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    Bsa 1

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    Gray Javier
    Bola Company purchased a short-term debt instrument for P1,860,000 which included accrued interest. The instrument should be initially recorded at its fair value of P1,800,000 which excludes the accrued interest. Bebe Bank purchased treasury notes at 102% of par value excluding accrued interest. The correct entry to record this purchase debits trading securities for the cost of P102,000 and credits cash and interest receivable for the amount paid. Parokya Company purchased a debt security for P2,100,000 which included accrued interest. The amount to report for the investment at initial recognition should be P2,040,000 which is the acquisition cost excluding the

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    Bsa 1

    Uploaded by

    Gray Javier
    168 views3 pages
    Bola Company purchased a short-term debt instrument for P1,860,000 which included accrued interest. The instrument should be initially recorded at its fair value of P1,800,000 which excludes the accrued interest. Bebe Bank purchased treasury notes at 102% of par value excluding accrued interest. The correct entry to record this purchase debits trading securities for the cost of P102,000 and credits cash and interest receivable for the amount paid. Parokya Company purchased a debt security for P2,100,000 which included accrued interest. The amount to report for the investment at initial recognition should be P2,040,000 which is the acquisition cost excluding the

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    Bola Company purchased a short-term debt instrument for P1,860,000 which included accrued interest. The instrument should be initially recorded at its fair value of P1,800,000 which excludes the accrued interest. Bebe Bank purchased treasury notes at 102% of par value excluding accrued interest. The correct entry to record this purchase debits trading securities for the cost of P102,000 and credits cash and interest receivable for the amount paid. Parokya Company purchased a debt security for P2,100,000 which included accrued interest. The amount to report for the investment at initial recognition should be P2,040,000 which is the acquisition cost excluding the

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    168 views3 pages

    Bsa 1

    Uploaded by

    Gray Javier
    Bola Company purchased a short-term debt instrument for P1,860,000 which included accrued interest. The instrument should be initially recorded at its fair value of P1,800,000 which excludes the accrued interest. Bebe Bank purchased treasury notes at 102% of par value excluding accrued interest. The correct entry to record this purchase debits trading securities for the cost of P102,000 and credits cash and interest receivable for the amount paid. Parokya Company purchased a debt security for P2,100,000 which included accrued interest. The amount to report for the investment at initial recognition should be P2,040,000 which is the acquisition cost excluding the

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    Bsa 1

    1. On May 1, 2012, Bola Company purchased a short-term P2,000,000 face value,


    9% debt instruments for P1,860,000 including the accrued interest and classified
    it as an investment to profit or loss security. The debt instruments mature on
    January 1, 2015, and pay interest semi-annually on January 1 and July 1. On
    December 31, the fair market value of the instruments is 98%. On March 2, 2013,
    Bola Company sold the trading security for P1,980,000.

    At what amount should the investment be initially recorded?

    a. P1,800,000
    b. P1,845,000
    c. P1,860,000
    d. P2,000,000

    ANSWER: A

    Amount Paid P1,860,000


    Accrued Interest ( 60,000)
    Fair value at initial recognition P1,800,000

    2. On April 1, 2012, Bebe bank purchased as a temporary investment P100,000,


    face amount, 10%, BSP treasury notes with interest payments set semi-annually
    on January 1 and July 1. The notes were purchased at 102 excluding accrued
    interest.

    Which of the following entries correctly records this purchase?

    a. Trading Securities- 10% BSP Treasury Notes 100,000


    Interest Receivable 2,500
    Premium on Trading Securities 2,000
    Cash 104,500

    b. Trading Securities- 10% BSP Treasury Notes 102,000


    Interest Receivable 2,500
    Cash 104,500

    c. Trading Securities- 10% BSP Treasury Notes 100,000


    Interest Receivable 4,500
    Cash 104,500
    d. Trading Securities- 10% BSP Treasury Notes 102,000
    Cash 102,000

    ANSWER: B
    Cost of the trading security (P100,000 x 102%) P102,000
    Interest Receivable (P100,000 x 10% x 3/12) 2,500
    Total cash paid P104,500

    3. On May 1, 2014, Parokya Company purchased a debt security having a face


    value of P2,000,000 with an interest rate of 9% for P2,100,000 including the
    accrued interest. Parokya Company has a business model with the objective of
    collecting all the contractual cash flows of debt securities. The bonds mature on
    January 1, 2019, and pay interest semi-annually on January 1 and July 1. On
    December 31, 2014, the bonds had a market value of P2,205,000.

    What amount should Parokya report for short-term investment in debt securities
    at initial recognition?

    a. P2,000,000
    b. P2,040,000
    c. P2,100,000
    d. P2,205,000

    ANSWER: B

    Amount Paid P2,100,000


    Less: Accrued interest (Jan. 1 to May 1)
    (P2000,000 x 9% x 4/12) 60,000
    Acquisition Cost P2,040,000

    4. On October 1, 2014, Adidas Company purchased a debt security having a face


    value of P3,000,000 with an interest rate of 10% for P3,200,000 including the
    accrued interest. A total of P50,000 was incurred and paid by Adidas Company
    which is in relation to the acquisition of the debt instrument. Adidas Company has
    a business model that collect all contractual cash flows for interest and principal
    payments. The bonds mature on January 1, 2019, and pay interest semi-annually
    on January 1 and July 1. On December 31, 2014, the bonds had a market value
    of P3,400,000.

    What amount should Adidas report for investment in debt securities?

    a. P3,125,000
    b. P3,175,000
    c. P3,200,000
    d. P3,250,000

    ANSWER: B

    Total cash paid for the instruments P3,200,000


    Less: Accrued interest for 3 months
    (3,000,000 x 10% 3/12) 75,000
    Cash paid for the debt instruments 3,125,000
    Add: Transaction costs 50,000
    Historical cost P3,175,000

    5. On January 1, 2014, Bella Company purchased a 10-year, 10%, P3,000,000 face


    value bonds for 110 incurring incidental transaction cost of P36,000. Interests are
    received semi-annually on January 1 and July 1. Bella Company has a business
    model of collecting all contractual cash flows of debt instruments.

    What is the total carrying value of bonds on January 1, 2014?

    a. P3,000,000
    b. P3,264,000
    c. P3,300,000
    d. P3,336,000

    ANSWER: D

    Purchase price (P3,000,000 x 110%) P3,300,000


    Add: Transaction costs 36,000
    Total carrying value date of acquisition P3,336,000

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