Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Accounting Review III - Practical Accounting I (ACCTG100C) P1 - 07

BOND INVESTMENT
1. On July 1, 2017, Batman Company purchased as trading investment a P1,000,000 face value 8% bond for P910,000 plus
transaction costs of P50,000 and accrued interest to yield 10%. The bond pays interest annually on December 31. On
December 31, 2017, the bond investment had a market value of P945,000. Cost to sell on that date is P45,000. On April 1,
2018, before the issuance of the financial statements, the entity sold the bond investment for P920,000 plus accrued interest.
What is the carrying amount of the bond investment in December 31, 2017?
A. 910,000 C. 920,000
B. 900,000 D. 945,000
2. On January 1, 2018, Robin Company purchased bonds with face value of P2,000,000 for P1,900,500 including transaction
costs of P100,500 to be held as “available for sale”. The bonds mature on December 31, 2019 and pay interest annually
every December 31 with a 10% effective yield. The bonds are quoted at 110 on December 31, 2017 and 120 on December
31, 2018. What amount of unrealized gain on these bonds should be reported as component of other comprehensive income
for 2018?
A. 269,450 C. 166,945
B. 436,395 D. 499,500
3. On July 1, 2017, Goku Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held to maturity.
Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the effective method
to recognize interests income from this investment, What is the carrying amount of the bond investment on December 31,
2017?
A. 1,207,900 C. 1,195,920
B. 1,198,000 D. 1,193,050
4. On July 1, 2017, Naruto Company purchased as a long-term investment P1,000,000 face value 8% bonds for P946,000
including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on
December 31. The effective interest method of amortization is used. What is the carrying amount of the investment in bonds
on December 31, 2017?
A. 911,300 C. 953,300
B. 916,600 D. 960,600
5. On January 1, 2017, Conan Company purchased bonds with face value of P8,000,000 for P7,679,000 to be held to maturity.
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 interest is payable annually also every December 31. The entity used the interest method
of amortizing discount. What is the carrying amount of the bond investment on December 31, 2017?
A. 5,759,250 C. 7,800,480
B. 7,759,250 D. 5,800,480
6. On July 1, 2017, Lupin Company purchased 10-year 8% bonds with face amount of P5,000,000 for P4,200,000. The bonds
mature on June 30, 2025 and pay interest semi-annually on June 30 and December 31. Using the interest method, the entity
recorded bond discount amortization of P18,000 for the six months ended December 31, 2017. What amount should be
reported as interest income for 2017?
A. 168,000 C. 200,000
B. 182,000 D. 218,000
7. On July 1, 2017, Eugene Company purchased 5-year bonds with face value of P8,000,000 and stated 10% per year payable
semiannually on June 30 and December 31. The bonds were acquired to yield 8%. What is the purchase price of the bonds
on July 1, 2017? (Round present value factors in two decimal places.)
A. 7,382,400 C. 8,648,800
B. 8,617,600 D. 7,351,200
8. On January 1, 2017, Ben10 Company purchased serial bonds with face value of P3,000,000 and stated 12% interest payable
annually every December 31. The bonds are to be held to maturity with a 10% effective yield. The bonds mature at an annual
installment of P1,000,000 every December 31. What is the purchased price of the serial bonds on January 1, 2017? (Round
present value factors in two decimal places.)
A. 3,106,800 C. 3,045,000
B. 3,060,000 D. 3,149,400

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wep/ACCTG100C/investmentinbonds