Glang, Jameel Mujahid O.

April 6, 2020
Intermediate Accounting 2 BSA 2A

1. Problem 5-31 (Verna Company)

Carrying amount – December 1, 2013 5,300,000

Carrying amount – December 31, 2015 5,150,000
Amortization for 25 months 150,000

Monthly amortization (150,000 / 25) 6,000

Carrying amount – December 31, 2015 5,150,000

Less: Amortization of premium from January 1 to September 1, 2016
(6,000 x 8) 48,000
Carrying amount – September 1, 2016 5,102,000
Less: Retirement price at face 5,000,000
Gain on early retirement 102,000

2. Problem 5-34 (Mariel Company)

Carrying amount - January 1, 2016 7,600,000

Carrying amount - December 31, 2016 8,400,000
Increase in liability - loss 800,000
Loss on credit risk 150,000
Loss from change in fair value 650,000

3. Problem 6-23 (Masbate Company)

Issue price (5,000,000 x 110) 5,500,000

Bonds payable 5,000,000

Premium on bonds payable 500,000
Bond issue cost (80,000)
Carrying amount 5,420,000

Interest expense (6% x 5,420,000) 325,200

Interest paid (8% x 5,000,000) 400,000
Amortization of discount and issue cost 74,800

Bonds payable 5,000,000

Premium on bonds payable (420,000 - 74,800) 345,200
Carrying amount - December 31, 2016 5,345,200
4. Problem 6-27 (Nixon Company)

Interest expense (12% x 5,700,000 x 6/12) 342,000

Interest paid (10% x 6,000,000 x 6/12) 300,000
Discount amortization 42,000
Carrying amount - January 1, 2016 5,700,000
Carrying amount - December 31, 2016 5,742,000
Retirement price (6,000,000 x 102) 6,120,000
Loss on retirement 378,000

5. Problem 6-31 (Margaret Company)

Present value of principal (1,000 x .422) 422

Present value of interest (60 x 6.418) 385
Issue price of P1,000 bond 807

6. Problem 6-32 (Taguig Company)

Carrying amount of bonds (5,000,000 x 99% - 150,000) 4,800,000

Interest expense (4,800,000 x 11.66%) 559,680

Let X = the effective rate

X = 4,800,000
11% = 4,877,850
12% = 4,759,900

This means that the effective rate is higher than 11% but lower than 12%.
Thus, by interpolation, the interest differential is determined as follows:

X - 11%
12% - 11%

4,800,000 - 4,877,850
4,759,900 - 4,877,850

77, 850
---------- = 0.66
117,950
7. Problem 6-33 (Rizal Company)

Issue price 4,395,800

Bond issue cost (137,430)
Net proceeds 4,258,370

Using an interest rate of 5%, the relevant PV factors are:

PV of 1 at 5% for 8 periods 0.6768

PV of an ordinary annuity of 1 at 5% for 8 periods 6.4632

The market price of the bonds is determined as follows:

PV of principal (4,000,000 x .6768) 2,707,200

PV of semiannual interest payment (240,000 x 6.4632) - rounded 1,551,170
Market price of bonds 4,258,370

Since the maturity is 4 years and the interest is payable semiannually, there are 8
interest periods. Since the market price using 5% for 8 periods is equal to the net
proceeds, the effective rate of interest must be 10% annually for 4 years. 10%

8. Problem 7-15 (Armada Company)

PV of principal (5,000,000 x .57) 2,850,000

PV of interest (550,000 x 3.60) 1,980,000
PV of bonds payable 4,830,000

Issue price (5,000,000 x 109) 5,450,000

PV of bonds payable 4,830,000
Share warrants outstanding 620,000

9. Problem 7-24 (Clay Company)

Bonds payable 600,000

Premium on bonds payable 12,000
Carrying amount 612,000
Ordinary shares issued at par value (6,000 shares x 50) 300,000
Share premium 312,000
10-12. Problem 7-26 (Tamia Company)

Fair value of bonds with conversion option (4,000,000 x 105) 4,200,000

Fair value of bonds without conversion option (4,000,000 x 95) 3,800,000
Equity component 400,000

Bonds payable 4,000,000

Discount on bonds payable (500,000)
Carrying amount 3,500,000

Carrying amount 3,500,000

Payment equal to fair value of bonds without conversion option 3,800,000
Loss on extinguishment 300,000

Fair value of bonds with conversion option 4,200,000

Interest expense (6% x 4,000,000) 240,000
Total payment to bondholders 4,440,000

13. Problem 8-8 (Joshua Company)

Present value (600,000 x 3.60) 2,160,000

Interest expense (12% x 2,160,000) 259,200

14. Problem 8-14 (Pine Company)

Note payable - September 1, 2015 1,800,000

Less: Payment on September 1, 2016 600,000
Balance - September 1, 2016 1,200,000

Accrued interest payable from September 1 to December 31, 2016

(1,200,000 x 12% x 4/12) 48,000
15-17. Problem 8-22 (Justine Company)

Interest expense (10% x 1,000,000) 50,000

Fair value 975,000

Note payable 1,000,000

Fair value 975,000
Gain on note payable 25,000

18. Problem 9-16 (Hull Company)

Note payable 5,000,000

Accrued interest payable 600,000
Carrying amount of liability 5,600,000
Less: Cost of land 3,600,000
Gain on extinguishment 2,000,000

19. Problem 9-18 (Versatile Company)

Note payable 3,600,000

Accrued interest 400,000
Carrying amount of liability 4,000,000
Assets transferred:
Note receivable 2,700,000
Equipment at carrying amount (900,000 - 300,000) 600,000 3,300,000
Gain from debt extinguishment 700,000

20. Problem 9-21 (Granada Company)

PV of principal (6,000,000 x .683) 4,098,000

PV of annual interest payments (720,000 x 3.17) 2,282,400
Total present value of new liability 6,380,400

Interest paid (12% x 6,000,000) 720,000

Interest expense for 2016 (10% x 6,380,400) 638,040
Premium amortization 81,960
21. Problem 15-35 (Cascade Company)

Taxable income 4,000,000

Excess tax depreciation (500,000 - 400,000) 100,000
Goodwill impairment loss (300,000)
Interest income on treasury bills 600,000
Pretax accounting income 4,400,000

22. Problem 15-37 (Jasco Company)

Accounting income 4,000,000

Premiums of life insurance 100,000
Excess tax depreciation (120,000)
Interest on exempt bonds (53,000)
Warranty expense 40,000
Actual warranty repairs (32,000)
Bad debts expense 14,000
Writeoff of accounts (14,000 - 8,000) (6,000)
Rent received in advance 240,000
Taxable income 4,183,000

23. Problem 15-43 (Abigail Company)

Deferred tax asset (40% x 300,000) 120,000

Deferred tax liability (40% x 2,900,000) 1,160,000
Net deferred tax expense 1,040,000

24. Problem 16-25 (Jessabel Company)

Future salary (500,000 x 1.217) 608,500

Annual pension payment (3% x 608,500 x 15) 273,825

Multiply by PV of an ordinary annuity of 1 at 12% for 6 periods 4.111
Present value - December 31, 2021 1,125,695
Multiply by PV of 1 at 12% for 5 periods 0.567
PBO - December 31, 2016 638,269
25. Problem 16-28 (Ronald Company)

Current service cost 1,300,000

Interest expense on PBO 550,000
Interest income on plan assets (500,000)
Loss on plan settlement 250,000
Past service cost 400,000
Employee benefit expense 2,000,000

Actual return 600,000

Interest income 500,000
Remeasurement gain 100,000
Actuarial gain 200,000
Total remeasurement gain 300,000

Employee benefit expense 2,000,000

Remeasurement gain (300,000)
Total defined benefit cost 1,700,000