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Multiple Choice Problems

The document presents multiple choice problems related to the computation of carrying amounts for bonds acquired at a discount and a premium. It includes calculations for the carrying amounts of bonds purchased by Entity A and Entity B, along with the effective interest rate for the premium bond. Additionally, it discusses the recognition of a financial asset under settlement-date accounting for Entity J's purchase commitment.

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25 views4 pages

Multiple Choice Problems

The document presents multiple choice problems related to the computation of carrying amounts for bonds acquired at a discount and a premium. It includes calculations for the carrying amounts of bonds purchased by Entity A and Entity B, along with the effective interest rate for the premium bond. Additionally, it discusses the recognition of a financial asset under settlement-date accounting for Entity J's purchase commitment.

Uploaded by

candyenanomarvida04
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Multiple Choice Problems

MCP 15-1-COMPUTATION OF CARRYING AMOUNT; ACQUIRED AT A DISCOUNT

On Jan. 1, 2021, Entity A purchased P1,000,000 10% bonds for P927,880


(including broker's commission of P20,000). The entity classified the bonds as FA
at AC. The bonds were purchased to yield 12%. Interest is payable annually
every Dec. 31. The bonds mature on Dec. 31, 2025. On Dec. 31, 2021, the bonds
were selling at 99. How much is the carrying amount the investment in bonds on
Dec. 31, 2021?
a.P916,530
b. P939,230

c. P961,630
d. P990,000

Date (A) (B) (C) = (B)-(A) (D)


(10%) (12%) Amortization P.V./
Interest Interest
Carrying Amount
Received Income
D+C
FA × SR D × MR

1/1/21 927,880

12/31/21 100,000 111,346 11,346 939,226

Round off to the nearest whole number to get the exact amount of P939,230
MCP 15-2-Computation of carrying amount; acquired at a premium with
computation of effective interest rate

On Jan. 1, 2021, Entity B purchased P1,000,000 10% bonds for P1,051,510


(including broker's commission of P20,000). Interest is payable annually every
Dec. 31. The bonds mature on Dec. 31, 2023. The prevailing market rate for the
bonds is 9% at Dec. 31, 2021. If the entity holds investment in bonds in order to
collect contractual cash flows, the amount to be reported on the entity's Dec.
31, 2021 statement of financial position is
a. P1,017,610
b. P1,025,330

c. P1,034,340
d. P1,035,630

Purchase price already includes broker’s commission.


Initial carrying amount = 1,051,510

Face value = 1,000,000


CA > FA = PREMIUM

P1,051,510 > P1,000,000


The bond is purchased at a PREMIUM.

Determine the Effective Interest Rate


The EIR is the rate that makes the present value of the future cash flows equal to
the purchase price (1,051,510).
Testing 8%:

PV Factor of PV Factor Cash Flow Present Value

Single Payment for 3 0.793832 P1,000,000 P793,832


periods of 8%

Ordinary annuity for 3 2.577096 100,000 257,710


periods at 8%
(1M x 10%)

Present Value 1,051,542


1/1/23

Interest revenue (2021)


1,051,510 × 8% = 84,121
Date (A) (B) (C) = (B)-(A) (D)

(10%) Interest (8%) Interest Amortization P.V./


Received Income
Carrying Amount
FA × SR D × MR

1/1/21 1,051,510

12/31/21 100,000 84,121 15,879 1,035,631


MCP 15-10-Regular way purchase
On Dec. 28, 2021, Entity J commits itself to purchase a debt investment to be
classified as FA at AC for P1,000,000, its fair value on commitment (trade) date.
This investment has a fair value of P1,002,000 and P1,005,000 on Dec. 31, 2021
(Entity J's financial year-end), and Jan. 5, 2022 (settlement date), respectively. If
Entity J applies the settlement date accounting method to account for regular
way purchases of financial assets, the financial asset should be recognized on
Jan. 5, 2022 at
a. Nil
b. P1,000,000

c. P1,002,000
d. P1,005,000

• Settlement-date accounting
 record the asset only when you actually get it.

• Ownership / payment = Jan 5, 2022


 recognize at ₱1,005,000.

✅ Answer: D. ₱1,005,000

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