Question
25. On January 1, 2020, XYZ COMPANY paid P1,198,000 for 10% bonds with a face amount of P1,000,000. The intention is to sell in the
25. On January 1, 2020, XYZ COMPANY paid P1,198,000 for 10% bonds with a face amount of P1,000,000. The intention is to sell in the future (AFS). Interest is paid on December 31. The bonds were purchased to yield 8% (effective interest rate). At the end of the year, the fair value of bonds is P1,300,000. The entity used the effective interest method to recognize interest income from this investment. How would these transactions be reported in the Financial Statements on December 31, 2020?
a. Investment should be reported at fair value, P1,300,000; Interest income is 95,840; Unrealized gains is 106,160; Cumulative gains of 106,160
b. Investment should be carried at P 1,193, 840; Interest income is 95,840; Unrealized loss of 106,160; Cumulative loss of 4,160
c. Investment should be carried at P 1,193, 840; Interest income is 100,000; Unrealized gains is 106,160; Cumulative loss of 4,160
d. Investment should be reported at fair value, P1,300,000; Interest income is 95,840; Unrealized loss of 102,000, Cumulative gains of 106,160
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