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Problem - Investment in Debt Secutiry.docx

Problem - Investment in Debt Secutiry.docx - Problem 1 On...

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Problem 1: On October 1, 2015, Nakakalo Co., acquired 2,000 of P1,000 face value, 12% 5-year bonds of Nalolo Co., at a market yield of 11% . Nakakalo Co., also paid brokers commission of P34,274.32. The bonds are dated January 1, 2015, and pays interest semi-annually every June 30, and December 31. Nakakalo Co., manage this type of investment using amortized cost model. On March 1, 2017, Nakakalo Co., sold 500 of the bonds at a market yield of 11%. On the same day, the company wrote a check in payment of the commission to the broker equal to P6,250. Compute for (1) Effective Rate of the Bonds, (2) Total cash paid related to the acquisition of investment, (3) Interest Income for the year ended December 31, 2016, (4) Carrying Value December 31, 2016, (5) Proceeds from Sale of Investment, (6) Gain or Loss from Sale of Investment, (7) Interest Income for the year ended December 31, 2017. If during 2017, Nakakalo Co., has to change its business model to Fair Value Model, and that the fair value of the bond at December 31, 2017 and December 31, 2018 were 102 and 101 respectively. Compute for (8)
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