On June 1, 2005, Panday Corporation purchased as a long term investment 6,000

of the P1,000 face value, 8% bonds of Pira Corporation. Panday Corporation has
the positive intention and ability to hold these bonds to maturity. The bonds were
purchased to yield 10% interest. Interest is payable semi-annually on December 1
and June 1. The bonds mature on June 1, 2011. On November 1, 2006, Panday
Corporation sold the bonds for a total consideration of P5,887,500.
QUESTIONS:
Based on the above and the result of your audit, determine the following: (Round
off present value factors to four decimal places)
1. The purchase price of the bonds on June 1, 2005 is
a. P5,467,992
b. P5,545,104
c. P5,536,698

d. P5,436,894

2. The carrying value of the investment in bonds as of December 31, 2005 is

a. P5,588,878
b. P5,579,979
c. P5,474,311
d. P5,507,237
3. The interest income for the year 2006 is
a. P459,911
b. P466,827
P457,122

c. P466,073

d.

4. The gain on sale of investment in bonds on November 1, 2006 is

a. P31,794
b. P41,448
c. P120,352
d.
P156,068
5. An auditor most likely to verify the interest earned on bond investment by
a. Verifying the receipt and deposit of interest checks.
b. Confirming the bond interest rate with the issuer of the bonds.
c. Recomputing the interest earned on the basis of face amount, interest rate,
and period held.
d. Testing controls relevant to cash receipts.