PROBLEM E: You were engaged by SKT Company for the first time on February 15, 2018, to audit their financial statements as of and for the year ended December 31, 2017. In auditing their investment accounts, you decided to review the transactions and entries related to an investment in debt securities. On January 2, 2016, SKT acquired a 5-year 10% bond with a face value of P5,000,000 for P4,800,000. The entity incurred direct costs for P15,500, resulting to a yield rate of 11%. The business model of the entity for investing in debt securities is to collect contractual cash flows in the form of principal and interest on the outstanding principal, and to sell the financial assets. The bonds are quoted at 101 on December 31, 2016; 97 on December 31, 2017; and 99 on December 31, 2018. By the end of 2017, the balances in the statement of financial position of their Financial Asset – FVOCI and the related unrealized holding gain – OCI are P4,850,000 and P50,000, respectively. The entries prepared by your client are as follows: 2016 Jan 2 Financial Asset - FVOCI 4,800,000 Expense 15,500 Cash 4,815,500 Dec 31 Cash 500,000 Interest Income 500,000 Financial Asset - FVOCI 250,000 Unrealized Holding Gain - OCI 250,000

PROBLEM E: You were engaged by SKT Company for the first time on February 15, 2018, to audit their financial statements as of and for the year ended December 31, 2017. In auditing their investment accounts, you decided to review the transactions and entries related to an investment in debt securities. On January 2, 2016, SKT acquired a 5-year 10% bond with a face value of P5,000,000 for P4,800,000. The entity incurred direct costs for P15,500, resulting to a yield rate of 11%. The business model of the entity for investing in debt securities is to collect contractual cash flows in the form of principal and interest on the outstanding principal, and to sell the financial assets. The bonds are quoted at 101 on December 31, 2016; 97 on December 31, 2017; and 99 on December 31, 2018. By the end of 2017, the balances in the statement of financial position of their Financial Asset – FVOCI and the related unrealized holding gain – OCI are P4,850,000 and P50,000, respectively. The entries prepared by your client are as follows: 2016 Jan 2 Financial Asset - FVOCI 4,800,000 Expense 15,500 Cash 4,815,500 Dec 31 Cash 500,000 Interest Income 500,000 Financial Asset - FVOCI 250,000 Unrealized Holding Gain - OCI 250,000

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 1PB: Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1....

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