DECODE ME

CHAPTER 19
RULES

FINANCIAL ASSET AT AMORTIZED COST

THEORIES
Bond Investment
PROBLEMS

MESSAGE Prepared by: Group 8

PANGILINAN, PERINA,RAMIREZ,ROMAN,SALAZAR

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DECODE ME
HOW DO WE CLASSIFY INVESTMENT IN BONDS
AT FVPL, FVOCI, AND AT AMORTIZED COST?
RULES

THEORIES
_____ ____ __ ________ _____ __
__ ______’_ ________ _____ __
PROBLEMS
_

MESSAGE
____ ____ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.

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 RULES
DECODE ME
1. Upon answering theories, the first three who got the correct answer will gain a point.
2. Sending of responses will be after the go signal of the host/hostess.
3. To decode the message, you need to choose the correct letter in multiple-choice questions.
RULES 4. Every correct answer corresponds to a clue letter that will help complete the message.
5. In problem-solving, the first one who chats "ME" will get the chance to answer the problem and
gain 5 points.
6. Only the first three participants who got the highest points will win P20.00 via GCash.
THEORIES
7. Only the first one to decode the message will win a prize of P40.00 via GCash, strictly after the
go signal of the host.

PROBLEMS

MESSAGE

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 CONTENTS
DECODE ME

1 TRADING BOND INVESTMENTS

2
RULES
CORRECT IN REGARD TO TRADING INVESTMENTS

THEORIES
3 ACCRUED INTEREST ON BONDS

PROBLEMS 4 INTEREST INCOME WOULD BE HIGHER

MESSAGE
5 INTEREST INCOME WOULD BE LESSER

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 Multiple choice (IAA)
DECODE ME

1. Trading bond investments are reported at

RULES q. Amortized cost
r. Face amount
s. Fair value
THEORIES

PROBLEMS
t. Maturity

MESSAGE

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 DECODE ME
DECODE ME

RULES
____s ____ __ _ss_ss__ __s__ __
THEORIES __ ______’s __s___ss _____ ___
__s_ ____ _ _ _ _ _ _ _ _ _ _ s _ _ _ s.
PROBLEMS

MESSAGE

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 Multiple choice (IAA)
DECODE ME 2. Which of the following statements is correct in regard to trading
investments?
RULES
k. Trading investments are held with the intention of selling in a
short period of time.
l. Unrealized gains and losses are reported as part of net income.
THEORIES m. Any discount or premium is not amortized.
n. All of these statements are correct.
PROBLEMS

MESSAGE

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 DECODE ME
DECODE ME

RULES
__n_s ____ __ _ss_ss__ __s__ _n _n
THEORIES _n____’s __s_n_ss _____ ___
__s_ ____ _ _ _ _ _ _ _ _ _ _ s _ _ _ s.
PROBLEMS

MESSAGE

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 MULTIPLE CHOICE(IAA)
DECODE ME
3. Accrued interest on bonds that are purchased between
interest dates
RULES v. Is ignored by both the seller and the buyer
w. Increases the amount a buyer must pay
THEORIES x. Is recorded a loss on the sale of the bonds
y. Decreases the amount the buyer must pay
PROBLEMS

MESSAGE

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 DECODE ME
DECODE ME

RULES __n_s w___ __ _ss_ss__ __s__ _n _n

_n____’s __s_n_ss _____ ___
THEORIES

__s_ ___w _ _ _ _ _ _ _ _ _ _ s _ _ _ s.
PROBLEMS

MESSAGE

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 MULTIPLE CHOICE(IAA)
DECODE ME

4. The interest income for the year would be

RULES higher if the bond was purchased at
a. A discount
b. quoted price
THEORIES

PROBLEMS
c. Face amount
d. A premium
MESSAGE

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 DECODE ME
DECODE ME

RULES

__n_s w___ __ ass_ss__ __s__ _n an

THEORIES
_n____’s __s_n_ss _____ a__

PROBLEMS
__s_ ___w _ _ a _ a _ _ _ _ _ s _ _ _ s.

MESSAGE

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 MULTIPLE CHOICE (IAA)
DECODE ME

5. The interest income for the year would be

RULES lesser if the bond was purchased at
b. quoted price
c. Face amount
THEORIES

PROBLEMS
d. A discount
e. A premium
MESSAGE

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 DECODE ME
DECODE ME

RULES

__n_s w___ _e assesse_ __se_ _n an

THEORIES
_n____’s __s_ness ___e_ a__
__s_ ___w _ _ a _ a _ _ e _ _ s _ _ _ s.
PROBLEMS

MESSAGE

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 CHAPTER 18
DECODE ME

PROBLEM
RULES

THEORIES

PROBLEMS SOLVING
MESSAGE

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 Problem 19-1 (ACP)

DECODE ME
At the beginning of current year, Icon Company acquired
bonds with face amount of P4,000,000 at a cost of
RULES
P3,761,000. The bonds are held for trading.
Bonds pay interest of 12% semi-annually on January 1 and
THEORIES
July 1 and mature after four years.
The bonds have an effective yield of 14% and are quoted at
PROBLEMS 105 at year-end.
Required:
MESSAGE
Prepare journal entries for the current year.

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 Problem 19-1 (ACP)

DECODE ME
Jan 1 Trading securities 3,761,000  
  Cash   3,761,000
       
RULES
Jul. 1 Cash 240,000  
  Interest Income (4,000,000x12%x6/12)   240,000
THEORIES        
Dec 31 Accrued interest receivable 240,000  
  Interest Income   240,000
PROBLEMS        
31 Treading securities 439,000  
  Unrealized gain- TS (4,200,000-3,761,000)   439,000
MESSAGE

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 Problem 19-2 (IAA)

DECODE ME
Mature Company carried out the following transactions in bond investments held for trading during
the current year.
Purchased 5,000, P1,000, 12% bonds of Acme Company at 104 plus accrued interest of
RULES
Aug. 1 P150,000. The bonds pay interest semi-annually on May 1 and November 1.
Purchased 2,000, P1,000, 12% bonds of Avco Company at 98 plus accrued interest.
31 Semiannual payment of interest June 30 and December 31.
THEORIES Dec. 1 Sold 2,000 of the Acme bonds at 102 plus accrues interest
31 The following quotations were obtained:
Acme bonds 98
PROBLEMS Avco bonds 99

Required:
1. Prepare journal entries to record the transactions.
MESSAGE
2. Present the investments on December 31.

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 Problem 19-2 (IAA)

DECODE ME Aug 1 Trading securities (5,000,000x 104) 5,200,000  

  Interest Income (5,000,000x 12% x 3/12) 150,000  
  Cash   5,350,000
       
RULES
31 Trading securities (2,000,000x 98) 1,960,000  
  Interest Income (2,000,000x 12% x 2/12) 40,000  
  Cash   2,000,000
       
THEORIES
Nov. 1 Cash (5,000,000x 12% x 6/12) 300,000  
  Interest Income   300,000
       
Dec. 1 Cash (1,880,000 + 20,000) 1,900,000  

PROBLEMS   Loss on sale of trading securities 200,000  

  Trading securities   2,080,000
  Interest Income (2,000,000x12%x1/12)   20,000
       
  Selling Price (2,040,000-160,000)   1,880,000
MESSAGE
  Less Cost of Bonds sold (2,000/5,000 x 5,200,0000   2,080,000
  Loss on sale   (200,000)
       
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 Problem 19-2 (IAA)

DECODE ME 31 Cash (2,000,000x 12% x 6/12) 120,000  

  Interest Income   120,000
       
31 Accrued interest receivable (3,000,000x 12% x 2/12) 60,000  
  Interest Income   60,000
RULES
       
31 Unrealized Loss- TS 160,000  
  Trading securities   160,000
THEORIES REQUIREMENT 2
  Carrying Market
Amount
Acme bonds (3,000,000 x98%) 3,120,000 2,940,000
PROBLEMS Avco bonds (2,000,000 x 99%) 1,960,000 1,980,000
  5,080,000 4,920,000
     
Current assets    
MESSAGE Trading securities, at fair value   4,920,000

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 PROBLEM 19-4 (AICPA ADAPTED)

DECODE ME
On July 1,2020, Bearish Company purchased as trading
investment a P2,000,000 face amount 8% bond for P2,200,000
RULES
plus accrued interest and commission of P50,000. The bond
pays interest annually on December 31.
THEORIES
On December 31,2020, the bond investment was quoted at
95. On March 31, 2021, the entity sold the bond investment
PROBLEMS for P2,100,000 plus accrued interest.
Required:
MESSAGE
Prepare journal entries for 2020 and 2021.

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 PROBLEM 19-4 (AICPA ADAPTED)
2020
DECODE ME July 1 Trading securities 2,200,000
Commission expense 50,000
Interest income 80,000
Cash 2,330,000
RULES  
Dec.31 Unrealized loss – TS 300,000
Trading securities 300,000

Market value 1,900,000

THEORIES
Carrying amount 2,200,000
Unrealized loss 300,000
 
Dec.31 Cash 160,000
PROBLEMS Interest income 160,000

2021
Mar.31 Cash 2,140,000
Trading securities 1,900,000
MESSAGE
Gain on sale of TS 200,000
Interest income 40,000

 
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 PROBLEM 19-5(AICPA
ADAPTED)
DECODE ME
On October 1,2020, Yost Company purchased 4,000 of the P1,000 face
amount, 10% bonds of Pell Company for P4,400,000 which included
RULES accrued interest of P100,000.
The bonds which mature on January 1,2027, pay interest semiannually
on January 1 and July 1.
THEORIES
The entity used the straight-line method of amortization and
appropriately recorded the bonds as financial asset at amortized cost.
PROBLEMS

Required:
Prepare journal entries for 2020 and 2021.
MESSAGE

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 PROBLEM 19-5(AICPA
ADAPTED)
DECODE ME 2020
Oct.1Investment in bonds 4,300,000
Interest income 100,000
Cash 4,400,000
 
RULES Dec.31 Accrued interest receivable 200,000
Interest income 200,000
 
31 Interest income 12,000
THEORIES Investment in bonds 12,000
 
Oct. 1,2020 to Jan. 1,2027 - 75 months
Cost 4,300,000
Face value 4,000,000
PROBLEMS
Premium 300,000

Monthly amortization 4,000

 
MESSAGE Amortization from Oct.1 to Dec.31,2020 12,000

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 PROBLEM 19-5(AICPA
ADAPTED)
DECODE ME
2021
 
Jan.1 Cash 200,000
RULES
Accrued interest receivable 200,000
 
July 1 Cash 200,000
Interest income 200,000
THEORIES
 
Dec.31 Accrued interest receivable 200,000
Interest income 200,000
PROBLEMS
 
31 Interest income 48,000
Investment in bonds 48,000

MESSAGE

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 Problem 18-9 (AICPA ADAPTED)

DECODE ME
Manda Company acquired P6,000,000 of Landoil 12% bonds on May
1,2020 at 94 plus accrued interest to be held as financial asset at
RULES amortized cost.
The bonds pay interest semiannually on February 1 and August 1 and
mature on February 1,2024.
THEORIES
The fiscal period for Manda Company is the calendar period.
Amortization is done following the straight-line method.
PROBLEMS On May 1,2022, Manda Company sold all the bonds at 105 plus
accrued interest.
Required:
MESSAGE
Prepare journal entries for 2020,2021 and 2022.

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 Problem 18-9 (AICPA ADAPTED

2020
DECODE ME May 1 Investment in bonds 5,640,000
Interest income 180,000
Cash 5,820,000
 
RULES Cost 5,640,000
Accrued interest 180,000
Total payment 5,820,000
 
Aug.1 Cash 360,000
THEORIES
Interest income 360,000
 
Dec.31 Accrued interest receivable 300,000
Interest income 300,000
PROBLEMS  
31 Investment in bonds 64,000
Interest income 64,000
 
May 1,2020 to Feb.1,2024 - 45 months
MESSAGE
Monthly amortization 8,000
May 1 to Dec.31,2020 64,000

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 Problem 18-9 (AICPA ADAPTED

DECODE ME 2021
 
Jan.1 Interest income 300,000
Accrued interest receivable 300,000
RULES  
Feb.1 Cash 360,000
Interest income 360,000
THEORIES  
Aug.1 Cash 360,000
Interest Income 360,000
 
PROBLEMS Dec.31 Accrued interest receivable 300,000
Interest income 300,000
 
31 Investment in bonds 96,000
MESSAGE
Interest income 96,000

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 Problem 18-9 (AICPA ADAPTED

DECODE ME
2022
Jan.1 Interest income 300,000
Accrued interest receivable 300,000
RULES  
Feb.1 Cash 360,000
Interest income 360,000
 
THEORIES May 1 Investment in bonds 32,000
Interest income 32,000
 
1 Cash 6,480,000
PROBLEMS Investment in bonds 5,832,000
Interest income 180,000
Gain on sale of bonds 468,000
 
MESSAGE

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 Problem 18-9 (AICPA ADAPTED

DECODE ME
Sales price 6,300,000
Carrying amount 5,832,000
RULES
Gain on sale 468,000
 
Sale price 6,300,000
THEORIES Accrued interest from Feb.1 to May 1,2022 180,000
Total cash received 6,480,000
 
PROBLEMS Cost 5,640,000
Amortization of discount from May 1,2020 to May 1,2022 192,000
Carrying amount 5,832,000
MESSAGE
 

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 MESSAGE
DECODE ME

Bonds will be assessed based on

RULES

THEORIES
an entity’s business model and
PROBLEMS
cash flow characteristics.
MESSAGE

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 THAT’S ALL! THANK YOU!
-GROUP 8

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