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Intermediate Accounting 1A Chapter 10 - Investment in Debt Securities Problem 3

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1. The document provides an example of accounting for bonds payable, including: - An amortization table showing interest received, interest income, and premium/discount amortization over 4 years - Journal entries for interest received and premium/discount amortization each year 2. It also provides multiple additional examples of accounting for bonds payable with varying fact patterns, and requests calculations and journal entries.

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Intermediate Accounting 1A Chapter 10 - Investment in Debt Securities Problem 3

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Yuki Barraca
394 views5 pages
1. The document provides an example of accounting for bonds payable, including: - An amortization table showing interest received, interest income, and premium/discount amortization over 4 years - Journal entries for interest received and premium/discount amortization each year 2. It also provides multiple additional examples of accounting for bonds payable with varying fact patterns, and requests calculations and journal entries.

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1. The document provides an example of accounting for bonds payable, including: - An amortization table showing interest received, interest income, and premium/discount amortization over 4 years - Journal entries for interest received and premium/discount amortization each year 2. It also provides multiple additional examples of accounting for bonds payable with varying fact patterns, and requests calculations and journal entries.

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© All Rights Reserved
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394 views5 pages

Intermediate Accounting 1A Chapter 10 - Investment in Debt Securities Problem 3

Uploaded by

Yuki Barraca
1. The document provides an example of accounting for bonds payable, including: - An amortization table showing interest received, interest income, and premium/discount amortization over 4 years - Journal entries for interest received and premium/discount amortization each year 2. It also provides multiple additional examples of accounting for bonds payable with varying fact patterns, and requests calculations and journal entries.

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Intermediate Accounting 1A Chapter 10 – Investment in Debt Securities

Problem 3
1. Given: 14%, 4-year, P1,000,000 bonds for P1,060,747
12% effective interest rate
Interest is due annually

a. Amortization Table

Interest Amortizatio
Date Interest Received Present Value
Income n
Jan. 1, 20x1 1,060,747
Dec. 31,
140,000 127,290 12,710 1,048,037
20x1
Dec. 31,
140,000 125,764 14,236 1,033,801
20x2
Dec. 31,
140,000 124,056 15,944 1,017,857
20x3
Dec. 31,
140,000 122,143 17,857 1,000,000
20x4

b. How much is the unamortized discount or premium on December 31,20x2?

Interest Amortizatio
Date Interest Received Present Value
Income n
Dec. 31,
140,000 124,056 15,944 1,017,857
20x3
Dec. 31,
140,000 122,143 17,857 1,000,000
20x4
15,944 + 17,857 = 33,801
Unamortized premium = P33,801

c. Prepare all the journal entries.

Jan. 1, 20x1 Investment in bonds at amortized cost 1,060,74


Cash 7 1,060,747
Dec. 31, Cash 140,000
20x1 Investment in bonds at amortized 12,710
cost 127,290
Interest Income
Dec. 31, Cash 140,000
20x2 Investment in bonds at amortized 14,236
cost 125,764
Interest Income
Dec. 31, Cash 140,000
20x3 Investment in bonds at amortized 15,944
cost 124,056
Interest Income
Dec. 31, Cash 140,000
20x4 Investment in bonds at amortized 17,857
cost 122,143
Interest Income
Dec. 31, Cash 1,000,00
20x4 Investment in bonds at amortized 0 1,000,000
cost

2. Amortization Table

Interest Amortizatio
Date Interest Received Present Value
Income n
Jan. 1, 20x1 1,937,951
Dec. 31,
200,000 127,290 13,175 1,951,126
20x1
Dec. 31,
200,000 125,764 14,624 1,965,750
20x2
Dec. 31,
200,000 124,056 16,232 1,981,982
20x3
Dec. 31,
200,000 122,143 18,018 2,000,000
20x4

3. –
4. Given: 14%, 4-year, P1,000,000 bonds for P1,060,747
12% effective interest rate
Interest is due annually

Acquisition Cost 1,996,073


Transaction Cost 100,000
Initial Carrying Amount 2,096,073

@10%
= (2M x PV of P1 @10%, n=3) + (2M x 12% x PV of Ordinary Annuity of P1
@10%, n=3)
= (2M x 0.751315) + (240,000 x 2.486852)
= 1,502,630 + 596,844
= 2,099,474

a. Prepare the Amortization table.

Interest Amortizatio
Date Interest Received Present Value
Income n
Jan. 1, 20x1 2,096,073
Dec. 31,
240,000 209,607 30,393 2,065,680
20x1
Dec. 31,
240,000 206,568 33,432 2,032,248
20x2
Dec. 31,
240,000 203,224 36,776 1,995,472
20x3

b. Prepare all the journal entries.

Jan. 1, 20x1 Investment in bonds at amortized cost 2,096,07


Cash 3 2,096,073
Dec. 31, Cash 240,000
20x1 Investment in bonds at amortized 30,393
cost 209,607
Interest Income
Dec. 31, Cash 240,000
20x2 Investment in bonds at amortized 33,432
cost 206,568
Interest Income
Dec. 31, Cash 240,000
20x3 Investment in bonds at amortized 36,776
cost 203,224
Interest Income

5. September 30, 20x2 – bonds sold for P2,400,000

Sept. 30, Cash 2,400,00


20x2 Investment in bonds at amortized 0 2,065,680
cost 334,520
Gain on Sale

6. Prepare all journal entries.

Jan. 1, 20x1 Investment in bonds – FVOCI 2,096,07


Cash 3 2,096,073
Dec. 31, Cash 280,000
20x1 Investment in bonds – FVOCI 28,471
Interest Income 251,529

Unrealized loss – OCI 27,602


Investment in bonds – FVOCI 27,602
Dec. 31, Cash 280,000
20x2 Investment in bonds at amortized 31,888
cost 248,112
Interest Income
71,888
Investment in bonds – FVOCI 71,888
Unrealized gain – OCI

7. –
8. Given: 10%, P900,000 bonds for P870,092
Mature in three annual installments of P300,000
12% effective interest rate

a. Amortization Table

Date Principal Interest Collections


Dec. 31,
300,000 (900,000 x 10%) 90,000 390,000
20x1
Dec. 31,
300,000 (600,000 x 10%) 60,000 360,000
20x2
Dec. 31,
300,000 (300,000 x 10%) 30,000 330,000
20x3

Interest Amortizatio
Date Interest Received Present Value
Income n
Jan. 1, 20x1 870,092
Dec. 31,
390,000 104,411 285,589 584,503
20x1
Dec. 31,
360,000 70,140 289,860 294,643
20x2
Dec. 31,
330,000 35,357 294,643 0.61
20x3

b. Journal Entries in 20x1

Jan. 1, 20x1 Investment in bonds – FVOCI 870,092


Cash 870,092
Dec. 31, Cash 390,000
20x1 Investment in bonds – 285,589
FVOCI 104,411
Interest Income

9. –
10. Compute for the estimated purchase price of the bonds on January 1, 20x1.

Purchase price of bonds = Cash flows x PV factors


PV
Future Cashflows PV @ 16%, n=3 Present Value
Factors
Principal
PV of P1 .640658 3,843,948
6,000,000
Interest PV of Ordinary Annuity of
2.245890 1,347,534
600,000 P1
5,191,482

Estimated purchase price of the bonds on January 1, 20x1 is P5,191,482.


11. Compute for the estimated purchase price of the bonds on April 1, 20x1.

Interest Interest Amortizatio


Date Present Value
Received Income n
Jan. 1, 20x1 5,191,482
Apr. 1,
150,000 207,659 57,659 5,133,823
20x1

Estimated purchase price of the bonds on April 1, 20x1 is P5,133,823.

Problem 5
1. A
2. A
3. B
4. A
5. A
6. B
7. A
8. D
9. C

Problem 6
1. B
2. B
3. A
4. B
5. A
6. A
7. C

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