Answered: g the investment is appropriately…

g the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to s

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized on December 31, 2020?

On March 1, 2020, WHITE Corporation purchased bonds with face amount of P5,000,000. The entity paid 94,585,000 plus transaction
cost of #157,000. The bonds mature on February 28, 2022 and pay 6% interest annually on February 28 of each year with 8% effective
yield. The bonds are quoted at 105 on December 31, 2020. The bonds are sold at 108 on June 30, 2021.

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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