Robles Empleo Chapt 3 DEBT SEC Answer KEY PDF

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Summary

3-1. (Abu Company)(a)DateInterest ReceivedInterest Revenue 562,Premium Amortization Carrying Value 01/01/Y1 8,274, 12/31/Y1 1,200,000 1,158,450 41,550 8,233, 12/31/Y2 1,200,000 1,152,633 47,367 8,185, 12/31/Y3 1,200,000 1,146,002 53,998 8,131, 12/31/Y4 1,200,000 1,138,442 61,558 8,070, 12/31/Y5 1,20...

Description

3-1.

(Abu Company) (a) Date 01/01/Y1 12/31/Y1 12/31/Y2 12/31/Y3 12/31/Y4 12/31/Y5 *rounded off. (b) Y1 Jan.

1

Dec. 31

Y2 Dec. 31

3-2.

Interest Received

Interest Revenue

Premium Amortization

1,200,000 1,200,000 1,200,000 1,200,000 1,200,000

1,158,450 1,152,633 1,146,002 1,138,442 1,129,827*

41,550 47,367 53,998 61,558 70,173*

Debt Investments at Amortized Cost Cash

8,274,646

Cash Debt Investments at Amortized Cost Interest Revenue

1,200,000

Cash Debt Investments at Amortized Cost Interest Revenue

1,200,000

Carrying Value 8,274,646 8,233,096 8,185,729 8,131,731 8,070,173 8,000,000

8,274,646

41,550 1,158,450

47,367 1,152,633

(South Company) (a) (1) Securities are classified as at amortized cost To facilitate computation, a partial amortization table is presented below. Interest Interest Amortization Date Received Revenue of Discount Amortized Cost June 1, Year 1 3,691,500 Dec. 1, Year 1 160,000 184,575 24,575 3,716,075 June 1, Year 2 160,000 185,804 25,804 3,741,879 Dec. 1, Year 2 160,000 187,094 27,094 3,768,973 June 1, Year 3 160,000 188,449 28,449 3,797,422 Dec. 1, Year 3 160,000 189,871 29,871 3,827,293 June 1, Year 4 160,000 191,365 31,365 3,858,658 Dec. 1, Year 4 160,000 192,933 32,933 3,891,591 Year 1

June 1

Dec. 1

31

Debt Investments at Amortized Cost Cash Cash Debt Investments at Amortized Cost Interest Revenue (see above table)

3,691,500 3,691,500 160,000 24,575 184,575

Interest Receivable Debt Investments at Amortized Cost Interest Revenue 160,000 x 1/6 = 26,667 25,804 x 1/6 = 4,301

26,667 4,301

Interest Revenue Interest Receivable Debt Investments at Amortized Cost

30,968

30,968

Year 2

Jan. 1

26,667 4,301

June 1

Dec. 1

31

Cash Debt Investments at Amortized Cost Interest Revenue (see above table)

160,000 25,804

Cash Debt Investments at Amortized Cost Interest Revenue (see above table)

160,000 27,094

Interest Receivable Debt Investments at Amortized Cost Interest Revenue 160,000 x 1/6 = 26,667 28,449 x 1/6= 4,742

26,667 4,742

185,804

187,094

31,409

(2) Securities are classified as at fair value through profit and loss. Year 1

June 1

Dec. 1

31 31

Debt Investments at FVPL Cash Cash Interest Revenue (4M x 8% x ½) Interest Receivable Interest Revenue (4M x 8% x 1/12) Debt Investments at FVPL Unrealized Gain on Debt Investments atFVPL 4M x .97 = 3,880,000 3,880,000 – 3,691,500 = 188,500

3,691,500 3,691,500 160,000 160,000 26,667 26,667 188,500 188,500

Year 2

Jan. 1 June 1

Dec. 1

31

Dec.31

Interest Receivable Interest Revenue

26,667

Cash Interest Revenue

160,000

Cash Interest Revenue

160,000

Interest Receivable Interest Revenue

26,667

Debt Investments at FVPL Unrealized Gain on Debt Investments at FVPL 4M x 0.99 = 3,960,000 3,960,000 – 3,880,000 = 80,000

26,667

160,000

160,000 26,667

80,000 80,000

(3) Securities are classified as at Fair Value Through Other Comprehensive Income Year 1

June 1

Dec. 1

Debt Investments at FV through OCI Cash Cash

3,691,500 3,691,500 160,000

Dec.31

Dec. 31

Debt Investments at Fair Value through OCI Interest Revenue (see table)

24,575

Interest Receivable Debt Investments at Fair Value through OCI Interest Revenue

26,667 4,301

Fair Value Adjustment – Debt Investments at FV through OCI Unrealized Gain on Debt Investments at FVPL Amortized cost 3,716,075 + 4,301 = 3,720,376 3,880,000 – 3,720,376 = 159,624

184,575

30,968 159,624 159,624

Year 2

Jan. 1

June 1

Dec. 1

31

31

Interest Revenue Interest Receivable Debt Investments at FV through OCI

30,968 26,667 4,301

Cash Debt Investments at Amortized Cost Interest Revenue (see table)

160,000 25,804

Cash Debt Investments at Amortized Cost Interest Revenue (see table)

160,000 27,094

Interest Receivable Debt Investments at Amortized Cost Interest Revenue 160,000 x 1/6 = 26,667 28,449 x 1/6= 4,742

26,667 4,742

Fair Value Adjustment – Debt Investments at FV through OCI Unrealized Gain on Debt Investments at FVPL Amortized cost 3,768,973 + 4,741 = 3,773,715 3,960,000 –3,773,715 =186,285 186,285 – 159,624 = 26,661

185,804

187,094

31,409

26,661 26,661

(b) Journal entry/entries to record sale of investment on November 1, Year 4. (1) Securities are classified as at amortized cost. Nov. 1

1

Debt Investments at Amortized Cost Interest Receivable Interest Revenue 192,933 x 5/6 32,933 x 5/6 = 27,444 Cash Loss on Sale of Debt Investments at Amortized Cost Interest Receivable Debt Investments at Amortized Cost

27,444 133,333 160,777

3,925,000 94,435 133,333 3,886,102

CV of Debt Investments sold: As of June 1, Year 4 Amortization June 1 to Nov. 1, Year 4 As of Nov. 1, Year 4 Sales price Loss on sale

3,858,658 27,444 3,886,102 3,791,667 94,435

(2) Securities are classified as at fair value through profit or loss Nov. 1

Cash Loss on Sale of Debt Investments at FVPL Interest Revenue Debt Investments at FVPL Acc. Int. = 4M x 8% x 5/12 = 133,333 Sales price (3,925,000–133,333) 3,791,667 Carrying value (4 M x 0.98) 3,920,000 Loss on sale 128,333

3,925,000 128,333 133,333 3,920,000

(3) Securities are classified as at Fair Value through Other Comprehensive Income Nov. 1

Debt Investments at FV through OCI (32,933 x 5/6) Interest Receivable Interest Revenue (192,933 x 5/6)

1

27,444 133,333 160,777

Unrealized Gains/Losses on Debt Investments at FV through OCI Fair Value Adjustment – Debt Investments at FV through OCI 3,858,658 + (32,933 x 5/6) = 3,886,102 3,886,102 – 3,791,667 = 94,435 decline 94,435 + 186,285 = 280,720

1

Cash Fair Value Adjustment-Debt Investments at FV through OCI Interest Receivable Debt Investments at FV through OCI

280,720 280,720

3,925,000

Retained Earnings Unrealized Gain/Losses on Debt Investments at FV through OCI

3-3.

94,435 133,333 3,886,102 94,435 94,435

(Grow Company) (1)

Classified as at Amortized Cost Date 1/1/Year 1 12/31/Year 1 12/31/Year 2 12/31/Year 3 (a)

Nom Int

Amortization Table Effect Int Prem Amort

120,000 120,000 120,000

106,339 104,973 103,471

Carrying value, 12/31/Year 2 (see table)

13,661 15,027 16,529

Amortized cost, end 1,063,394 1,049,733 1,034,706 1,018,177 P1,034,706

(b)

Sales price P 606,000 Carrying value, 1/1/Year 3 (1,034,706 x 6/10 P620,824 Amortization 1/1/Year 3 – 4/1/Year 3 16,529 x 3/12 x 600/1000 (2,479) 618,345 Loss on sale P 12,345

(c)

Interest income for Year 3: Jan 1 to Mar 31 103,471 x 3/12 Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 Total interest income for Year 3

(d) (2)

(3)

25,868 31,041 56,909

P

Carrying value, 12/31/Y3 (1,018,177 x 400/1000)

P 407,271

Classified as Debt Investments at FV through Profit or Loss (a)

Interest income (1,000,000 x 12%)

P 120,000

(b)

Sales price (600,000 x 1.01) Carrying value, 12/31/Year 2 (600,000 x 1.06) Loss on sale

P 606,000 636,000 P 30,000

(c)

Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) Carrying value, 12/31/Year 3 (400,000 x 1.04)

P1,060,000 P 416,000

Classified as at Fair Value Through Other Comprehensive Income (a)

Carrying value, 12/31/Year 2 (1M x 1.06) (1,034,760 + 25,240 FV Adj)

P1,060,000

(b)

Sales price Amortized cost Loss on sale

P 606,000 618,345 P 12,345

(c)

Interest income for Year 3: Jan 1 to Mar 31 103,471 x 3/12 Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 Total interest income for Year 3

(d)

3-4.

P

Fair value, December 31, Year 3 (400,000 x 1.04) Amortized cost, December 31, Year 3 1,018,177 x 4/10 Cumulative amount of unrealized gains/loss

P

25,868 31,041 56,909

P

P 416,000

P

407,270 8,730

(Powerpuff Company) April 1

July 1

Oct. 1

Dec. 31

Debt Investments – FVPL – Peach Co. Bonds Cash

1,010,000 1,010,000

Debt Investments – FVPL – Buttercup Bonds Interest Receivable (150,000 x 12% x 4/12) Cash

150,000 6,000

Cash Interest Income (1,000,000 x 10% x 6/12)

50,000

Interest Receivable Interest Income 1M x 10% x 3/12 = 25,000 150,000 x 12% x 6/12 = 9,000 25,000 + 9,000 = 34,000

34,000

156,000

50,000

34,000

31

3-5.

Unrealized Loss on Investments at FVPL Debt Investments – FVPL - Buttercup Bonds Debt Investments – FVPL - Peach Bonds Cost Peach 10% Bonds 1,010,000 Buttercup 12% Bonds 150,000 1,160,000

17,000 3,000 Fair value 990,000 153,000 1,143,000

20,000 UGL (20,000) 3,000 (17,000)

(Narito Company)

Jan. Dec. Dec. Dec. Dec. Dec.

Date 1, Year 1 31, Year 1 31, Year 2 31, Year 3 31, Year 4 31, Year 5

Nominal Interest 7,000 7,000 7,000 7,000 7,000

Amortization Table Effective Premium Interest Amortization 5,433 5,355 5,272 5,186 5,094

1,567 1,645 1,728 1,814 1,906

Amortized Cost, End 108,660 107,093 105,448 103,720 101,906 100,000

Year 1

Jan. 1

Dec. 31

Debt Investments at Amortized Cost – Wolf Bonds Cash

108,660 108,660

Cash Debt Investments at Amortized Cost – Wolf Bonds Interest Income

7,000

Cash Debt Investments at Amortized Cost – Wolf Bonds Interest Income

7,000

Cash Debt Investments at Amortized Cost – Wolf Bonds Interest Income

7,000

Impairment Loss on Debt Investments Debt Investments at Amortized Cost – Wolf Bonds Carrying value, Dec. 31, Year 3 P103,720 Present value of future cash inflows 100,000 x 0.9070 90,700 4,500 x 1.8594 8,367 99,067 Impairment Loss P 4,653

4,653

Cash Debt Investments at Amortized Cost – Wolf Bonds Interest Income

4,500 453

Cash Debt Investments at Amortized Cost – Wolf Bonds Interest Income

4,500 480

1,567 5,433

Year 2

Dec. 31

1,645 5,355

Year 3

Dec. 31

31

1,728 5,272

4,653

Year 4

Dec. 31

4,953

Year 5

Dec. 31

Date Dec. 31, Year 3

Revised Amortization Table Nominal Effective Discount Interest Interest Amortization

4,980

Amortized Cost, End 99,067

Dec. 31, Year 4 Dec. 31, Year 5

3-6.

4,500 4,500

4,953 4,980*

453 480*

99,520 100,000

(Raffy Company) To facilitate computation, a partial amortization table is presented below. Interest Interest Amortization HTM Date Received Revenue of Discount Carrying Value June 1, 2018 5,353,150 Dec. 31, 2018 350,000 312,267 37,733 5,315,417 Dec. 31, 2019 600,000 531,542 68,458 5,246,959 Dec. 31, 2020 600,000 524,696 75,304 5,171,655 Dec. 31, 2021 600,000 517,166 82,834 5,088,821 2018

June 1

Dec. 31

Debt Investments at Amortized Cost (Blessie) Interest Revenue (5M x 12% x 5/12) Cash

5,353,150 250,000 5,603,150

Cash Interest Revenue Debt Investments at Amortized Cost (Blessie)

600,000

Cash Interest Revenue Debt Investments at Amortized Cost (Blessie)

600,000

Cash Interest Revenue Debt Investments at Amortized Cost (Blessie)

600,000

Interest Receivable (3M x 12% x 8/12) Debt Investments at Amortized Cost (Blessie) Interest Revenue (517,166 x 3/5 x 8/12)

240,000

Cash (3,090,000 + 240,000) Gain on Sale of Debt Investments Interest Receivable Debt Investments at Amortized Cost (Blessie)

3,330,000

562,267 37,733

2019

Dec. 31

531,542 68,458

2020

Dec. 31

524,696 75,304

2021

Sept. 1

1

CV of debt investment sold: As of 12/31/19 (5,171,655 x 3/5) Amort from 1/1/20-9/1/20 CV as of 9/1/20 Sales price Gain on sale Dec. 31

33,134 206,866

20,141 240,000 3,069,859

3,102,993 33,134 3,069,859 3,090,000 20,141

Cash Interest Revenue Debt Investments at Amortized Cost (Blessie) 2M x 12% = 240,000 517,166 x 2/5 = 206,866 82,834 x 2/5 = 33,134

240,000 206,866 33,134

3-7.

(Grow Company)

Date 1/1/Year 1 12/31/Year 1 12/31/Year 2 12/31/Year 3

3-8.

Nom Int 120,000 120,000 120,000

Amortization Table Effect Int Prem Amort 106,339 104,973 103,471

13,661 15,027 16,529

Amortized cost, end 1,063,394 1,049,733 1,034,706 1,018,177

(a)

Market value, 12/31/ Year 2 (1.06 x 1M) Amortized cost, 12/31/Year 2 Unrealized Gain or Loss (In Equity)

P1,060,000 1,034,706 P 25,394

(b)

Interest income for Year 2

P 104,973

(c)

Market value, 12/31/Year 3 (1.04 x 400,000) Amortized cost (1,018,177 x 4/10) Unrealized Gain on 12/31/Year 3

P 416,000 407,271 P 8,729

(Naruto Company) Amortization Table

Jan. Dec. Dec. Dec. Dec. Dec.

Date 1, 2018 31, 2018 31, 2019 31, 2020 31, 2021 31, 2022

Nominal Interest

Effective Interest

Premium Amortization

7,000 7,000 7,000 7,000 7,000

5,433 5,355 5,272 5,186 5,094

1,567 1,645 1,728 1,814 1,906

Amortized Cost, End 108,660 107,093 105,448 103,720 101,906 100,000

(a)

Interest income for 2018

P

5,433

(b)

Carrying amount at December 31, 2019 (amortized cost)

P105,448

(c) 2020

Dec. 31 Cash

7,000 Interest Revenue Debt Investments at Amortized Cost

5,272 1,728

2021

May 31 Interest Receivable Debt Investments at Amortized Cost Interest Revenue 7,000 x 5/12 = 2,917 5,186 x 5/12 = 2,161 1,814 x 5/12 = 756

2,917

31 Cash (106,000 + 2,917) Gain on Sale of Debt Investments Interest Receivable Debt Investments at Amortized cost 100,000 x 1.06 = 106,000 103,720 – 2,161 = 101,559

108,917

2,161 756

4,441 2,917 101,559

106,000 – 101,559 = 4,441 3-9. (Donna Corporation) (a) Amortization Table

Jan. Dec. Dec. Dec. Dec. Dec.

Date 2, Year 1 31, Year 1 31, Year 2 31, Year 3 31, Year 4 31, Year 5

Nominal Interest

Effective Interest

Premium Amortization

6,000 6,000 6,000 6,000 6,000

5,217 5,177 5,136 5,093 5,044

783 823 863 907 954*

Amortized Cost, End 104,330 103,547 102,724 101,861 100,954 100,000

*Adjusted, P4 difference is due to rounding off (b)

Present value of modified cash flow based on completed negotiation Present value of new principal (90% x 100,000 = 90,000) 90,000 x 0.9070 81,630 Present value of reduced interest (6% x 90,000 = 5,400) 5,400 x 1.8594 10,041 Total 91,671

(c.1)

Carrying value of bond investment, December 31, Year 3 Present value based on modified terms Impairment loss

(c.2)

Impairment Loss Debt Investments at Fair Value Through OCI

101,861 91,671 10,190 10,190 10,190

PLEASE CHECK ANSWERS. As of December 31, Year 2, Unrealized Loss (debit balance) and Fair Value Adjustment (credit balance) accounts have balance of P5,724 (102,724 – 97,000). SINCE THERE IS NO QUOTED PRICE AT DEC. 31, YEAR 3, I DID NOT HAVE ANY ADJUSTMENT RELATED THERETO. (d)

Interest Income, Year 4 (see table below) Interest Income, Year 5 (see table below)

Date Dec. 31, Year 3 Dec. 31, Year 4 Dec. 31, Year 5

P4,584 P4,542

Revised amortization table – New modified terms Nominal Premium Interest Effective Interest Amortization 5,400 5,400

4,584 4,542

816 855*

*Adjusted; P2 difference is due to rounding off

3-10.

Classification of Investments in Debt Securities 1. 2. 3. 4. 5.

3-11.

B and C A B and C A B and C

6. 7. 8. 9. 10.

B and C A A B and C B and C

(Raymond Company) 1.

Building Construction Fund Cash Cash

11. 12. 13. 14. 15.

C B and C A A B

Amortized Cost, End 91,671 90,855 90,000

2.

Building Expansion Fund Securities Building Expansion Fund Cash

3.

Building Expansion Fund Securities Interest Receivable – Building Expansion Fund Building Expansion Fund Cash

4.

Building Expansion Fund Cash Dividend Income

5.

Building Expansion Fund Expenses Building Expansion Fund Cash

6.

Building Expansion Fund Cash Interest Receivable – Building Expansion Fund Interest Income

7.

Building Expansion Fund Securities Building Expansion Fund Cash

8.

Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities Interest Income

9.

Building Expansion Fund Cash Dividend Income

10.

Building Expansion Fund Cash Building Expansion Fund Securities Gain on Sale of Building Expansion Fund Securities

11.

Buildings Building Expansion Fund Cash

12.

Cash Building Expansion Fund Cash

3-12.

3-13.

(Cordero Corporation) (a)

Required semiannual deposit = P15,000,000/FV of ordinary annuity of 1 discounted at 4% for 20 periods = P15,000,000 /29.7781 = P503,726

(b)

6/30/19 Bond Sinking Fund Cash Cash 12/31/19 Bond Sinking Fund Cash Cash Interest Income (503,726 x 4%)

503,726 503,726 523,875 503,726 20,149

(Dorina Company) (a) Entries for 2017 through 2022 7/01/17 Prepaid Life Insurance Cash 12/31/17 Life Insurance Expense (120,000 X 6/12) Prepaid Life Insurance

120,000 120,000 60,000 60,000

06/30/18 Prep...