CHAPTER 19

FINANCIAL ASSET AT AMORTIZED COST

Bond Investment
PROBLEMS

Problem 19-1 (IAA)

Mature Company carried out the following transactions in bond investments held for trading
during the current year.

Aug. 1 Purchased 5,000, P1,000, 12% bonds of Acme Company at 104 plus accrued interest of
P150,000. The bonds pay interest semiannually on May 1 and November 1.

31 Purchased 2,000, P1,000, 12% bonds of Avco Company at 98 plus accrued interest, June 30
And December 31.

Dec. 1 Sold 2,000 of the Acme bonds at 102 plus accrued interest.
31 The following quotations were obtained:

Acme bonds 98
Avco bonds 99

Required:
Prepare journal entries to record the transactions.

Date Journal Entries Debit Credit

Aug. 1 Financial Asset - FVPL 5,200,000
Interest Income 150,000
Cash 5,350,000

31 Financial Asset - FVPL 1,960,000

Interest Income (2/12 x 12% x 2M) 40,000
Cash 2,000,000

Nov. 1 Cash 300,000

Interest Income 300,000

Dec. 1 Cash 2,060,000

Loss on sale of financial asset 40,000
Financial Asset - FVPL 2,080,000
Interest Income 20,000
 31 Cash 120,000
Interest Income 120,000

31 Unrealized Loss 160,000

Financial Asset - FVPL 160,000

Problem 19-2 (IAA)

Bullish Company had the following transactions in bond investment held as trading for the current year.

Mar. 1 Purchased 2,000, P1,000, 12% bonds of Long Company at 93 excluding accrued interest. Interest
Is payable on February 1 and August 1.

Apr. 1 Purchased 4,000, P1,000, 12% bonds of National Corporation at 95 plus accrued interest.
Interest is payable March 1 and September 1.

Oct 1 Sold 1,000 of National bonds at 105 excluding accrued interest.

Dec 1 Sold all of the long bonds at 100 plus accrued interest.
31 The market value of the National bonds is 90.

Required:
Prepare Journal entries for the current year.

Date Journal Entries Debit Credit

Mar. 1 Financial Asset - FVPL 1,860,000
Interest Income 20,000
Cash 1,880,000

Apr. 1 Financial Asset - FVPL 3,800,000

Interest Income (1/12 x 12% x 4M) 40,000
Cash 3,840,000

Aug. 1 Cash 120,000

Interest Income 120,000

Aug. 1 Cash 240,000

Interest Income 240,000

Oct. 1 Cash 1,060,000

Financial Asset - FVPL 950,000
Interest Income 10,000
Gain on sale of financial asset 100,000
 Dec. 1 Cash 2,080,000
Financial Asset - FVPL 1,860,000
Interest Income 80,000
Gain on sale of financial asset 140,000

31 Unrealized Loss 150,000

Financial Asset - FVPL 150,000

Problem 19-3 (AICPA Adapted)

On October 1, 2024, Yost Company purchased 4,000 of the P1,000 face amount, 10% bonds of Pell
Company for P4,400,000 which included accrued interest of P100,000

The bonds, which mature on January 1, 2031, pay interest semiannually on January 1 and July 1.

The entity used straight line method of amortization and appropriately recorded the bonds as financial
asset at amortized cost.

Required:
Prepare journal entries for 2024 and 2025

Date Journal Entries Debit Credit

20x4
Oct. 1 Investment in bonds 4,300,000
Interest Income 100,000
Cash 4,400 ,000

Dec. 31 Accrued Interest Receivable 200,000

Interest Income 200 ,000

31 Interest Income 12,000

Investment in bonds 12,000

20x5
Jan. 1 Interest Income 200,000
Accrued Interest Receivable 200,000

1 Cash 200,000
Interest Income 200,000

Jul. 1 Cash 200,000

Interest Income 200,000
 Dec. 31 Accrued Interest Receivable 200,000
Interest Income 200 ,000

31 Interest Income 48,000

Investment in bonds 48,000

Problem 19-4 (IAA)

Manda Company acquired P6,000,000 of Landoil 12% bonds on May 1, 2024 at 94 plus accrued interest
to be held on financial asset at amortized cost.

The bonds pay interest semiannually on February 1 and August 1, and mature on February 1, 2028.

The fiscal period for Manda Company is the calendar period. Amortization is done following the straight
line method.

On May 1, 2026, Manda Company sold all the bonds at 105 plus accrued interest.

Required:
Prepare journal entries for 2024, 2025 and 2026.

Date Journal Entries Debit Credit

20x4
May 1 Investment in bonds 5,640 ,000
Interest Income 180,000
Cash 5,820,000

Aug. 1 Cash 360,000

Interest Income 360,000

Dec. 31 Accrued Interest Receivable 300,000

Interest Income 300,000

31 Investment in bonds 64,000

Interest Income 64,000

20x5
Jan. 1 Interest Income 300,000
Accrued Interest Receivable 300,000

Feb. 1 Cash 360,000

Interest Income 360,000
 Aug. 1 Cash 360,000
Interest Income 360,000

Dec. 31 Accrued Interest Receivable 300,000

Interest Income 300,000

31 Investment in bonds 96,000

Interest Income 96,000

20x6
Jan. 1 Interest Income 300,000
Accrued Interest Receivable 300,000

Feb. 1 Cash 360,000

Interest Income 360,000

May. 1 Investment in bonds 32,000

Interest Income 32,000

1 Cash 6,480,000
Investment in bonds 5,832,000
Interest Income 180,000
Gain on sale of financial asset 468,000

Problem 19-5 (ACP)

On January 1, 2024, Flexible Company acquired for P5,750,000 the entire P5,000,000 12% bond issue of
another entity to be held as financial asset at amortized cost.

Bonds of P1,000,000 mature at annual interval beginning December 31, 2024. Interest is payable
semiannually on June 30 and December 31.

Required:
1. Prepare a schedule of amortization following the bond outstanding method.
2. Prepare journal entries for 2024.

Year Bond outstanding Fraction Premium amortization

20x4 5,000,000 5/15 250,000
20x5 4,000,000 4/15 200.000
20x6 3,000,000 3/15 150,000
20x7 2,000,000 2/15 100,000
20x8 1,000,000 1/15 50,000
15,000,000 750,000
 Date Journal Entries Debit Credit
20x4
Jan 1 Investment in bonds 5,750,000
Cash 5,750,000

June 31 Cash 300,000

Interest Income 300,000

Dec. 31 Cash 300,000

Interest Income 300,000

31 Interest Income 250,000

Investment in bonds 250,000

31 Cash 1,000,000
Investment in bonds 1,000,000

Problem 19-6 (IAA)

On October 1, 2024, Complex Company purchased a 12% P3,000,000 face amount bond issue for
P2,700,000 excluding accrued interest to be held as financial asset at amortized cost.

The date of the bonds is February 1, 2024 and the interest is payable semiannually on February 1 and
August 1.

The bonds mature annually at the rate of P1,000,000 on February 1, 2025 and every February 1
thereafter.

Required:

1. Prepare a schedule of amortization following the bond outstanding method

2. Prepare journal entries for 2024 and 2025.

Year Bond Months Peso Month Fraction Discount

outstandin Outstanding amortization
g
10/1/x4 – 2/1/x5 3,000,000 4 12,000,000 12/48 75,000
2/1/x5 – 2/1/x6 2,000,000 12 24,000,000 24/48 150.000
2/1/x6 – 2/1/x7 1,000,000 12 12,000,000 12/48 75,000
6,000,000 48,000,000 300,000
Date Journal Entries Debit Credit
20x4
Oct. 1 Investment in bonds 2,700,000
Interest Income 60,000
Cash 2,760,000

Dec. 31 Accrued Interest Receivable 150,000

Interest Income 150,000

31 Investment in bonds 56,250

Interest Income 56,250

20x5
Jan. 1 Interest Income 150,000
Accrued Interest Receivable 150,000

Feb. 1 Cash 180,000

Interest Income 180,000

1 Cash 1,000,000
Investment in bonds 1,000,000

Aug. 1 Cash 120,000

Interest Income 120,000

Dec. 31 Accrued Interest Receivable 100,000

Interest Income 300,000

31 Investment in bonds 156,250

Interest Income 156,250
 CHAPTER 20
EFFECTIVE INTEREST METHOD
Amortized cost, FVOCI, and FVPL

Problem 20-2 (IAA)

Enormous Company acquired P6,000,000 12% bonds on February 1, 2024 for P5,486,000 to be
held as financial asset at amortized cost.

The bonds pay interest annually on February 1 and mature on February 1, 2028. The bonds are
acquired to yield a 15%effective rate.

The fiscal period for the entity is the calendar period. Amortization is done following the
effective interest method.

On May 1, 2025, Enormous Company sold all the bonds at 105 plus accrued interest.

Required:
Prepare journal entries for 2024 and 2025.

Date Interest Interest Income Discount Carrying

Received Amortization Amount
2/1/2024 5,486,000
2/1/2025 720,000 822,900 102,900 5,588,900
2/1/2026 720,000 838,335 118,335 5,707,235

Date Journal Entries Debit Credit

20x4
Oct. 1 Investment in bonds 5,486,000
Cash 5,486,000

Dec. 31 Accrued Interest Receivable 660,000

Interest Income 660,000

31 Investment in bonds 94,325

Interest Income 94,325

20x5
Jan. 1 Interest Income 660,000
Accrued Interest Receivable 660,000
 Feb. 1 Cash 720,000
Interest Income 720,000

1 Investment in bonds 8,575

Interest Income 8,575

May 1 Investment in bonds 29,583.75

Interest Income 29,583.75

1 Cash 6,480,000
Investment in bonds 5,618,483.75
Interest Income 180,000
Gain on sale 681,516.25

Problem 20-3 (IAA)

On January 1, 2024, Portugal Company purchased' bonds with face amount of P8,000,000 for
P7,679,000 to be measured at amortized cost. 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 the interest is
payable annually also every December 31. The entity used the effective interest method of
amortizing discount.

Required:
1. Prepare journal entries for 2024 and 2025.
2. Determine the carrying amount of the bond investment on December 31, 2025.

Date Interest Interest Discount Principal Principal

Carrying
Received Income Amortization PaymentAmount
1/1/2024 7,679,000
12/31/2024 800,000 921,480 121,480 8,000,000 2,000,000 5,800,480
12/31/2025 600,000 696,057.60 96,057.60 6,000,000 2,000,000 3,896,537.60

Date Journal Entries Debit Credit

20x4
Oct. 1 Investment in bonds 7,679,000
Cash 7,679,000

Dec. 31 Cash 800,000

Interest Income 800,000

31 Investment in bonds 121,480

 Interest Income 121,480

31 Cash 2,000,000
Investment in bonds 2,000,000

20x5
Dec. 31 Cash 600,000
Interest Income 600,000

31 Investment in bonds 96,057.60

Interest Income 96,057.60

31 Cash 2,000,000
Investment in bonds 2,000,000

Date Interest Interest Discount Principal Principal Carrying

Received Income Amortization Payment Amount
1/1/2024 7,679,000
12/31/2024 800,000 921,480 121,480 8,000,00 2,000,000 5,800,480
0
12/31/2025 600,000 696,057.60 96,057.60 6,000,00 2,000,000 3,896,537.60
0

Problem 20-4 (IAA)

On January 1, 2024, Russia Company purchased 5-year bonds with face amount of P8,000,000
and stated interest of 10% per year payable semiannually January 1 and July 1. The bonds were
acquired to yield 8%.
Present value of an annuity of 1 for 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.68

Required:
a. Determine the market price of the bonds.
b. Prepare journal entries for 2024. The effective interest method of amortization is used.
c. Determine the carrying amount of the bond investment on December 31, 2024.

PV of interest – (400,000 x 8.11) 3,244,000

PV of principal – (8,000,000 x 0.68) 5,440,000
Market Price – 8,684,000

Date Interest Interest Premium Carrying

Received Income Amortization Amount
1/1/2024 8,684,000
 7/1/2024 400,000 347,360 52,640 8,631,360
12/31/2024 400,000 345,254.40 54,745.60 8,576,614.40

Date Journal Entries Debit Credit

20x4
Jan. 1 Investment in bonds 8,684,000
Cash 8,684,000

July 1 Cash 400,000

Interest Income 400,000

31 Interest Income 52,640

Investment in bonds 52,640

Dec. 31 Accrued Interest Receivable 400,000

Interest Income 400,000

31 Interest Income 54,745.60

Investment in bonds 54,745.60

Problem 20-5 (IAA)

On January 1, 2024, Labyrinth Company purchased serial bonds with face amount of P3,000,000
and stated 12% interest payable annually every December 31.

The bonds are to be held as financial asset at amortized cost with a 10% effective yield. The
bonds mature at an annual installment of P1,000,000 every December 31.

Present value of 1 at 10% for one period 0.91

Present value of 1at 10% for two periods 0.83
Present value of 1 at 10% for three periods 0.75

Required:
1. Determine the market price of the bonds.
2. Prepare journal entries for 2024. The effective interest method of amortization is used.
3. Determine the carrying amount of the bond investment on December 31, 2024.

Principal due on 12/31/2024 1,000,000

Interest on 12/31/2024 360,000
Total 1,360,000

Principal due on 12/31/2024 1,000,000

Interest on 12/31/2024 240,000
 Total 1,240,000

Principal due on 12/31/2024 1,000,000

Interest on 12/31/2024 120,000
Total 1,120,000

Dec. 31, 2024 (1,360,000 x 0.91) 1,237,600

Dec. 31, 2025 (1,240,000 x 0.83) 1,029,200
Dec. 31, 2026 (1,120,000 x 0.75) 840,000
Market Price 3,106,800

Date Interest Interest Premium Principal Principal Carrying

Received Income Amortization Payment Amount
1/1/2024 3,106,800
12/31/2024 360,000 310,680 49,320 3,000,000 1,000,000 1,950,680
12/31/2025 240,000 195,068 44,932 2,000,000 1,000,000 905,748

Date Journal Entries Debit Credit

20x4
Jan. 1 Investment in bonds 3,106,800
Cash 3,106,800

Dec. 1 Cash 360,000

Interest Income 360,000

31 Interest Income 49,320

Investment in bonds 49,320

31 Interest Income 1,000,000

Investment in bonds 1,000,000

Problem 20-6 (AICPA Adapted)

On January 1, 2024, Dean Company purchased ten-year bonds with a face amount of
P5,000,000 with effective yield of 10%The stated interest rate is 8% per year payable
semiannually June 30 and December 31.

Present value of 1 for 10 periods at 10% .39

Present value of 1 for 20 periods at 5% .38
Present value of an ordinary annuity of 1 for 10 periods at 10%. 6.15
Present value of an ordinary annuity of 1 for 20 periods at 5% 12.46

Required:
1. Determine the market price of the bonds.
2: Prepare journal entries for 2024.
3. Determine the carrying amount of the bond investment on December 31, 2024.

PV of interest – (200,000 x 12.46) 2,492,000

PV of principal – (5,000,000 x 0.38) 1,900,000
Market Price – 4,392,000

Date Interest Interest Discount Carrying

Received Income Amortization Amount
1/1/2024 4,392,000
6/30/2024 200,000 219,600 19,600 4,411,600
12/31/2024 200,000 220,580 20,580 4,432,180

Date Journal Entries Debit Credit

20x4
Jan. 1 Investment in bonds 4,392,000
Cash 4,392,000

June 31 Cash 200,000

Interest Income 200,000

31 Investment in bonds 19,600

Interest Income 19,600

Dec. 31 Cash 200,000

Interest Income 200,000

31 Investment in bonds 20,580

Interest Income 20,580

Problem 20-7 (IFRS)

On January 1, 2024, Michelle Company purchased bonds with face amount of P5,000,000. The
entity paid P4,600,000 plus transaction cost of P142,000 for the bond investment.
The business model of the entity in managing the financial asset is to collect contractual cash
flows that are solely payment of principal and interest and also to sell the bonds in the open
market.

The bonds mature on December 31, 2026 and pay 6% interest annually on December 31 each
year with 8% effective yield.
The bonds are quoted at 105 on December 31, 2024 and 110 on December 31, 2025.

The bonds are redeemed at face amount on December 31, 2026.

Required:
1. Prepare an amortization table for the bond discount
2. Prepare journal entries for 2024, 2025 and 2026.

Date Interest Interest Discount Carrying

Received Income Amortization Amount
1/1/2024 4,742,000
12/31/2024 300,000 379,360 70,360 4,821,360
12/31/2025 300,000 385,708.80 85,708.80 4,907,068.80
12/31/2026 300,000 392,565.504 92,565.504 5,000,000

Date Journal Entries Debit Credit

20x4
Jan. 1 Financial Asset - FVOCI 4,742,000
Cash 4,742,000

Dec 31 Cash 300,000

Interest Income 300,000

31 Financial Asset - FVOCI 70,360

Interest Income 70,360

31 Financial Asset– FVOCI (5,250,000 – 428,640

4,821,360)
Unrealized Gain - OCI 428,640

20x5
Dec. 31 Cash 300,000
Interest Income 300,000

31 Financial Asset - FVOCI 85,708.80

Interest Income 85,708.80

31 Financial Asset–FVOCI(5,500,000– 164,291.2

4,907,068.8)
Unrealized Gain - OCI 164,291.2

20x6
Dec. 31 Cash 300,000
Interest Income 300,000

31 Financial Asset - FVOCI 92,565.50

 Interest Income 92,565.50

31 Cash 5,000,000
Financial Asset - FVOCI 5,000,000

Problem 20-8 (IFRS)

On January 1, 2024, Dumaguete Company purchased bonds with face amount of P4,000,000 for
P4,206,000. The business model of the entity in managing the financial asset is to collect
contractual cash flows that are solely payment of principal and interest and also to sell the
bonds in the open market.

The entity has not elected the fair value option of measuring financial asset.

The bonds mature on December 31, 2026 and pay 10% interest annually on December 31 each
year with 8% effective yield.

The bonds are quoted at 95 on December 31, 2024 and 90 on December 31, 2025

Required:
1. Prepare an amortization table for the bond premium.
2. Determine the unrealized loss for 2024 and 2025.
3. Prepare journal entries for 2024 and 2025.

Date Interest Interest Premium Carrying

Received Income Amortization Amount
1/1/2024 4,206,000
12/31/2024 400,000 336,480 63,520 4,142,480
12/31/2025 400,000 331,398.4 68,601.6 4,073,878.4
12/31/2026 400,000 325,910.272 74,089.728 4,000,000

Date Carrying Market Unrealized

Amount Value Gain or Loss
1/1/2024 4,206,000
12/31/2024 4,142,480 3,800,000 (342,480)
12/31/2025 4,073,878.4 3,600,000 (473,878.4)

Date Journal Entries Debit Credit

20x4
Jan. 1 Financial Asset - FVOCI 4,206,000
Cash 4,206,000

Dec.31 Cash 400,000

 Interest Income 400,000

31 Interest Income 63,520

Financial Asset - FVOCI 63,520

31 Unrealized Loss - OCI 342,480

Financial Asset– FVOCI (3.8M – 342,480
4,142,480)

20x5
Dec. 31 Cash 400,000
Interest Income 400,000

31 Financial Asset - FVOCI 68,601.6

Interest Income 68,601.6

31 Financial Asset – FVOCI (3.6M–4,073,878.4) 131,398.4

Unrealized Gain - OCI 131,398.4

Problem 20-9 (IFRS)

Love Company purchased P5,000,000 of 8%, 5-year bonds on January 1, 2024 with interest
payable on June 30 and December 31. The bonds were purchased for P5,208,000 at an effective
interest rate of 7%.

The business model for this investment is to collect contractual cash flows and sell the bonds in
the open market. On December 31, 2024, the bonds were quoted at 106.

Required:
1. Prepare an amortization table for the bond premium.
2. Determine the unrealized gain for 2024.
3. Prepare journal entries for 2024.

Date Interest Interest Premium Carrying

Received Income Amortization Amount
1/1/2024 5,208,000
6/30/2024 208,320 182,280 26,040 5,181,960
12/31/2024 208,320 181,368.6 26,951.4 5,155,008.6
6/30/2025 208,320 180,425.301 27,894.699 5,127,113.9

Date Carrying Market Unrealized

Amount Value Gain or Loss
1/1/2024 5,208,000
 6/30/2024 5,181,960 - -
12/31/2024 5,155,008.6 5,300,000 144,991.4

Date Journal Entries Debit Credit

20x4
Jan. 1 Financial Asset - FVOCI 5,208,000
Cash 5,208,000

Jun. 30 Cash 208,320

Interest Income 208,320

30 Interest Income 26,040

Financial Asset - FVOCI 26,040

Dec. 31 Cash 208,320

Interest Income 208,320

31 Interest Income 26,951.4

Financial Asset - FVOCI 26,951.4

31 Financial Asset - FVOCI 144,991.4

Unrealized Gain - OCI 144,991.4

Problem 20-10 (IAA)

On January 1, 2024, Reign Company purchased 12% bonds with face amount of P5,000,000 for
P5,380,000. The bonds provide an effective yield of 10%.
The bonds are dated January 1, 2024, mature on January 1,2028 and pay interest annually on
December 31 of each year. The bonds are quoted at 120 on December 31, 2024 and 115 on
December 31,2025.

The entity has elected the fair value option for the bond investment.

Required:
Prepare journal entries for 2024 and 2025.

Date Journal Entries Debit Credit

20x4
Jan. 1 Financial Asset - FVPL 5,380,000
Cash 5,380,000

Dec. 31 Cash 600,000

Interest Income 600,000
 31 Financial Asset – FVPL (6M – 5,380,000) 620,000
Unrealized Gain – P/L 620,000

20x5
Dec. 31 Cash 600,000
Interest Income 600,000

31 Unrealized Loss – P/L 250,000

Financial Asset – FVPL (5,750,000 – 6M) 250,000

Problem 20-11 (IAA)

On January 1, 2024, Gelyka Company purchased 12% bonds with face amount of P5,000,000 for
P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of 10%.

The bonds are dated January 1, 2024 and pay interest annually on December 31 of each year.

The bonds are quoted at 115 on December 31, 2024.

The entity has irrevocably elected the fair value option for the bond investment.

Required:
1. Prepare journal entries for 2024.
2. Determine the total amount of income from the investment for 2024.
3. Determine the carrying amount of the investment on December 31, 2024.

Date Journal Entries Debit Credit

20x4
Jan. 1 Financial Asset - FVPL 5,400,000
Transaction Costs 100,000
Cash 5,500,000

Dec. 31 Cash 600,000

Interest Income 600,000

31 Financial Asset – FVPL (5,750,000 – 5.4M) 350,000

Unrealized Gain – P/L 350,000

Interest Income – (5,000,000 x .12) 600,000

Carrying Amount on 12/31/24 – (1.15 x 5,000,000) 5,750,000
 CHAPTER 21
RECLASSIFICATION OF FINANCIAL ASSETS

PROBLEMS
Problem 21-1 (IFRS – From FVOCI to amortized cost)

On January 1, 2024 Complex Company purchased bonds with face amount of P5,000,000. The
entity paid P4,500,000 plus transaction cost of P168,600.

The business model in managing the financial assets is to collect contractual cash flows and also
to sell the bonds in the open market.

The bonds mature on December 31,2027 and pay 6% interest annually on December 31 of each
year with 8% effective yield.

The bonds are quoted at 105 on December 31, 2024 and 110 on December 31, 2025. On
December 31, 2026, the bonds are quoted at 115 and the market rate of interest is 10%

Required:
Prepare journal entries for 2024,2025 and 2026.

Problem 21-2 (IFRS – From amortized cost to FVOCI)

On January 1, 2024, Myopic Company purchased bonds with face amount of P2,000,000 for
P1,900,500 including transaction cost of P100,500.
The bonds mature on December 31, 2026 and pay 8% interest annually every December 31
with a 10% effective yield.
The business model for this investment is to collect contractual cash flows which are solely
payments of principal and interest.
On December 31, 2024, the entity changed the business model for this investment to collect
contractual cash flows and to sell the financial asset in the open market.
The bonds are quoted at 110 on January 1, 2025 and 120 on December 31,2025.
Required:
Prepare journal entries for 2024 and 2025.
Problem 21-3 (IFRS – From amortized cost to FVPL)

On January 1, 2024, Soledad Company purchased 10% ten-year bonds with face amount of
P3,000,000 for P3,405,000 to yield 8%.

The business for this investment is to collect contractual cash flows composed of interest and
principal.

The entity used the effective interest method of amortization and interest is payable annually
every December 31.

On December 31, 2025, the entity changed the business model for this investment to realize
fair value changes. On January 1, 2026, the fair value of the bonds was P2,845,000.

Required:
Prepare journal entries for 2024,2025 and 2026.

Problem 21-4 (IFRS – From FVPL to amortized cost)

On January 1, 2024, Royalty company purchased bonds with face amount of P6,000,000 and 9%
stated rate. The bonds were purchased for P5,550,000 to yield 11% and mature on January 1,
2029.

The entity classified the bonds as held for trading and interest is payable annually every
December 31.

The entity provided the following information about fair value of the bonds and effective rate:

Fair Value Effective rate

December 31, 2024 5,450,000 12%
December 31, 2025 6,150,000 8%

On December 31, 2025, the entity changed the business model for this investment to collect
contractual cash flows composed of principal and interest.
The fair value of the bonds of P6,150,000 on December 31, 2025 remain unchanged on January
1, 2026.
Required:
Prepare journal entries for 2024,2025 and 2026.
Problem 21-5 (IFRS – From FVOCI to FVPL)
On January 1, 2024, Zeta Company purchased 8% bonds with face amount of P4,000,000. The
bonds were purchased for P4,335,000 to yield 6% and mature on January 1, 2029. Interest is
payable annually every December 31.
The business model for this investment is to collect contractual cash flows composed of
principal and interest and to sell the asset in the open market.
Fair Value
December 31, 2024 3,870,000
December 31, 2025 3,615,000
On December 31, 2024, the entity changed the business model for this investment to realize
fair value changes.
The fair value of the bonds of P3,870,000 on December 31, 2024 remained unchanged on
January 1, 2025.
Required:
Prepare journal entries for 2024 and 2025.

Problem 21-6 (IFRS – From FVPL to FVOCI)

On January 1, 2024, Delta Company purchased 6% bonds with face amount of P4,000,000. The
bonds were purchased for P3,530,000 to yield 9% and mature on January 1, 2029.
The entity classified the bonds as held for trading and interest is payable annually every
December 31.
Fair value Effective rate
December 31, 2024 3,490,000 10%
December 31, 2025 3,425,000 12%
On December 31, 2024, the entity changed the business model to collect contractual cash flows
and also to sell the bonds in the open market.
The fair value of the bonds of P3,490,000 on December 31, 2024 remained unchanged on
January 1, 2025.
Required:
Prepare journal entries for 2024 and 2025