Question
On January 1, 2020, Knit Company purchased 8% bonds in the face amount of P8,000,000. The bonds mature on January 1, 2024, and were purchased
On January 1, 2020, Knit Company purchased 8% bonds in the face amount of P8,000,000.
The bonds mature on January 1, 2024, and were purchased for P8,670,000 to yield 6%. Interest is payable every December 31.
The business model for this investment is to collect contractual cash flows and sell the bonds in the open market
Fair Value Effective rate
December 31, 2019 7,740,000 9%
December 31, 2020 7,230,000 12%
On December 31, 2020, the entity changed the business model to collect contractual cash flows only.
On January 1, 2021, the fair value of the bonds did not change
What amount should be reported as interest income for 2019?
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Fundamentals of Financial Accounting
Authors: Fred Phillips, Robert Libby, Patricia Libby
6th edition
1259864235, 1259864230, 1260159547, 126015954X, 978-1259864230
