusted Cost

(5,400,000)

Gain from change in the fair value

350,000

2. What amount of interest income should be reported for 2020? a. 600,000 b. 550,000 c. 660,000 d. 540,000 Interest Income - 2020 (12% × P5,000,000)

P600,000

Under the fair value option, interest income is based on nominal rate rather than the effective rate. 3. What is the carrying amount of the bond investment on December 31, 2020? a. 5,750,000 b. 5,400,000 c. 5,500,878 d. 5,450,000 Carrying amount equal to market value at yearend (5,000,000 x 115%)

P5,750,000

4. What total amount of income from the investment should be reported in the income statement for 2020? a. 540,000 b. 950,000 c. 890,000 d. 900,000 Gain from change in fair value

350,000

Interest income

600,000

Total income from investment

950,000

Under the fair value option, any change in fair value is recognized in profit and loss. 20-24 1. The actual interest is earned by the bondholder is a. Effective rate b. Yield rate c. Market rate d. Effective rate, yield rate, or market rate 2. The interest rate written on the face of bond is known as a. Nominal rate b. Coupon rate c. Stated rate d. Nominal rate, coupon rate, or stated rate

3. To compute the price to pay for a bond, what present value concept is used? a. The present value of an ordinary annuity of 1 b. The present value of 1 c. The future value of 1 d. The present value of 1 and present value of an ordinary annuity of 1 4. Bonds usually set at a discount when investors are willing to invest in bonds a. Because a capital gain is expected. b. At a rate higher than the stated interest rate c. At a rate lower than the stated interest rate d. At the stated interest rate 5. Bonds usually sell at a premium a. When market rate is greater than stated rate b. When stated rate is greater than market rate c. When the price of the bonds is greater than maturity amount d. In none of these cases 6. The effective interest rate on bond is lower than the stated rate when bond sells a. At maturity value b. Above face amount c. Below face amount d. At face amount 7. The effective interest rate on bond is higher than the stated rate when bond sells a. At face amount

b. Above face amount c. Below face amount d. At maturity value 8. The interest method of amortizing discount provides for a. Increasing amortization and increasing interest income b. Increasing amortization and decreasing interest income c. Decreasing amortization and increasing interest income d. Decreasing amortization and decreasing interest income 9. The interest method of amortizing premium provides for a. Increasing amortization and increasing interest income b. Increasing amortization and decreasing interest income c. Decreasing amortization and decreasing interest income d. Decreasing amortization and increasing interest income 10. When the interest payment dates of a bond are May 1 and November 1, and a bond is purchased on June 1, the amount of cash paid by the investor would be a. Increased by accrued interest from May 1 to June 1 b. Decreased by accrued interest from May 1 to June 1 c. Increased by accrued interest from June 1 to November 1 d. Decreased by accrued interest from June 1 to November 1

Chapter 21 21-2 On January 1, 2020, Myopic Company purchased bonds with face amount of P2,000,000 for

P1,9000,000 including transaction cost of P100,500. The business model for which this investment is to collect contractual cash flows which are solely payments of principal and interest. The entity did not elect the fair value option. The bonds mature on December 31,2022 and pay 8% interest annually every December 31 with a 10% effective yield. On December 31, 2020, the entity changed the business model for this investment to collect contractual cash flows and to sell financial asset in the open market. The bonds are quoted at 110 on January 1, 2021 and 120 on December 31, 2021 Required: 1. Prepare a table of amortization using the effective interest method 2. Compute the unrealized gain for 2021 3. Prepare journal entries for 2020 and 2021

Requirement 1 Date

8% Interest Received

10% Interest Income

Discount Amortization

1/1/2020

Carrying Amount 1,900,500

12/31/2020

160,000

190,000

30,0000

1,930,000

12/31/2021

160,000

193,000

33,000

1,963,000

12/31/2022

160,000

197,000

37,000

2,000,000

Requirement 2 Fair value - January 1, 2021 (2,000,000 × 110)

2,200,000

Carrying amount per table, January 1, 2021

(1,930,000)

Unrealized gain OCI

P 270,000

Fair value - December 31, 2021 Carrying amount per table, December 31, 2021 Cumulative unrealized gain in OCI for 2021

2,400,000 (1,963,000) 437,000

Requirement 3 2020 Jan 1 Dec 31

Investment in bonds Cash

1,900,000 1,900,000

Cash

160,000 Interest Income

160,000

Investment in bonds Interest Income

30,000 30,000

2021 Jan 1

Dec 31

Financial asset - FVOCI Investment in bonds

1,930,000 1,930,000

Financial asset - FVOCI Unrealized gain - OCI

270,000

Cash

160,000

270,000

Interest Income

160,000

Financial asset - FVOCI Interest Income

33,000 33,000

Financial asset - FVOCI Unrealized gain - OCI

167,000 167,000

21-4 On January 1, 2020, Royalty Company purchased 9% bonds with face amount of P6,000,000. The bonds mature on January 1, 2025 and were purchased for P5,550,000 to yield 11% The entity classified the bonds as held for trading and interest is payable annually every December 31. The entity provided the following information about fair value of the bonds and effective rate:

December 31, 2020 December 30, 2021

Fair Value 5,450,000 6,150,000

Effective Rate 12% 8%

On December 31, 2021, the entity changed the business model for this investment to collect

contractual cash flows composed of principal and interest On January 1, 2022,the fair value of the bonds didn’t change. Required: 1. What is the interest income for 2020? 2. What amount of unrealized loss should be recognized in profit or loss for 2020? 3. What amount of unrealized gain should be recognized in profit or loss for 2021? 4. What is the interest income for 2022? 5. Prepare journal entries for 2020, 2021, and 2022

Requirement 1: Interest Income for 2020 Interest income for 2020 (P6,000,000 × 9%)

P540,000

Requirement 2: Unrealized Loss for 2020 Fair Value - December 31, 2020

P5,450,000

Carrying Amount - December 31, 2020

P5,500,000

Unrealized Loss for 2020

P (100,000)

Requirement 3: Unrealized Gain for 2021 Fair Value - December 31, 2021

P6,150,000

Carrying Amount - December 31, 2021

P5,450,000

Unrealized Gain for 2021

P 700,000

Requirement 4: Interest Income for 2022 Interest Income for 2022 (P6,150,000 × 8%)

P492,000

Requirement 5: Journal Entries for 2020,2021 and 2022 2020 Jan 1

Financial Asset - FVPL

P5,500,000

Cash Dec 31

Cash

P5,500,000 540,000

Interest Income Unrealized Loss Financial Asset - FVPL

540,000 100,000 100,000

2021 Dec 31

Cash

P540,000 Interest Income

Financial Asset - FVPL Unrealized Gain

P540,000 700,000 700,000

2022 Jan 1 Dec 31

Investment in bonds Financial Asset - FVPL Cash

P6,150,000 P6,150,000 540,000

Interest Income Interest Income Investment in bonds (P540,000 - P492,000)

540,000 48,000 48,000...