CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
BOND INVESTMENT
1. On January 1, 2021, an entity purchased as a long-term investment P5,000,000 face value 8% bonds
for P4,530,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually
on December 31. The effective interest method of amortization is used.
1. What is the interest income for 2022?
a. 500,000
b. 400,000
c. 453,000
d. 458,300
2. What is the carrying amount of the investment in bonds on December 31, 2022?
a. 5,000,000
b. 4,583,000
c. 4,477,000
d. 4,641,300
2. On January 1, 2021, an entity paid P5,990,000 for a 10% bond with face amount of P5,000,000.
Interest is payable semiannually on June 30 and December 31. The bond was purchased to yield
8%. The effective interest method is used.
1. What is the interest income for 2021?
a. 479,200
b. 239,600
c. 500,000
d. 478,784
2. What is the carrying amount of the bond investment on December 31, 2021?
a. 5,968,784
b. 5,990,000
c. 5,979,600
d. 5,969,200
3. On January 1, 2021, an entity purchased bonds with face amount of P8,000,000 for P7,679,000 as a
long-term investment. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%.
The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is payable
annually also every December 31. The entity used the effective interest method of amortizing
discount.
1. What is the interest income for 2021?
a. 800,000
b. 921,480
c. 960,000
d. 767,900
2. What is the carrying amount of the investment in bonds on December 31, 2021?
a. 5,759,250
b. 7,759,250
c. 7,800,480
d. 5,800,480
3. What is the carrying amount of the bond investment on December 31, 2022?
a. 5,896,538
b. 3,896,538
c. 3,800,480
d. 3,904,422
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4. At the beginning of current year, an entity purchased 12% bonds with face amount of P5,000,000 for
P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of 10%.
The bonds are dated January 1 and pay interest annually on December 31 of each year. The bonds
are quoted at 115 at year-end. The entity has irrevocably elected to use the fair value option.
1. What amount of gain from change in fair value should be reported for the current year?
a. 750,000
b. 250,000
c. 350,000
d. 0
2. What amount of interest income should be reported for the current year?
a. 600,000
b. 550,000
c. 660,000
d. 540,000
5. On January 1, 2021, an entity 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, 2024 and pay 6%
interest annually on December 31 of each year with 8% effective yield. The bonds were quoted at
105 on December 31, 2021 and 110 on December 31, 2022. The business model in managing the
financial asset is to collect contractual cash flows that are solely payments of principal and interest
and also to sell the bonds in the open market. On December 31, 2022, the entity changed the
business model to collect only contractual cash flows. On December 31, 2023, the bonds are quoted
at 115 and the market interest rate is 10%.
Date (6%) Interest (8%) Interest Discount Carrying
received income amortization amount
1/1/2021 4,668,600
12/31/2021 300,000 373,488 73,488 4,742,088
12/31/2022 300,000 379,367 79,367 4,821,455
12/31/2023 300,000 385,716 85,716 4,907,171
12/31/2024 300,000 392,829 92,829 5,000,000
1. What amount of unrealized gain should be reported as component of OCI in the statement of
comprehensive income for 2021?
a. 250,000
b. 690,000
c. 507,912
d. 0
2. What amount of cumulative unrealized gain should be reported as component of OCI in the
statement of changes in equity for 2022?
a. 500,000
b. 678,545
c. 250,000
d. 875,200
3. What amount of unrealized gain should reported as component of OCI in the statement of
comprehensive income for 2022?
a. 500,000
b. 250,000
c. 170,633
d. 185,200
4. What is the interest income for 2023?
a. 300,000
b. 500,000
c. 385,716
d. 369,984
5. What is the carrying amount of the investment on December 31, 2023?
a. 4,694,784
b. 4,668,600
c. 4,907,171
d. 5,750,000
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