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Problem 21-1

The document describes a bond purchase by Complex Company on January 1, 2022. It provides details of the bond terms, cash flows, and fair value changes over 2022-2024. It asks to prepare an amortization table, calculate unrealized gains for 2022-2023, and journal entries for 2022-2024. The business model changes in 2023 to collect contractual cash flows only.

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3K views

Problem 21-1

The document describes a bond purchase by Complex Company on January 1, 2022. It provides details of the bond terms, cash flows, and fair value changes over 2022-2024. It asks to prepare an amortization table, calculate unrealized gains for 2022-2023, and journal entries for 2022-2024. The business model changes in 2023 to collect contractual cash flows only.

Uploaded by

camilleescote562
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PROBLEM 21-1

PREPARED BY:
CAMILLE ESCOTE, ANGEL JAY EMPEÑADO, SHIELA MAE
ISIDRO
PROBLEM 21-1 (IFRS- FROM FVOCI TO AMORTIZED COST)

ON JANUARY 1, 2022 COMPLEX COMPANY PURCHASED BONDS WITH FACE AMOUNT OF P5,000,000. THE ENTITY PAID P4,500,000 PLUS
TRANSACTION COST OF P168,600.

THE BONDS MATURE ON DECEMBER 31, 2025 AND PAY 6% INTEREST ANNUALLY ON DECEMBER 31 OF EACH YEAR WITH 8% EFFECTIVE
YIELD.

THE BONDS ARE QUOTED AT 105 ON DECEMBER 31, 2022 AND 110 ON DECEMBER 31, 2023.

THE BUSINESS MODEL IN MANAGING THE FINANCIAL ASSET IS TO COLLECT CONTRACTUAL CASH FLOWS AND ALSO TO SELL THE BONDS
IN THE OPEN MARKET.

THE ENTITY HAS NOT ELECTED THE FAIR VALUE OPTION.

ON DECEMBER 31, 2023, THE ENTITY CHANGED THE BUSINESS MODEL TO COLLECT ONLY CONTRACTUAL CASH FLOWS.

ON DECEMBER 31, 2024, THE BONDS ARE QUOTED AT 115 AND THE MARKET RATE OF INTEREST IS 10%.

REQUIRED:

1. PREPARE A TABLE OF AMORTIZATION USING THE EFFECTIVE INTEREST METHOD.

2. 2. COMPUTE THE UNREALIZED GAIN FOR 2022.

3. 3. COMPUTE THE UNREALIZED GAIN FOR 2023.

4. 4. PREPARE JOURNAL ENTRIES FOR 2022, 2023 AND 2024.


1.
Date 6% 8% Premium Carrying
Interest Interest Amortization Amount
Recieved Income

01/01/2022 4 688 600

12/31/2022 300 000 373 488 73 488 4 742 088

12/31/2023 300 000 379 367 79 367 4 821 455

12/31/2024 300 000 385 716 85 716 4 907 171

12/31/2025 300 000 393 829 92 829 5 000 000


2. FAIR VALUE- 01/01/2022 (5M*105%) 5 250 000
CARRYING AMOUNT- 12/31/2022 4 742 088
UNREALIZED GAIN- OCI FOR 2022 507 912

3. FAIR VALUE- 12/31/2023 (5M*110%) 5 500 000


CARRYING AMOUNT- 12/31/2023 4 821 455
CUMULATIVE UNREALIZED GAIN- 12/31/2023 678 545
UNREALIZED GAIN- OCI FOR 2022 (507 912)
UNREALIZED GAIN FOR 2023 170 633
2022
JAN. 1 FINANCIAL ASSET- FVOCI 4 688 600
CASH 4 688 600

DEC. 31 CASH 300 000


INTEREST INCOME 300 000

FINANCIAL ASSET- FVOCI 73 488


INTEREST INCOME 73 488

FINANCIAL ASSET- FVOCI 507 912


UNREALIZED GAIN- OCI 507 912
2023
DEC. 31 CASH 300 000
INTEREST INCOME 300 000

FINANCIAL ASSET- FVOCI 79 367


INTEREST INCOME 79 367

FINANCIAL ASSET- FVOCI 170 633


UNREALIZED GAIN- OCI 170 633
2024
JAN. 1 INVESTMENT IN BONDS 5 500 000
FINANCIAL ASSET- FVOCI 5 500 000

UNREALIZED GAIN- OCI (507 912+170 633) 678 545


INVESTMENT IN BONDS 678 545

DEC.31 CASH 300 000


INTEREST INCOME 300 000

FINANCIAL ASSET- FVOCI 85 716


INTEREST INCOME 85 716

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