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Answer item #36 and #38 w/ solution and short narrative explanation using the answer key as a reference. FRUBLEM 1: The following data and information
Answer item #36 and #38 w/ solution and short narrative explanation using the answer key as a reference.
FRUBLEM 1: The following data and information pertain to the audit of sole "Investment in Debt Securities" account of HK Corporation for the year ended December 31, 2020: Audit notes : A. As per requested schedule the client's accountant submitted the year-end fair value of this financial asset and other related figures: *Incuaes prokers ree payment of P80,000 B. The financial asset is dated January 1, 2020 and matures on December 31, 2022 and pays interest annually every December 31 with an effective yield rate of 12 \%. c. The audit client has irrevocably elected the fair value option. However, the client's accountant inadvertently used a different business model to account its financial asset that is based on the collection of contractual cash flows through sole payments of principal and interest and sale of the financial asset in the open market. As a result of your audit findings: 36. Assuming no correcting entries are made, the income statement for 2020 is: te a. Understated by P134,400 b. Understated by P250, 000 c. Overstated by P80,000 d. Overstated by P115, 600 37. The amount of unrealized gain that should be reported as a component of other comprehensive income for 2020 is: a. None c. P250,000 b. P115,600 d. P134, 400 38. The adjusting entry to correct the reclassification of the business model adopted by the entity would include: a. A credit to brokerage fee expense of 880,000 . b. A debit to gain from change in fair value by P250,000. c. A credit to unrealized gain - OCI by P134,400 Ad. A debit to interest income by 35,600
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