At the beginning of current year, Silay Company issued 2,000 convertible bonds. The bonds have a three-year term and are issued at 110 with a face amount of P1,000 per bond, giving total proceeds of P2,200,000. Interest is payable annually in arrears at a nominal annual interest rate of 6%. 

Each bond is convertible at any time up to maturity into 25 shares of capital with par value of P20. The bonds are converted at the end of current year. 

When the bonds are issued, the prevailing market rate for similar bonds without conversion privilege is 9%. 

The present value of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for three periods is 2.53 

Required: 

Prepare journal entry to record issuance of the bonds interest payment, effective amortization and bond conversion.

Answer rating: 100% (QA)

Answer Bonds are issued at 110 With Face value 1000 That Issue Price is 1000x110 1100 issue price 20... View the full answer