Intermediate accounting 1

Investments in Debt Securities 563 Requirements: a. How much is the total face amount of the investment in B-Cull bonds? b. Is there a premium or discount on the investment? If yes, how much? Indicate if it is a premium or discount. c. Provide the journal entry on July 1, 20x1. d. What is the per annum nominal interest rate on the investment? e. What is the per annum effective interest rate on the investment? Prepare the amortization table using the spreadsheet below. A B C D E 11PROBLEM 5: CLASSROOM ACTIVITIES ACTIVITY #1: You are the accountant of ABC Co. On July 1, 20x1, your company acquired bonds issued by B-Cull Co. to be held as investment. The objective of ABC's business model for managing financial assets is to hold investments in order to collect contractual cash flows. You have 1,000 pieces of the document shown below with serial numbers SR/213-2 (shown below) to SR/213-1001 (not shown to save space @). The total acquisition cost of the investment is P922,783, inclusive of transaction costs. 562 15084 126 Chapter 10 SERIES SR/213-2 AUTHORIZED ISSUE P18,000,000 ISSUE OF JULY 1, 20X1 INTEREST PAYABLE SEMI ANNUALLY 1000 JULY 1 AND JANUARY 1 PRINCIPAL PAYABLE JULY 1, 20X6 INTEREST RATE 8% PER ANNUM DATED - JULY 1. 20X1 No B-CULL Co. ONE THOUSAND PESOS Investments in Debt Securities 563 Requirements: How much is the total face amount of the investment in B-Cull bonds? b. Is there a premium or discount on the investment? If yes, how much? Indicate if it is a premium or discount. c. Provide the journal entry on July 1, 20x1. d. What is the per annum nominal interest rate on the investment? e. What is the per annum effective interest rate on the investment? f. Prepare the amortization table using the spreadsheet below.18. On Jan. 1, 20x1, Zach Co. purchases P2,000,000 par value of unquoted perpetual preference shares issued by Bandolin Co. for P1,700,000. Zach incurs acquisition costs of P25,218. The shares have a fixed non-discretionary dividend rate of 6% per annum, which approximates the market rate of interest for perpetual instruments. If there are insufficient distributable profits to pay the dividend in one year, the dividend will roll forward and become payable in the future. Interest accrues on deferred amounts. Zach holds the investment under a 'hold to collect' business model and estimates a five-year holding period. The effective interest rate is 3%. On Dec. 31, 20x3, the investment is redeemed at a premium of P200,000. How much is the gain (loss) recognized on redemption date? a. 0 b. 500,000 c. 314,808 d. 269,321 19. Jent Corp. purchased bonds at a discount of P10,000. Subsequently, Jent sold these bonds at a premium of P14,000. Investments in Debt Securities 561 During the period that Jent held this investment, amortization of the discount amounted to P2,000. What amount should Jent report as gain on the sale of bonds? a. 12,000 b. 22,000 c. 24,000 d. 26,000 (AICPA) 20. The computer of your neighbor, who is an accountant, was hacked by mystical creatures. Your neighbor needs your help in reconstructing the amortization table for his company's investment in 3-year bonds: A B C D E Date Interest received Interest income Amortization Present value 1/1/x1 12/31/x1 280,000 2,067,602 12/31/x2 31,888 2,035,714 12/31/x3 280,000 244,286 How much is the face amount of the bonds and what is the effective interest rate? a. 2,096,073; 12% c. 2,071,428; 14% b. 2,000,000; 12% d. I don't know. My brain is hacked too!@