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What is the interest income on the bond investment for the year 2022?  What is the carrying amount of the bond investment on December 31, 2022?

What is the interest income on the bond investment for the year 2022?  What is the carrying amount of the bond investment on December 31, 2022?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 2MCQ
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What is the interest income on the bond investment for the year 2022? 

What is the carrying amount of the bond investment on December 31, 2022? 

Situation 1 An entity included the following investments at cost and fair value: Cost Fair value – 12/31/2020 Fair value – 12/31/2021 Bond investment 4,000,000 2,800,000 3,600,000 Share investment 7,000,000 7,400,000 8,000,000 The business model for the bond investment is to collect contractual cash flows composed of principal and interest, and sell the asset. The bonds were purchased at face amount of P4,000,000. The ordinary shares are nontrading and the entity elected to present fair value changes in other comprehensive income. On January 1, 2022, the entity sold the bonds and share for P5.000.000 and P9,000,000 respectively. Situation 2 On January 1 2020, an entity purchased 9% bonds in the face amount of P3,000,000 for P2,776,000 to yield 11%. The bonds mature on January 1 2025. The entity classified the bonds as held for trading and interest is payable annually every December 31. The pair value of the bonds and effective rate were: Fair Value Effective Rate December 31, 2020 2,758,000 12% December 31, 2021 3,078,000 8% On December 31, 2021, the entity changed its business model for this investment to collecting contractual cash flows composed of principal and interest. On January 1. 2022, the fair value of the bonds was the same as of December 31, 2021.
Transcribed Image Text:Situation 1 An entity included the following investments at cost and fair value: Cost Fair value – 12/31/2020 Fair value – 12/31/2021 Bond investment 4,000,000 2,800,000 3,600,000 Share investment 7,000,000 7,400,000 8,000,000 The business model for the bond investment is to collect contractual cash flows composed of principal and interest, and sell the asset. The bonds were purchased at face amount of P4,000,000. The ordinary shares are nontrading and the entity elected to present fair value changes in other comprehensive income. On January 1, 2022, the entity sold the bonds and share for P5.000.000 and P9,000,000 respectively. Situation 2 On January 1 2020, an entity purchased 9% bonds in the face amount of P3,000,000 for P2,776,000 to yield 11%. The bonds mature on January 1 2025. The entity classified the bonds as held for trading and interest is payable annually every December 31. The pair value of the bonds and effective rate were: Fair Value Effective Rate December 31, 2020 2,758,000 12% December 31, 2021 3,078,000 8% On December 31, 2021, the entity changed its business model for this investment to collecting contractual cash flows composed of principal and interest. On January 1. 2022, the fair value of the bonds was the same as of December 31, 2021.
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