Tangerine Company acquired P3,000,000 face value 10% bonds as financial asset at amortized cost, on June...

Tangerine Company acquired P3,000,000 face value 10% bonds as financial asset at amortized cost, on June 30, 2018 for P3,210,000, excluding brokerage of P150,000 and accrued interest. The bonds pay interest semiannually on May 1 and November 1. The remaining life of the bonds on the date of acquisition is 3 years. Straight-line amortization is employed. On December 31, 2018, the bonds were sold for P3,500,000 plus accrued interest. What is the gain on the sale of the bonds? Show a detailed computation.

Expert Solution

Tangerine company	Amt P
Bond purchased on June 30, 2018
Bond sold on Dec 31 2018
Holding period =6 months
Face value =	3,000,000
Purchase Value on June 30 2018	3,210,000
Premium on Purchase	210,000
Remaining life of bond =	3 years
Premium Amortizationper 6 months by SL method=	35,000
Brokerage paid during purchase	150,000
Bond carrying value on June 30,2018 with Premium and Brokerage=	3,360,000
Semi annual interest @10% pa =	150,000

Bond Carrying value on Dec 31 2018
Purchase value with premium	3,360,000
Less Amortization of premium in six months	(35,000)
Carrying value of Bond as on Dec 31 2018	3,325,000
Sales Value of Bond on Dec 31,2018 (without accrued interest)	3,500,000
Gain on Sale of Bond=	175,000	Ans

ekkarill92 answered 1 year ago

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