Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter SA2, Problem SA2.1.2P
To determine
Business combination:
Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
Variable interest entity:
A legal business structure is known as variable interest entity when an investor has interest which is controlled even when not have majority of voting rights. Commonly VIE activities includes leasing, financial assets, research and development, hedging financial instruments, and other arrangements transfers. Primary beneficiary is a term which is used to designate that party having control over VIE’s financial interest.
:
Complete a consolidated worksheet as of December 31, 2015.
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Problem 11-13
On January 1, 2019, Carmona Company purchased 10% bonds in the face amount of P3,000,000.
The bonds mature on January 1, 2029 and were purchased for P3,405,000 to yield 8%. The entity used the
effective interest method of amortization and interest is payable annually every December 31.
The business model is to collect contractual cash flows composed of interest and principal.
On December 31, 2020 the entity changed the business model for this investment to realize fair value
changes.
On January 1, 2021, the fair value of the bonds was P2,845,000 at an effective rate of 11%.
11. What amount should be reported as interest income for 2020?
a. 337,740
b. 300,000
C 272,400
d. 270,192
3/4
12. What amount in profit or loss should be recognized in 2021 as a result of the reclassification?
a. 531,600
b. 502,292
C. 154,200
d.
13. What amount should be reported as interest income for 2021?
a. 300,000
b. 312,950
c. 267,807
d. 284,500
Intermediate accounting 1, Investments
4. On January 1, 20x1, ABC purchased bonds with face amount of P5,000,000. The entity paid P4,700,000 plus transaction cost of P42,130 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 the open market. The bonds mature on December 31, 20x3 and pays 6% interest annually on December 31 each year with 8% effective interest rate (after incorporating the transaction cost on initial recognition). The bonds are quoted at 106 and 108 on December 31, 20x1 and December 31, 20x2. The bonds are sold at 103 on July 1, 20x3, excluding accrued interest. Use 4-decimal present value factor.
The initial amount of the investment in bonds is (sample answer: 2,350,450)
Problem 9-19 (IFRS)
P600,000. As a result of a restructuring agreement on
1, 2021, the creditor agreed to the following concessions
January
a. Accrued interest of P600,000 is forgiven..
b. The new principal is P4,000,000.
c. The new interest rate is 6% payable every December a.
e. The entity paid P350,000 as an arrangement fee to
creditor.
The PV of 1 at 10% for 3 periods is 0.75 and the PV of
ordinary annuity of 1 at 10% for 3 periods is 2.49.
The market rate of interest for similar note is 14%. The Dy
of 1 at 14% for 3 periods is 0.67 and the PV of an ordinary
annuity of 1 at 14% for 3 periods is 2.32.
1. At what amount should the new note payable be initially
measured?
a. 3,597,600
b. 3,947,600
c. 3,236,800
d. 4,000,000
2. What amount of gain on extinguishment should be
recognized for 2021?
а. 3,363,200
b. 3,013,200
c. 2,652,400
d. 3,002,400
3. What amount should be reported as interest expense for
the 2021?
a. 453,152
b. 394,760
с. 359,760
d. 240,000
4. What is the carrying amount…
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