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. Prepare an amortization schedule. (5 points)
2. Prepare necessary journal entries. (5 points)