Pedro Co purchased a bond investment in Juan Company. The following are the data pertaining to Pedro’s Investments in Debt Security. Date of purchase: January 1, 2021 Purchase price: P4,200,000 Principal amount: P4,000,000 Cash interest: 5% per annum, payable on December 31 Effective interest: 3.8806% per annum Maturity date: December 31, 2025 Fair value of the bond: December 31, 2021 P4,894,000 December 31, 2022 P4,560,000 The bond was sold on December 31, 2022 at its fair value. If the bonds are held for collection of contractual cash flow and for sale of financial asset, what amount is the carrying value of Investment in 2022?
Pedro Co purchased a bond investment in Juan Company. The following are the data pertaining to Pedro’s Investments in Debt Security. Date of purchase: January 1, 2021 Purchase price: P4,200,000 Principal amount: P4,000,000 Cash interest: 5% per annum, payable on December 31 Effective interest: 3.8806% per annum Maturity date: December 31, 2025 Fair value of the bond: December 31, 2021 P4,894,000 December 31, 2022 P4,560,000 The bond was sold on December 31, 2022 at its fair value. If the bonds are held for collection of contractual cash flow and for sale of financial asset, what amount is the carrying value of Investment in 2022?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Pedro Co purchased a bond investment in Juan Company. The following are the data pertaining to Pedro’s Investments in Debt Security.
|
Date of purchase: |
January 1, 2021 |
|
Purchase price: |
P4,200,000 |
|
Principal amount: |
P4,000,000 |
|
Cash interest: |
5% per annum, payable on December 31 |
|
Effective interest: |
3.8806% per annum |
|
Maturity date: |
December 31, 2025 |
|
Fair |
|
|
December 31, 2021 |
P4,894,000 |
|
December 31, 2022 |
P4,560,000 |
|
The bond was sold on December 31, 2022 at its fair value. |
|
If the bonds are held for collection of contractual
a.
4,200,000
b.
4,124,536
c.
3,800,000
d.
4,560,000
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Step 1: Introduce carrying value of investment and impairment loss
VIEWStep 2: Calculate the Effective Interest Expense for 2022
VIEWStep 3: Adjust carrying value for interest income earned
VIEWStep 4: Determine if there's any impairment
VIEWStep 5: Calculate the carrying value after impairment
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