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rchase ay interest of 10% every June 30 and December 31 ue of the bonds at year-end are presented below: 99 102

rchase ay interest of 10% every June 30 and December 31 ue of the bonds at year-end are presented below: 99 102

FINANCIAL ACCOUNTING
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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ABC Corporation acquired P2,000,000 bonds of X Company on January 1, 2022 when the prevailing market rate on similar instruments was at 12%. The bonds will be accounted as a financial asset at amortized cost. Transaction costs were also incurred in the purchase, resulting to a new effective interest rate of 9%. The bonds pay interest of 10% every June 30 and December 31 and will mature on December 31, 2025. The fair value of the bonds at year-end are presented below: December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 99 102 103 101 What is the amount of transaction costs capitalized to the investment in bonds on January 1, 2022? What is the total interest income to be recognized on the investment in bonds in 2023? What is the carrying value of the investment in bonds on December 31, 2023? After receipt of interest, half of the investment in bonds were sold at fair value on December 31, 2024. What is the gain or loss on sale of investment to be recognized in the income statement for 2024? (Indicate if gain or loss)
Transcribed Image Text:ABC Corporation acquired P2,000,000 bonds of X Company on January 1, 2022 when the prevailing market rate on similar instruments was at 12%. The bonds will be accounted as a financial asset at amortized cost. Transaction costs were also incurred in the purchase, resulting to a new effective interest rate of 9%. The bonds pay interest of 10% every June 30 and December 31 and will mature on December 31, 2025. The fair value of the bonds at year-end are presented below: December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 99 102 103 101 What is the amount of transaction costs capitalized to the investment in bonds on January 1, 2022? What is the total interest income to be recognized on the investment in bonds in 2023? What is the carrying value of the investment in bonds on December 31, 2023? After receipt of interest, half of the investment in bonds were sold at fair value on December 31, 2024. What is the gain or loss on sale of investment to be recognized in the income statement for 2024? (Indicate if gain or loss)
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