Professional Documents
Culture Documents
DEFINITION
• Investments include investment in securities, whether equity or debt securities, funds for
long term use such as plant expansion fund, equipment acquisition fund, stock redemption
fund and sinking fund, investment property and cash surrender value of life insurance
policies
NATURE
DEBT SECURITIES
• include government securities such as Philippines treasury bills and warrants, corporate
bonds, convertible debt and commercial papers.
CHARACTERISTICS
1. a maturity value
3. a maturity date
Debt investment
Problem 1
On January 1, 2019, Richmond Company purchased 4,000 of the P1,000 face value, 8%
bonds of Mike Corporation for P3,691,500. The bonds were purchased to yield 10% interest.
Interest is payable semi-annually on June 30 and December 31. The bonds mature on
December 31, 2023. On May 31, year 2021, Richmond sold the bonds for P3,925,000. This
amount includes the appropriate accrued interest.
Market value of the bonds at the end of each reporting periods follows:
Required:
1. Prepare the entries in the books of Richmond Company for year 2019-2021, as a result of
all the foregoing assuming that the securities are classified as
1. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
2. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
3. What amount of gain or loss recognized on the sale of investment on May 31, 2021?
4. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
5. What amount of interest income will be taken to profit or loss for year ended
December 31, 2019?
6. What amount of gain or loss recognized on the sale of investment on May 31, 2021?
7. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
8. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
9. What amount of gain or loss recognized on the sale of investment on May 31, 2021?
10. What cumulative amount of other comprehensive income shall be presented in the
equity section of statement of financial position at December 31, 2020
PROBLEM 2
Market value of the bonds at the end of each reporting periods follows:
Required:
1. Prepare the entries in the books of Richmond Company for year 2019-2021, as a result of
all the foregoing assuming that the securities are classified as
1. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
2. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
3. What amount of gain or loss recognized on the sale of investment on April 1, 2021?
4. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
5. What amount of interest income will be taken to profit or loss for year ended
December 31, 2019?
6. What amount of gain or loss recognized on the sale of investment on April 1, 2021?
7. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
8. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
9. What amount of gain or loss recognized on the sale of investment on April 1, 2021?
10. What cumulative amount of other comprehensive income shall be presented in the
equity section of statement of financial position at December 31, 2021
Problem 3
On June 1, 2019, Richmond Company purchased 4,000 of the P1,000 face value, 8% bonds
of Mike Corporation for P3,691,500. The bonds were purchased to yield 10% interest. Interest
is payable semi-annually on December 1 and June1. The bonds mature on June 1, 2023. On
November 1, year 2021, Richmond sold the bonds for P3,925,000. This amount includes the
appropriate accrued interest.
Market value of the bonds at the end of each reporting periods follows:
Required:
1. Prepare the entries in the books of Richmond Company for year 2019-2021, as a result of
all the foregoing assuming that the securities are classified as
1. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
2. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
4. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
5. What amount of interest income will be taken to profit or loss for year ended
December 31, 2019?
7. At what amount should the bond investment be shown on December 31, 2020
statement of financial position?
8. What amount of interest income will be taken to profit or loss for year ended
December 31, 2021?
10. What cumulative amount of other comprehensive income shall be presented in the
equity section of statement of financial position at December 31, 2021
Problem 4
On January 1, 2019 Richmond Corporation purchased for P95,025, a price that yield 10%, P100,000 of Mike
Company 8% bonds. The bonds pay interest annually at December 31 and mature on December 31, 2021. Richmond
designated the bonds as at amortized cost.
On December 31, 2020 Mike company, due to its financial difficulty, negotiated for restructuring of its bonds.
having been able to collect interest for year 2019, the bondholder agreed to condone the interest due on this date and
reduced the interest rate for the remaining term of the bonds to 4%.
Required:
2. Impairment loss