Question

On January 1, 20X4, Dudas Accounting Corp. bought $1,000,000 of 4.5% bonds that pay interest semi-annually on June 30 and December 31. The market rate of interest on January 1, 20X4, was 4%. The company intends to hold on to the bonds up to their December 31, 20X8, maturity date to collect all of the contractual cash flows. The market value of the bonds on December 31, 20X4, was $1,023,000.

Dudas reports its financial results in accordance with IFRS. At what amount will Dudas report the bonds on its December 20X4 statement of financial position?

Question options:

a	$1,018,149
b	$1,018,314
c	$1,022,456
d	$1,023,000

Answer 1

Answer - ( B ) $1,018,314

Solution:

Computation of bond price
Table values are based on:
n=	10
i=	2.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.82035	$1,000,000.00	$820,350
Interest (Annuity)	8.98259	$22,500.00	$202,108
Price of bonds			$1,022,458

Bond Amortization Schedule - Effective interest method
Date	Cash Paid	Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
1-Jan-20X4				$22,458	$1,022,458
30-Jun-20X4	$22,500	$20,449	$2,051	$20,407	$1,020,407
31-Dec-20X4	$22,500	$20,407	$2,093	$18,314	$1,018,314

Dudas report the bonds on Dec 20X4 statement of financial position at = $1,018,314

Alternative method -