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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

BOND INVESTMENT
1. The following data pertain to Antique Companys investments in debt securities:

Trading
Available for sale

Cost
5,000,000
5,000,000

Market value
12/31/2005
12/31/2004
5,200,000
4,500,000
4,800,000
4,700,000

What amount should Antique report as unrealized gain in its 2005 income statement?
a. 700,000
b. 200,000
c. 800,000
d. 100,000
2. On October 1, 2005, Bangued Company acquired P20,000,000 face value 12% bonds
of Didigan Company at 110 plus accrued interest. The bonds were dated July 1, 2004
and will mature on June 30, 2009. Interest is payable June 30 and December 31. The
commission to acquire the bonds was P500,000. The total amount paid for the
investment in bonds was
a. 23,100,000
b. 22,600,000
c. 22,500,000
d. 21,900,000
3. On July 1, 2005 Tagum Company purchased as a long-term investment in Langiden
Companys 10-year 12% bonds, with face value of P20,000,000, for P18,500,000.
Interest is payable semiannually on June 30 and December 31. The bonds mature on
July 1, 2010. Tagum uses the straight line amortization method. What is the amount of
interest income that Tagum should report in its 2005 income statement?
a. 1,350,000
b. 1,200,000
c. 1,500,000
d. 1,050,000
4. On October 1, 2005 Bucay Company purchased 20,000 of the P1,000 face value 12%
bonds of Manabo Company for P23,000,000 including accrued interest of P600,000.
The bonds which mature on January 1, 2012, pay interest semiannually on January 1
and July 1. Bucay used the straight line method of amortization and appropriately
recorded the bonds as a long-term investment. On the December 31, 2006 balance
sheet the bonds should be reported at
a. 22,304,000
b. 21,920,000
c. 22,880,000
d. 22,400,000
5. On April 1, 2005, Caluya Company purchased P5,000,000 face value 9%. Treasury
notes for P4,962,500 including accrued interest of P112,500. The notes mature on July
1, 2006 and pay interest semiannually. Caluya intends to hold the notes to maturity. In
its October 31, 2005 balance sheet, the carrying amount of this investment should be
a. 4,850,000
b. 4,920,000
c. 4,930,000
d. 4,975,000

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6. Luba Company purchased bonds at a discount of P5,000,000. Subsequently, Luba

sold these bonds at a premium of P2,000,000. During the period that Luba held this
investment, amortization of the discount amounted to P1,500,000. What amount
should Luba report as gain on the sale of the bonds?
a.
b.
c.
d.

2,000,000
5,500,000
3,500,000
3,000,000

7. On January 1, 2005, Bucloc Company acquired for P6,500,000 the entire P8,000,000
issue 12% serial bonds. Bonds of P2,000,000 mature at annual intervals beginning
December 31, 2005. Interest is payable semiannually on June 30 and December 31.
What is the interest income for 2005 using the bond outstanding method of
amortization?
a. 1,560,000
b. 1,380,000
c.
780,000
d. 960,000
8. On January 1, 2005, Lacub Company purchased P8,000,000 face value 12% bonds at
120. Bonds are due on January 1, 2015 but can be redeemed at earlier dates at
premium values as follows:
January 1, 2007 to December 31, 2010, at 110
January 1, 2011 to December 31, 2014, at 104
What is the interest income for 2005 using the accelerated method of amortization?
a. 1,360,000
b. 960,000
c.
560,000
d. 800,000
9. On July 1, 2005, Boloc Company purchased P2,000,000 of East Companys 8% bonds
due on July 1, 2015. Boloc expects to hold the bonds until maturity. The bonds pay
interest semiannully on January 1 and July. The bonds were purchased for P1,750,000
to yield 10%. In its 2005 income statement, Boloc should report interest income at
a. 175,000
b. 160,000
c. 92,500
d. 87,500
10. On July 1, 2005, Cagayan Company paid P9,585,000 for 10% bonds with a face
amount of P8,000,000. Interest is paid on June 30 and December 31. The bonds were
purchased to yield 8%. Cagayan uses the effective interest method to recognize
interest income from this investment. What should be reported as the carrying amount
of the bonds in the December 31, 2005, balance sheet?
a.
b.
c.
d.

9,568,400
9,601,600
9,551,800
9,618,200

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11. On July 1, 2005, Tuguegarao Company purchased as a long term investment

P8,000,000 of Candon Companys 8% bonds for P7,570,000, including accrued
interest of P320,000. The bonds were purchased to yield 10% interest. The bonds pay
interest annually on December 31. Tuguegarao uses the interest method. In its
December 31, 2005 balance sheet, what amount should Tuguegarao report as
investment in bonds?
a.
b.
c.
d.

7,292,500
7,207,500
7,628,500
7,335,000

12. On January 1, 2004, Sibalon Company purchased as a long-term investment

P5,000,000 face value of 8% bonds for P4,562,000. The bonds were purchased to
yield 10% interest. The bonds pay interest annually December 31. Sibalon uses the
interest method of amortization. What amount (rounded to the nearest P100) should
Sibalon report on its December 31, 2005 balance sheet for this long-term investment?
a. 4,680,000
b. 4,662,000
c. 4,618,000
d. 4,562,000
13. On July 1, 2005, Solana Company purchased Amulong Companys 10-year, 8% bonds
with face amount of P8,000,000 for P6,720,000. The bonds mature on June 30, 2013
and pay interest semiannually on June 30 and December 31. Using the interest
method, Solana recorded bond discount amortization of P28,800 for six months ended
December 31, 2005. From this long-term investment, Solana should report 2005
income of
a.
b.
c.
d.

348,800
291,200
320,000
384,000

14. On January 1, 2005 Aparri Company purchased 5-year bonds with face value 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 factors are:
Present value of an annuity of 1 for 10 periods at 5%
Present value of an annuity of 1 for 10 periods at 4%
What is the purchase price of the bonds?
a.
b.
c.
d.

7,382,400
8,617,600
8,648,800
7,351,200
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7.72
8.11