On January 1, 2020, Royalty Company purchased 9% bonds with face amount of P6,000,000. The bonds mature on January 1, 2025 and were purchased for P5,550,000 to yield 11%. The entity classified the bonds as held for trading and interest is payable annually every December 31. The entity provided the following information about fair value of the bonds and effective rate: Fair value Effective rate December 31, 2020 December 31, 2021 5,450,000 6,150,000 12% 8% On December 31, 2021, the entity changed the business model for this investment to collect contractual cash flows composed of principal and interest. On January 1, 2022, the fair value of the bonds did not change. Required: 1. What is the interest income for 2020? 2. What amount of unrealized loss should be recognized in profit or loss for 2020? 3. What amount of unrealized gain should be recognized in profit or loss for 2021?
On January 1, 2020, Royalty Company purchased 9% bonds with face amount of P6,000,000. The bonds mature on January 1, 2025 and were purchased for P5,550,000 to yield 11%. The entity classified the bonds as held for trading and interest is payable annually every December 31. The entity provided the following information about fair value of the bonds and effective rate: Fair value Effective rate December 31, 2020 December 31, 2021 5,450,000 6,150,000 12% 8% On December 31, 2021, the entity changed the business model for this investment to collect contractual cash flows composed of principal and interest. On January 1, 2022, the fair value of the bonds did not change. Required: 1. What is the interest income for 2020? 2. What amount of unrealized loss should be recognized in profit or loss for 2020? 3. What amount of unrealized gain should be recognized in profit or loss for 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 21-4 (IFRS - From FVPL to amortized cost)
On January 1, 2020, Royalty Company purchased 9% bonds
with face amount of P6,000,000.
The bonds mature on January 1, 2025 and were purchased
for P5,550,000 to yield 11%.
The entity classified the bonds as held for trading and interest
is payable annually every December 31.
The entity provided the following information about fair value
of the bonds and effective rate:
Fair value
Effective rate
December 31, 2020
December 31, 2021
5,450,000
6,150,000
12%
8%
On December 31, 2021, the entity changed the business model
for this investment to collect contractual cash flows composed
of principal and interest.
On January 1, 2022, the fair value of the bonds did not change.
Required:
1. What is the interest income for 2020?
2. What amount of unrealized loss should be recognized in
profit or loss for 2020?
3. What amount of unrealized gain should be recognized in
profit or loss for 2021?
4. What is the interest income for 2022?
5. Prepare journal entries for 2020, 2021 and 2022.
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