TOPIC: ACCOUNTING FOR BONDS

Problem 4

On January 1, 2017, Shredder Company issued its 10%, 4-year convertible debt instrument with a face amount of P3,000,000 for P3,500,000. Interest is payable every December 31 of each year. The debt instrument is convertible into 30,000 ordinary shares with a par value of P100. The debt instrument is convertible into equity from the time of issue until maturity. When the debt instruments were issued, the prevailing market rate of interest for similar debt without conversion option is 18%.

PV of 8% for an ordinary annuity of P1 after 4 periods3.3121268

PV of 8% after 4 interest periods0.7350298

On December 31, 2019, Shredder Company converted all the debt instruments by issuing 30,000 ordinary shares.

What is the carrying value of the compound instruments as of December 31, 2019?

A.P3,356,829

B.P3,408,269

C.P3,455,899

D.P3,500,000

Problem 5

On March 1, 2020, an entity issued 5,000 of P1,000 face value bonds at 110 plus accrued interest. The entity paid bond issue cost of P400,000. The bonds were dated November 1, 2019, mature on November 1,2029, and earn interest at 12% payable semiannually on May 1 and November 1. What net amount was received from the bond issuance?

A.5,500,000

B.5,700,000

C.5,300,000

D.5,100,000

Problem 6

On January 1, 2020, an entity issued 9% bonds in the face amount of P5,000,000 which mature on January 1, 2030. The bonds were issued for P4,695,000 to yield 10%. Interest is payable annually on December 31. The entity used the interest method of amortizing bond discount.

Q1.What is the interest expense for 2020?

A.469,500

B.500,000

C.450,000

D.422,500

Q2.What is the carrying amount of the bonds payable on December 31, 2020?

A.4,695,000

B.4,704,750

C.4,714,500

D.5,000,000

Problem 7

On January 1, 2020, an entity issued 10-year bonds with face amount of P5,000,000 for P5,775,000. The entity paid bond issue cost of P100,000 on the same date.The stated interest rate on the bonds is 10% payable annually every December 31. The bonds have an 8% yield per annum after considering the bond issue cost. The entity used the effective interest method of amortizing bond premium.

Q1.What is the interest expense for 2021?

A.454,000

B.458,960

C.500,000

D.450,320

Q2.What is the carrying amount of the bonds payable on December 31, 2021?

A.5,695,960

B.5,579,320

C.5,629,000

D.5,737,000