1. On December 31, 2021, Extract Company issued a P40,000,000 5-year of P1 per value each at an issue price of P0.90 per unit. The bond carries a coupon interest of 6% and interest is payable on December 31 each year. Cost of issuing the bond, which included underwriting fees, totalled P2,000,000. The prevailing market rate interest for similar risk class bonds on December 31, 2021 was 10%. Question 1. What is the initial carrying value of the bond on December 31, 2021 assuming Extract Company has the policy to measure the bond at fair value to profit or loss? Question 2. What is the initial carrying value of the bond on December 31, 2021assuming Extract Company has the policy to measure the bond at amortized cost model?
1. On December 31, 2021, Extract Company issued a P40,000,000 5-year of P1 per value each at an issue price of P0.90 per unit. The bond carries a coupon interest of 6% and interest is payable on December 31 each year. Cost of issuing the bond, which included underwriting fees, totalled P2,000,000. The prevailing market rate interest for similar risk class bonds on December 31, 2021 was 10%. Question 1. What is the initial carrying value of the bond on December 31, 2021 assuming Extract Company has the policy to measure the bond at fair value to profit or loss? Question 2. What is the initial carrying value of the bond on December 31, 2021assuming Extract Company has the policy to measure the bond at amortized cost model?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:1. On December 31, 2021, Extract Company issued a P40,000,000 5-year of P1 per value
each at an issue price of PO.90 per unit. The bond carries a coupon interest of 6% and interest
is payable on December 31 each year. Cost of issuing the bond, which included underwriting
fees, totalled P2,000,000. The prevailing market rate interest for similar risk class bonds on
December 31, 2021 was 10%.
Question 1. What is the initial carrying value of the bond on December 31, 2021 assuming
Extract Company has the policy to measure the bond at fair value to profit or loss?
Question 2. What is the initial carrying value of the bond on December 31, 2021assuming
Extract Company has the policy to measure the bond at amortized cost model?
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