On January 1, 2021, Apollo Company acquired P4,000,000of 12% face amount bonds for P3,767,000 to be held asfinancial assets at amortized cost with a 14% effectiveyield. Interest on bonds is payable annually on December31 and the bonds mature on January 1, 2025. Theeffective interest method of amortization is used.What is the carrying amount of the bond investment onDecember 31, 2021?P3,719,620O P3,767,000O P4,000,000P3,814,380

Bonds are priced by discounting future cash flows. Future cash flows include coupons and par value…

Answered: On January 1, 2021, Ape

Business

Accounting

On January 1, 2021, Ape

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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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

On January 1, 2021, Apollo Company acquired P4,000,000
of 12% face amount bonds for P3,767,000 to be held as
financial assets at amortized cost with a 14% effective
yield. Interest on bonds is payable annually on December
31 and the bonds mature on January 1, 2025. The
effective interest method of amortization is used.
What is the carrying amount of the bond investment on
December 31, 2021?
P3,719,620
O P3,767,000
O P4,000,000
P3,814,380

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