You gathered the following information about investments in debt and equity instruments of Curiosity Corp. in connection
Question:
You gathered the following information about investments in debt and equity instruments of Curiosity Corp. in connection with your audit of its financial statements for the year ended Dec. 31, 2021:
On April 1, 2019, the entity purchased 5-year P1,000,000 10% bonds of Mars Corp.. The bonds are dated Jan. 1, 2019. The bonds were purchased to yield 8%. Interest is payable annually every Dec. 31. The entity uses the ‘held for collection’ business model for acquired and originated debt instruments. The issuer paid the interest as scheduled in 2019 and 2020. In 2021, the issuer of the bonds is in financial difficulties and it becomes probable that the issuer will be put into administration by a receiver. On Dec. 31, 2021, the entity estimated that none of the interest will be collected and only P800,000 of the principal will be collected on the maturity date.
On April 1, 2021, the entity purchased 25,000 ordinary shares of Perseverance Corp. at P180 per share which reflected book value as of that date. At the time of the purchase, Perseverance had 100,000 ordinary shares outstanding. The entity paid transaction costs of P67,500. The first quarter statement ending March 31, 2021 of Perseverance recorded profit of P480,000. For the year ended December 31, 2021, Perseverance reported a profit of P2,400,000. Perseverance paid Curiosity dividends of P60,000 on June 1, 2021 and again P60,000 on December 31, 2021. The shares of Perseverance are selling at P190 per share on December 31, 2021.
Based on the preceding information and the result of your audit, answer the following:
How much was the total amount paid to acquire the investment in Mars Corp. bonds on April 1, 2019?
The required loss allowance on investment in June Corp. bonds at Dec. 31, 2021, is?
How much is the interest income to be recognized in 2022 on investment in Mars Corp. bonds?
The carrying amount of the investment in Perseverance Corp. as of December 31, 2021, should be?
If Curiosity Corp. has no significant influence over Perseverance Corp., the net amount to be recognized in 2021 profit or loss related to this investment is?
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates