On January 1, Year 1, A Company purchased P500,000, 12% bonds of Erika Company for P464,882, a price that yields 14%. Interest on these bonds is payable every June 30 and December 31. The bonds mature on December 31, Year 5. On May 31, Year 4, to pay the maturing obligation, Tina sold P200,000 face value bonds at 102 (including accrued interest). Market value of the bonds on different dates is as follows:
On January 1, Year 1, A Company purchased P500,000, 12% bonds of Erika Company for P464,882, a price that yields 14%. Interest on these bonds is payable every June 30 and December 31. The bonds mature on December 31, Year 5. On May 31, Year 4, to pay the maturing obligation, Tina sold P200,000 face value bonds at 102 (including accrued interest). Market value of the bonds on different dates is as follows:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, Year 1, A Company purchased P500,000, 12% bonds of Erika Company for P464,882, a price that yields 14%. Interest on these bonds is payable every June 30 and December 31. The bonds mature on December 31, Year 5. On May 31, Year 4, to pay the maturing obligation, Tina sold P200,000 face value bonds at 102 (including accrued interest). Market value of the bonds on different dates is as follows:
December 31, Year 1 110
December 31, Year 2 108
December 31, Year 3 106
December 31, Year 4 98
Assume that the Company intended to collect the principal and interest over the term of the bonds and did not choose the fair value option.
December 31, Year 1 110
December 31, Year 2 108
December 31, Year 3 106
December 31, Year 4 98
Assume that the Company intended to collect the principal and interest over the term of the bonds and did not choose the fair value option.
2.What amount of gain or loss should Tina Company recognize on the sale of investments on May 1, Year 4?
P497 loss
9,503 gain
14,254 gain
None of the above
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