On January 1, 20x4, Mondragon Company purchased bonds with face value of P5,000,000 at a cost of P4,700,000 to be held as financial asset at amortized cost. The stated interest is 10% payable annually every December 31. The bonds mature in 4 years on January 1, 2018. 1. What amount of interest income should be reported for the year ended December 31, 2014 under the effective interest method? a. 564,000 b. 470,000 c. 517,000 d. 562,590 2. What is the effective rate that is used to compute the interest income? a. 12.00% b. 10.34% c. 11.97% d. 11.00%

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