Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, Year 1, Grow Company purchased P1,000,000 12% bonds of Glow Company for P1,063,394, a price that yields 10%. Interest on these bonds

On January 1, Year 1, Grow Company purchased P1,000,000 12% bonds of Glow Company for P1,063,394, a price that yields 10%. Interest on these bonds is payable every December 31. The bonds mature on December 31, Year 4. On April 1, Year 3, to pay a maturing obligation, Grow sold P600,000 face value bonds at 101 plus accrued interest. Market value of the bonds on different dates is as follows:

December 31, Year 1 108

December 31, Year 2 106

December 31, Year 3 104

Required:

I. Assume that the bonds were classified as debt investments at fair value through profit or loss.

a) How much is interest income for the year ended December 31, Year 1?

b) What amount of gain or loss should Grow report on the sale of the bond investments on April 1, Year 3?

c) At what amount should the bond investments be shown on December 31, Year 2 and December 31, Year 3 statement of financial position?

II. Assume that the company intended to collect the principal and interest over the term of bonds and did not choose the fair value option.

a) At what amount should the bond investments be shown on December 31, Year 2 statement of financial position?

b) What amount of gain or loss should Grow recognize on the sale of investments on April 1, Year 3?

c) What amount of interest income will be taken to profit or loss for the year ended December 31, Year 3?

d) At what amount should the bond investments be shown On December 31, Year 3 statement of financial position?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

College Accounting Chapters 1- 15

Authors: James A Heintz, Robert W Parry

23rd Edition

1337794767, 9781337794763

More Books

Students also viewed these Accounting questions