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    Trading Securities and FA at FV Through OCI and FA at Amortized Cost (Prob 21-25)

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    Lorence Patrick Lapidez
    1. The document provides journal entries and calculations for classifying an investment as either a trading security, investment at fair value through other comprehensive income (FVTOCI), or investment at amortized cost. 2. It includes calculations of carrying value, interest income, and unrealized gains/losses at each reporting period under each classification. 3. The classifications result in different accounting for unrealized gains and losses, with trading securities recognizing unrealized gains and losses through profit or loss, and FVTOCI recognizing them in other comprehensive income.

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    Trading Securities and FA at FV Through OCI and FA at Amortized Cost (Prob 21-25)

    Uploaded by

    Lorence Patrick Lapidez
    22 views11 pages
    1. The document provides journal entries and calculations for classifying an investment as either a trading security, investment at fair value through other comprehensive income (FVTOCI), or investment at amortized cost. 2. It includes calculations of carrying value, interest income, and unrealized gains/losses at each reporting period under each classification. 3. The classifications result in different accounting for unrealized gains and losses, with trading securities recognizing unrealized gains and losses through profit or loss, and FVTOCI recognizing them in other comprehensive income.

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    Trading securities and FA at FV through OCI and FA @ Amortized Cost (Prob 21-25)

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    1. The document provides journal entries and calculations for classifying an investment as either a trading security, investment at fair value through other comprehensive income (FVTOCI), or investment at amortized cost. 2. It includes calculations of carrying value, interest income, and unrealized gains/losses at each reporting period under each classification. 3. The classifications result in different accounting for unrealized gains and losses, with trading securities recognizing unrealized gains and losses through profit or loss, and FVTOCI recognizing them in other comprehensive income.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    22 views11 pages

    Trading Securities and FA at FV Through OCI and FA at Amortized Cost (Prob 21-25)

    Uploaded by

    Lorence Patrick Lapidez
    1. The document provides journal entries and calculations for classifying an investment as either a trading security, investment at fair value through other comprehensive income (FVTOCI), or investment at amortized cost. 2. It includes calculations of carrying value, interest income, and unrealized gains/losses at each reporting period under each classification. 3. The classifications result in different accounting for unrealized gains and losses, with trading securities recognizing unrealized gains and losses through profit or loss, and FVTOCI recognizing them in other comprehensive income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 11

    Let’s Analyze

    PROBLEM 21
    Jan. 10, 2020 Trading securities 1,000,000
    Commission Expense 10,000
    Cash 1,010,000

    Dec. 31, 2020 Unrealized Loss- TS 10,000


    Trading Securities 10,000

    June 1, 2021 Cash 57,500


    Loss on sales on trade securities 47,500
    Trading securities 105,000
    Sept. 1, 2021 Investment at FVTOCI 303,000
    Cash 303,000

    Dec. 31, 2021 Unrealized Loss- TS 44,500


    Trading Securities 44,500
    Investment at FVTOCI 26,000
    Unrealized Gain 26,000
    Cost Market Gain/Loss
    ABC Company 105,000 50,500 (54,500)
    DEF Corporation 595,000 475,000 (20,000)
    GHI Company 390,000 415,000 25,000
    Total 990,000 940,500 (44,500)

    2. The carrying amount of the investment at fair value is 940,500.


    3. Carrying Value Fair Value
    ABC Company – P105 per share 100,000 105,000
    DEF Corporation – P99 per share 525,000 495,000
    GHI Company – P78 per share 375,000 390,000
    Total 1,000,000 990,000
    Unrealized Holding Loss 1,000,000-990,000= 10,000

    4. a loss of 44,500 in trading securities and a gain in FVTOCI of 26,000


    PROBLEM 22
    1. Journal entries to record the transactions assuming the investment is classified as:
    TRADING SECURITY
    January 1, 2020
    Investment – debt security 6,478,600
    Cash 6,478,600

    December 31, 2020


    Cash 600,000
    Interest Income 600,000

    Unrealized Holding Loss – P/L 284,200


    Investment – debt security 284,200

    December 31, 2021


    Cash 600,000
    Interest Income 600,000

    Unrealized Holding Loss – P/L 341,040


    Investment – debt security 341,040

    December 31, 2022


    Cash 600,000
    Interest Income 600,000

    Investment – debt security 146,640


    Unrealized Holding Loss – P/L 146,640

    Investment at FVTOCI
    January 1, 2020
    Investment – debt security 6,478,600
    Cash 6,478,600

    December 31, 2020


    Cash 600,000
    Interest Income 600,000

    Investment – debt security 81,712


    Interest Income 81,712

    Unrealized Holding Loss – OCI 202,488


    Investment – debt security 202,488

    December 31, 2021


    Cash 600,000
    Interest Income 600,000

    Investment – debt security 88,249


    Interest Income 88,249

    Unrealized Holding Loss – OCI 455,279


    Investment – debt security 455,279

    December 31, 2022


    Cash 600,000
    Interest Income 600,000

    Investment – debt security 95,309


    Interest Income 95,309

    Unrealized Holding Loss – OCI 213,300


    Investment – debt security 213,330

    Investment at AMORTIZED COST


    January 1, 2020
    Investment 6,478,600
    Cash 6,478,600

    December 31, 2020


    Cash 600,000
    Interest Income 600,000

    Investment 81,712
    Interest Income 81,712

    December 31, 2021


    Cash 600,000
    Interest Income 600,000

    Investment 88,249
    Interest Income 88,249

    December 31, 2022


    Cash 600,000
    Interest Income 600,000

    Investment 95,309
    Interest Income 95,309
    TRADING SECURITY
    January 1, 2020 - 8%
    PV of P1 at 08% for 5 years = 0.6806
    PV of an annuity of P1 at 8% = 3.9925
    6,000,000 x 10% = 600,000
    PV of Principal (6M x 0.6806) 4,083,600
    PV of Interest (600k x 3.9925) 2,395,000
    Issue Price of the Bond 6,478,600

    December 31, 2020 - 9%


    PV of P1 at 09% for 4 years = 0.7084
    PV of an annuity of P1 at 9% = 3.24
    6,000,000 x 10% = 600,000
    PV of Principal (6M x 0.7084) 4,250,400
    PV of Interest (600k x 3.24) 1,944,000
    Issue Price of the Bond 6,194,400
    Less: Carrying Value (6,478,600)
    Unrealized Holding Loss – P/L 284,200

    December 31, 2021 - 11%


    PV of P1 at 11% for 3 years = 0.7312
    PV of an annuity of P1 at 11% = 2.4436
    6,000,000 x 10% = 600,000
    PV of Principal (6M x 0.7312) 4,387,200
    PV of Interest (600k x 2.4436) 1,466,160
    Issue Price of the Bond 5,853,360
    Less: Carrying Value (6,194,400)
    Unrealized Holding Loss – P/L 341,040

    December 31, 2022 - 10%


    PV of P1 at 10% for 2 years = 0.8264
    PV of an annuity of P1 at 10% = 1.736
    6,000,000 x 10% = 600,000
    PV of Principal (6M x 0.8264) 4,958,400
    PV of Interest (600k x 1.736) 1,041,600
    Issue Price of the Bond 6,000,000
    Less: Carrying Value (5,853,360)
    Unrealized Holding Gain – P/L 146,640

    INVESTMENT AT FVTOCI
    January 1, 2020 - 8%
    PV of Principal (6M x 0.6806) 4,083,600
    PV of Interest (600k x 3.9925) 2,395,000
    Issue Price of the Bond 6,478,600

    December 31, 2020 - 9%


    PV of Principal (6M x 0.7084) 4,250,400
    PV of Interest (600k x 3.24) 1,944,000
    Issue Price of the Bond 6,194,400
    Less: Carrying Value (6,396,888)
    Unrealized Holding Loss – OCI 202,488

    December 31, 2021 - 11%


    PV of Principal (6M x 0.7312) 4,387,200
    PV of Interest (600k x 2.4436) 1,466,160
    Issue Price of the Bond 5,853,360
    Less: Carrying Value (6,308,639)
    Unrealized Holding Loss – OCI 455,279

    December 31, 2022 - 10%


    PV of Principal (6M x 0.8264) 4,958,400
    PV of Interest (600k x 1.736) 1,041,600
    Issue Price of the Bond 6,000,000
    Less: Carrying Value (6,213,330)
    Unrealized Holding Loss – OCI 213,330

    INVESTMENT AT AMORTIZED COST


    No entries

    3. Carrying value of the investment at each reporting period assuming the investment is
    classified as:
    TRADING SECURITY
    January 1, 2020 = 6,478,600
    December 31, 2020 = 6,194,400
    December 31, 2021 = 5,853,360
    December 31, 2022 = 6,000,000

    INVESTMENT AT FVTOCI
    January 1, 2020 = 6,478,600
    December 31, 2020 = 6,396,888
    December 31, 2021 = 6,308,639
    December 31, 2022 = 6,213,330

    Date Interest Received Interest Income Amortization Carrying Value/


    Amortized Cost
    Jan. 1, 2020 6,478,600
    Dec. 31, 2020 600,000 518,288 81,712 6,396,888
    Dec. 31, 2021 600,000 511,751 88,249 6,308,639
    Dec. 31, 2022 600,000 504,691 95,309 6,213,330
    Dec. 31, 2023 600,000 497,066 102,934 6,110,396
    Dec. 31, 2024 600,000 489,604 110,396 6,000,000

    INVESTMENT AT AMORTIZED COST


    January 1, 2020 = 6,478,600
    December 31, 2020 = 6,396,888
    December 31, 2021 = 6,308,639
    December 31, 2022 = 6,213,330
    Date Interest Received Interest Income Amortization Carrying Value/
    Amortized Cost
    Jan. 1, 2020 6,478,600
    Dec. 31, 2020 600,000 518,288 81,712 6,396,888
    Dec. 31, 2021 600,000 511,751 88,249 6,308,639
    Dec. 31, 2022 600,000 504,691 95,309 6,213,330
    Dec. 31, 2023 600,000 497,066 102,934 6,110,396
    Dec. 31, 2024 600,000 489,604 110,396 6,000,000

    PROBLEM 23
    Holding
    Gain/Loss
    April 1, 2020 2,000,000 x 1.02 2,040,000 (Cost)
    December 31, 2,050,000 (Fair
    2020 2,000,000 x 1.025 Value) 10,000
    December 31,
    2021 2,000,000 x 1.0175 2,035,000 15,000
    December 31,
    2022 2,000,000 x 1.0325 2,065,000 30,000

    FVTFC FVITOC
    2020 2,050,000 2,050,000
    2021 2,035,000 2,035,000
    2022 2,065,000 2,065,000

    1. Journal entries to record the transactions assuming the investment is classified as:
    TRADE SECURITY
    April 20, 2020
    Investment – trade securities 2,040,000
    Cash 2,040,000

    August 1, 2020
    Cash 120,000 (2,000,000 x 12% x ½)
    Interest Income 120,000

    December 31, 2020


    Investment – trade securities 10,000 (2,050,000-2,040,000)
    Unrealized Holding Gain 10,000

    February 1, 2021
    Cash 120,000
    Interest Income 120,000

    August 1, 2021
    Cash 120,000
    Interest Income 120,000
    December 31, 2021
    Unrealized Holding Loss 15,000 (2,050,000-2,035,000)
    Investment – trade securities 15,000

    February 1, 2022
    Cash 120,000
    Interest Income 120,000

    August 1, 2022
    Cash 120,000
    Interest Income 120,000

    December 31, 2022


    Investment – trade securities 30,000 (2,065,000-2,035,000)
    Unrealized Holding Gain 30,000

    February 1, 2023
    Cash 1,027,500
    Loss on sale of investment 5,000
    Investment – trade securities 1,032,500

    INVESTMENT AT FVTOCI
    April 20, 2020
    Investment – FVTOCI 2,040,000
    Cash 2,040,000

    August 1, 2020
    Cash 120,000 (2,000,000 x 12% x ½)
    Interest Income 120,000

    December 31, 2020


    Investment – FVTOCI 10,000 (2,050,000-2,040,000)
    Unrealized Holding Gain 10,000

    February 1, 2021
    Cash 120,000
    Interest Income 120,000

    August 1, 2021
    Cash 120,000
    Interest Income 120,000

    December 31, 2021


    Unrealized Holding Loss 15,000 (2,050,000-2,035,000)
    Investment – FVTOCI 15,000

    February 1, 2021
    Cash 120,000
    Interest Income 120,000
    August 1, 2021
    Cash 120,000
    Interest Income 120,000

    December 31, 2022


    Investment – FVTOCI 30,000 (2,065,000-2,035,000)
    Unrealized Holding Gain 30,000

    February 1, 2023
    Cash 1,027,500
    Loss on sale of investment 5,000
    Investment – trade securities 1,032,500

    INVESTMENT AT AMORTIZED COST


    April 20, 2020
    Investment – Amortized Cost 2,040,000
    Cash 2,040,000

    August 1, 2020
    Cash 120,000 (2,000,000 x 12% x ½)
    Interest Income 120,000

    December 31, 2020


    Investment – Amortized Cost 10,000 (2,050,000-2,040,000)
    Unrealized Holding Gain 10,000

    February 1, 2021
    Cash 120,000
    Interest Income 120,000

    August 1, 2021
    Cash 120,000
    Interest Income 120,000

    December 31, 2021


    Unrealized Holding Loss 15,000 (2,050,000-2,035,000)
    Investment – Amortized Cost 15,000

    February 1, 2022
    Cash 120,000
    Interest Income 120,000

    August 1, 2022
    Cash 120,000
    Interest Income 120,000

    December 31, 2022


    Investment – Amortized Cost 30,000 (2,065,000-2,035,000)
    Unrealized Holding Gain 30,000
    PROBLEM 24

    1. Price of bonds
    Cash flow Discounting rate using PV Table Present Value
    3,000,000 0.909 2,727,273
    360,000 0.909 327,273
    Total purchase price 3,054,545

    2.
    Sr. No. Particulars Debit Credit
    1 Debt Investment 3,000,000
    Premium on investment 54,545
    Cash 3,054,545

    3.
    Interest Closing
    Year Opening Value Interest Principal Paid Balance
    2,020 3,054,545 305,455 1,000,000 360,000 2,000,000
    2,021 2,000,000 200,000 1,000,000 360,000 840,000
    2,022 840,000 84,000 1,000,000 360,000 -436,000

    Carrying Value of
    Investment 2,000,000
    PROBLEM 25
    1.
    2020
    Jan-01 Investment in bonds 2,800,000
    Cash 2,800,000
    To record the investment in bonds

    Dec-31 Cash 300,000


    Interest Revenue 300,000
    To record the interest revenue
    received

    Dec-31 Investment in bonds 66,667


    Interest Revenue 66,667
    To record the capitalization premium

    2.
    Total Investment Amount 2,800,000
    Amount Capitalize for the year 66,667
    Total Amount of Investment in
    bonds 2,866,667

    3. Assuming that the bond is a serial bond and the P1,000,000 matures every December 31.
    Year Bond Outstanding Fraction Discount Amortization
    2020 3,000,000 3/6 100,000
    2021 2,000,000 2/6 66,667
    2022 1,000,000 1/6 33,333
    6,000,000 200,000
    Journal entries to record the transactions:
    January 1, 2020
    Investment in bonds 2,800,000
    Cash 2,800,000

    December 31, 2020


    Cash 300,000
    Interest Income 300,000 (3,000,000 x 10%)

    Investment in bonds 100,000


    Interest Income 100,000

    Cash 1,000,000
    Investment in bonds 1,000,000

    December 31, 2021


    Cash 200,000
    Interest Income 200,000 (2,000,000 x 10%)

    Investment in bonds 66,667


    Interest Income 66,667

    Cash 1,000,000
    Investment in bonds 1,000,000

    December 31, 2022


    Cash 100,000
    Interest Income 100,000 (1,000,000 x 10%)

    Investment in bonds 33,333


    Interest Income 33,333

    Cash 1,000,000
    Investment in bonds 1,000,000

    4. The same information in No. 3, The investment in bonds on December 31, 2020.
    2,000,000

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