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    Suggested Solutions To Activity 7A, 7B, 7C, 7D and 7E

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    This document provides solutions to an activity involving the accounting treatment of various debt investments. It addresses topics such as interest revenue, premium amortization, impairment testing, and sinking funds. For each case, it calculates relevant amounts and shows the journal entries.

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    Suggested Solutions To Activity 7A, 7B, 7C, 7D and 7E

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    박은하
    26 views3 pages
    This document provides solutions to an activity involving the accounting treatment of various debt investments. It addresses topics such as interest revenue, premium amortization, impairment testing, and sinking funds. For each case, it calculates relevant amounts and shows the journal entries.

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    Suggested Solutions to Activity 7A, 7B, 7C, 7D and 7E

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    This document provides solutions to an activity involving the accounting treatment of various debt investments. It addresses topics such as interest revenue, premium amortization, impairment testing, and sinking funds. For each case, it calculates relevant amounts and shows the journal entries.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    26 views3 pages

    Suggested Solutions To Activity 7A, 7B, 7C, 7D and 7E

    Uploaded by

    박은하
    This document provides solutions to an activity involving the accounting treatment of various debt investments. It addresses topics such as interest revenue, premium amortization, impairment testing, and sinking funds. For each case, it calculates relevant amounts and shows the journal entries.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Solutions to Activity 7

    A. (Abu Company)

    (a)
    Interest Premium
    Date Received Interest Revenue Amortization Carrying Value
    01/01/Y1 8,274,646
    12/31/Y1 1,200,000 1,158,450 41,550 8,233,096
    12/31/Y2 1,200,000 1,152,633 47,367 8,185,729
    12/31/Y3 1,200,000 1,146,002 53,998 8,131,731
    12/31/Y4 1,200,000 1,138,442 61,558 8,070,173
    12/31/Y5 1,200,000 1,129,827* 70,173* 8,000,000
    *rounded off.

    (b)
    Y1
    Jan. 1 Debt Investments at Amortized Cost 8,274,646
    Cash 8,274,646

    Dec. 31 Cash 1,200,000


    Debt Investments at Amortized Cost 41,550
    Interest Revenue 1,158,450

    Y2
    Dec. 31 Cash 1,200,000
    Debt Investments at Amortized Cost 47,367
    Interest Revenue 1,152,633

    B. (Grow Company)

    (1) Classified as at Amortized Cost


    Amortization Table
    Date Nom Int Effect Int Prem Amort Amortized cost, end
    1/1/Year 1 1,063,394
    12/31/Year 1 120,000 106,339 13,661 1,049,733
    12/31/Year 2 120,000 104,973 15,027 1,034,706
    12/31/Year 3 120,000 103,471 16,529 1,018,177

    (a) Carrying value, 12/31/Year 2 (see table) P1,034,706

    (b) Sales price P 606,000


    Carrying value, 1/1/Year 3 (1,034,706 x 6/10 P620,824
    Amortization 1/1/Year 3 – 4/1/Year 3
    16,529 x 3/12 x 600/1000 (2,479) 618,345
    Loss on sale P 12,345

    (c) Interest income for Year 3:


    Jan 1 to Mar 31 (103,471 x 3/12) P 25,868
    Apr 1 to Dec 31 (103,471 x 400/1000 x 9/12) 31,041
    Total interest income for Year 3 P 56,909

    (d) Carrying value, 12/31/Y3 (1,018,177 x 400/1000) P 407,271

    (2) Classified as Debt Investments at FV through Profit or Loss

    (a) Interest income (1,000,000 x 12%) P 120,000

    (b) Sales price (600,000 x 1.01) P 606,000


    Carrying value, 12/31/Year 2 (600,000 x 1.06) 636,000
    Loss on sale P 30,000

    (c) Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) P1,060,000


    Carrying value, 12/31/Year 3 (400,000 x 1.04) P 416,000

    (3) Classified as at Fair Value Through Other Comprehensive Income

    (a) Carrying value, 12/31/Year 2 (1M x 1.06) P1,060,000


    (1,034,706 + 25,294 FV Adj)

    (b) Sales price P 606,000


    Amortized cost 618,345
    Loss on sale P 12,345

    (c) Interest income for Year 3:


    Jan 1 to Mar 31 103,471 x 3/12 P 25,868
    Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 31,041
    Total interest income for Year 3 P 56,909

    (d) Fair value, December 31, Year 3 (400,000 x 1.04) P 416,000


    Amortized cost, December 31, Year 3
    1,018,177 x 4/10 407,270
    Cumulative amount of unrealized gains/loss P 8,730

    C. (Narito Company)

    Amortization Table
    Nominal Effective Premium Amortized Cost,
    Date Interest Interest Amortization End
    Jan. 1, Year 1 108,660
    Dec. 31, Year 1 7,000 5,433 1,567 107,093
    Dec. 31, Year 2 7,000 5,355 1,645 105,448
    Dec. 31, Year 3 7,000 5,272 1,728 103,720
    Dec. 31, Year 4 7,000 5,186 1,814 101,906
    Dec. 31, Year 5 7,000 5,094 1,906 100,000

    Year 1
    Jan. 1 Debt Investments at Amortized Cost – Wolf Bonds 108,660
    Cash 108,660

    Dec. 31 Cash 7,000


    Debt Investments at Amortized Cost – Wolf Bonds 1,567
    Interest Income 5,433

    Year 2
    Dec. 31 Cash 7,000
    Debt Investments at Amortized Cost – Wolf Bonds 1,645
    Interest Income 5,355

    Year 3
    Dec. 31 Cash 7,000
    Debt Investments at Amortized Cost – Wolf Bonds 1,728
    Interest Income 5,272

    Impairment Loss on Debt Investments 4,653


    31
    Debt Investments at Amortized Cost – Wolf Bonds 4,653
    Carrying value, Dec. 31, Year 3 P103,720
    Present value of future cash inflows
    100,000 x 0.9070 90,700
    4,500 x 1.8594 8,367 99,067
    Impairment Loss P 4,653

    Year 4
    Dec. 31 Cash 4,500
    Debt Investments at Amortized Cost – Wolf Bonds 453
    Interest Income 4,953

    Year 5
    Dec. 31 Cash 4,500
    Debt Investments at Amortized Cost – Wolf Bonds 480
    Interest Income 4,980

    Revised Amortization Table


    Nominal Effective Discount Amortized Cost,
    Date Interest Interest Amortization End
    Dec. 31, Year 3 99,067
    Dec. 31, Year 4 4,500 4,953 453 99,520
    Dec. 31, Year 5 4,500 4,980* 480* 100,000

    D. (Grow Company)

    Amortization Table
    Date Nom Int Effect Int Prem Amort Amortized cost, end
    1/1/Year 1 1,063,394
    12/31/Year 1 120,000 106,339 13,661 1,049,733
    12/31/Year 2 120,000 104,973 15,027 1,034,706
    12/31/Year 3 120,000 103,471 16,529 1,018,177

    (a) Market value, 12/31/ Year 2 (1.06 x 1M) P1,060,000


    Amortized cost, 12/31/Year 2 1,034,706
    Unrealized Gain or Loss (In Equity) P 25,394
    (b) Interest income for Year 2 P 104,973

    (c) Market value, 12/31/Year 3 (1.04 x 400,000) P 416,000


    Amortized cost (1,018,177 x 4/10) 407,271
    Unrealized Gain on 12/31/Year 3 P 8,729

    E. (Cordero Corporation)

    (a) Required semiannual deposit


    = P15,000,000/FV of ordinary annuity of 1 discounted at 4% for 20 periods
    = P15,000,000 /29.7781 = P503,726

    (b) 6/30/19
    Bond Sinking Fund Cash 503,726
    Cash 503,726
    12/31/19
    Bond Sinking Fund Cash 523,875
    Cash 503,726
    Interest Income (503,726 x 4%) 20,149

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