Problem 3

On January 1, 2020, Clown Company acquired P8,000,000 12% bonds to be held as financial assets at amortized cost for P8,400,000 plus transaction cost of P198,400. Interest is payable annually on December 31. The bonds mature on December 31, 2024. The effective interest method of amortization is used. The bonds have a 10% effective yield.

Required:

1. Need to prepare an amortization table.
2. Compute for the following:
3. Carrying value of the bond investment on December 31, 2020
4. Interest income on December 31, 2021.
5. Assuming all the bond investment was sold at 110 plus accrued interest on July 1, 2023:

C.1. Compute for the carrying value on the selling date on July 1, 2023.

C.2. Compute for the cash price received.

C.3. Compute for the gain or loss on sale of bond investment.

Problem 4

On January 1, 2020, Garland Company purchased bonds with a face amount of P8,000,000 for P7,679,000 to be measured at amortized cost. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is payable annually also every December 31. The entity uses the effective interest method of amortizing discount.

Required:

1. Need to make amortization schedule.
2. To Prepare necessary journal entries.