CHAPTER 21

Problem 21-1

Requirement a:
Date Interest received Interest income Discount Present value
Jan. 1, 2023 4,668,600
Dec. 31, 2023 300,000 373,488 73,488 4,742,088
Dec. 31, 2024 300,000 379,367 79,367 4,821,455
Dec. 31, 2025 300,000 385,716 85,716 4,907,171

Requirement b:
Computation
Market value (5,000,000 x 105%) 5,250,000
Less: Carrying amount 4,742,088
Unrealized gain - 2023 507,912

Requirement c:
Market value (5,000,000 x 110%) 5,500,000
Less: Carrying amount 4,821,455
Cumulative unrealized gain - 2024 678,545
Less: Unrealized gain - 2023 507,912
Increased in unrealized gain 170,633

Requirement d
Date Particulars Debit Credit
2023
Jan. 1 FA-FVOCI 4,668,600
Cash 4,668,600

Dec. 31 Cash 300,000

Interest income 300,000

FA-FVOCI 73,488
Interest income 73,488

FA-FVOCI 507,912
Unrealized gain 507,912

Computation
Market value (5,000,000 x 105%) - 2023 5,250,000
Less: Carrying amount 4,742,088
Unrealized gain 507,912

2024
Dec. 31 Cash 300,000
Interest income 300,000

FA-FVOCI 79,367
Interest income 79,367

FA-FVOCI 170,633
Unrealized gain 170,633
 Computation
Market value (5,000,000 x 110%) 5,500,000
Less: Carrying amount 4,821,455
Cumulative unrealized gain - 2024 678,545
Less: Unrealized gain - 2023 507,912
Increased in unrealized gain 170,633

2025
Jan. 1 Investment in bonds 5,500,000
FA-FVOCI 5,500,000
To record the reclassification.

Unrealized gain 678,545

Investment in bonds 678,545
To eliminate the amount of other comprehensive
income

Dec. 31 Cash 300,000

Interest income 300,000

Investment in bonds 85,716

Interest income 85,716

Problem 21-2

Requirement a:
Date Interest received Interest income Discount Present value
Jan. 1, 2023 1,900,500
Dec. 31, 2023 160,000 190,050 30,050 1,930,550
Dec. 31, 2024 160,000 193,055 33,055 1,963,605
Dec. 31, 2025 160,000 196,395 36,395 2,000,000

Requirement b:
Market value (2,000,000 x 120%) 2,400,000
Less: Carrying amount 1,963,605
Cumulative Unrealized gain - 12/31/24 436,395
Less: Unrealized gain 1/1/24 269,450
Increased in unrealized gain 166,945

Requirement c:
Date Particulars Debit Credit
2023
Jan. 1 Investment in bonds 1,900,500
Cash 1,900,500
Acquisition of investment bonds

Dec. 31 Cash 160,000

Interest income 160,000
Receipt of interest

Investment in bonds 30,050

Interest income 30,050
 Discount amortization

2024
Jan. 1 FA-FVOCI 1,930,550
Investment in bonds 1,930,550
Reclassification of bonds

FA-FVOCI 269,450
Unrealized gain 269,450
To record for unrealized gain

Computation:
Market value (2,000,000 x 110%) 2,200,000
Less: Carrying amount 1,930,550
Unrealized gain 269,450

Dec. 31 Cash 160,000

Interest income 160,000
Receipt of interest

FA-FVOCI 33,055
Interest income 33,055
Discount amortization

FA-FVOCI 166,945
Unrealized gain 166,945
To record for the increased in unrealized gain

Computation:
Market value (2,000,000 x 120%) 2,400,000
Less: Carrying amount 1,963,605
Cumulative Unrealized gain - 12/31/24 436,395
Less: Unrealized gain 1/1/24 269,450
Increased in unrealized gain 166,945

2025
Dec. 31 Cash 2,000,000
FA-FVOCI 2,000,000
Receipt of interest and matured bonds

FA-FVOCI 36,395
Interest income 36,395
Discount amortization

Problem 21-3

Requirement a:
Date Interest received Interest income Premium Present value
Jan. 1, 2023 3,405,000
Dec. 31, 2023 300,000 272,400 27,600 3,377,400
Dec. 31, 2024 300,000 270,192 29,808 3,347,592
Dec. 31, 2025 300,000 267,807 32,193 3,315,399

Requirement b:
Fair value 2,845,000
Less: Carrying amount 3,347,592
Loss on reclassification 502,592

Requirement c:
Date Particulars Debit Credit
2023
Jan. 1 Investment in bonds 3,405,000
Cash 3,405,000
Acquisition of investment bonds

Dec. 31 Cash 300,000

Interest income 300,000
Receipt of interest

Interest income 27,600

Investment in bonds 27,600
Premium amortization

2024
Dec. 31 Cash 300,000
Interest income 300,000
Receipt of interest

Interest income 29,808

Investment in bonds 29,808
Premium amortization

2025
Jan. 1 Loss on reclassification 502,592
Investment in bonds 502,592
To record for the loss on reclassification

FA-FVPL 2,845,000
Investment in bonds 2,845,000
Reclassification

Computation:
Fair value 2,845,000
Less: Carrying amount 3,347,592
Loss on reclassification 502,592

Dec. 31 Cash 300,000

Interest income 300,000
Receipt of interest

Problem 21-4
Requirement a:

Face amount 6,000,000

Multiply by nominal rate 9%
Interest income 540,000
Requirement b:
Fair value 5,450,000
Less: carrying amount 5,550,000
Unrealized loss 100,000

Requirement c:
Fair value - 2024 6,150,000
Less: carrying amount - 2023 5,450,000
Unrealized gain 700,000

Requirement d:
Fair value - 2025 6,150,000
Multiply by effective rate 8%
Interest income - 2025 492,000

Requirement e:
Date Particulars Debit Credit
2023
Jan. 1 FA-FVPL 5,550,000
Cash 5,550,000
Acquisition of bond investment

Dec. 31 Cash (6,000,000 x 9%) 540,000

Interest income 540,000
Receipt of interest

Unrealized loss 100,000

FA-FVPL 100,000
To record for unrealized loss

Computation
Fair value 5,450,000
Less: carrying amount 5,550,000
Unrealized loss 100,000

2024
Dec. 31 Cash 540,000
Interest income 540,000
Receipt of interest

FA-FVPL 700,000
Unrealized gain 700,000
To record for unrealized gain

Computation
Fair value - 2024 6,150,000
Less: carrying amount - 2023 5,450,000
Unrealized gain 700,000

2025
Jan. 1 Investment in bonds 6,150,000
FA-FVPL 6,150,000
Reclassification
 Dec. 31 Cash 540,000
Interest income 540,000
Receipt of interest

Interest income (540,000 - 492,000) 48,000

Investment in bonds 48,000
Amortization of premium

Problem 21-5

Requirement a:
Acquisition cost 4,335,000
Multiply by effective rate 6%
Interest income - 2023 260,100

Requirement b:
Fair value 3,870,000
Less: Carrying amount - 2023 4,275,100
Unrealized loss - 2023 405,100

Requirement c:
Face amount 4,000,000
Multiply by nominal rate 8%
Interest income - 2024 320,000

Requirement d:

Fair value - 2024 3,615,000

Less: Carrying amount 3,870,000
Unrealized loss 255,000
Add: unrealized loss reclassified to FVPL 405,100
Total amount included in PL 660,100

Requirement e
Date Particulars Debit Credit
2023
Jan. 1 FA-FVOCI 4,335,000
Cash 4,335,000
Acquisition of bond investment

Dec. 31 Cash 320,000

Interest income 320,000
Receipt of interest

Interest income 59,900

FA-FVOCI 59,900
Premium amortization

Unrealized loss 405,100

FA-FVOCI 405,100
To record for unrealized loss

Computation:
Fair value 3,870,000
 Less: Carrying amount - 2023 4,275,100
Unrealized loss - 2023 405,100

2024
Jan. 1 FA-FVPL 3,870,000
FA-FVOCI 3,870,000
Reclassification

Dec. 31 Unrealized loss - FVPL 405,100

Unrealized loss - FVOCI 405,100
To reclassify the amount OCI to PL

Cash (4,000,000 x 8%) 320,000

Interest income 320,000
Receipt of interest

Unrealized loss 255,000

FA-FVPL 255,000
To record for the loss in change in fair value

Computation:
Fair value - 2024 3,615,000
Less: Carrying amount 3,870,000
Unrealized loss 255,000

Problem 21-6
Requirement a:
Face amount 4,000,000
Multiply by nominal rate 6%
Interest income - 2023 240,000

Requirement b:
Fair value 3,490,000
Less: Carrying amount 3,530,000
Unrealized loss - 2023 40,000

Requirement c
Carrying amount 3,490,000
Multiply by effective interest rate 10%
Interest income - 24 349,000

Requirement d
Carrying amount 3,490,000
Add: Discount amortization:
Interest received (4,000,000 x 6%) 240,000
Interest income (3,490,000 x 10%) 349,000 109,000
Carrying amount - 2023 3,599,000
Less: Fair value - 2024 3,425,000
Unrealized loss - 2024 174,000

Requirement e
Date Particulars Debit Credit
2023
Jan. 1 FA-FVPL 3,530,000
 Cash 3,530,000
Acquisition of bond investment

Dec. 31 Cash 240,000

Interest income 240,000
Receipt of interest

Unrealized loss 40,000

FA-FVPL 40,000
To record for unrealized loss

2024
Jan. 1 FA-FVOCI 3,490,000
FA-FVPL 3,490,000
Reclassification

Dec. 31 Cash (4,000,000 x 6%) 240,000

Interest income 240,000
Receipt of interest

FA-FVOCI 109,000
Interest income 109,000
Discount amortization

Unrealized loss 174,000

FA-FVOCI 174,000
To record for unrealized loss

Computation
Fair value - 2024 3,425,000
Less: Carrying amount 3,599,000
Unrealized loss 174,000