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. Prepare an amortization table.

2. Compute for the following:

A. Carrying value of the bond investment on December 31, 2020

B. Interest income on December 31, 2021.

C. 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.