Problem 1:
On May 1, 2024, S Company issued P2,000,000, 10% bonds, which mature in
five years. The bonds were sold on May 1, 2024 for P1,852,800, a price to
yield 12%. Interest is paid semi-annually on May 1 and November 1. On July
1, 2027, the bonds were retired at P102 plus accrued Interest. The
accounting period of S Company ends every December 31.
Required:
3. Amortization schedule using effective Interest method.
4. Journal entry in year 2024.
5. Journal entry on July 1, 2027.
6. Calculate the following
a. Amortization of discount on 12/31/2024.
b. Interest expense for 2024.
c. Carryin value of bonds, 12/31/2024.
d. Total cash paid on July 1, 2027.
e. Book value of bonds on July 1, 2027.
f. Gain or loss on retirement.
Problem 2:
D Company issued P9,000,000, 10% serial bonds on January 1, 2024 for
P9,360,000. Interest is payable annually on December 31. The bonds mature
in the amount of P1,500,000 on December 31 of each year beginning on
December 31, 2024.
Required:
1. Prepare a schedule of premium amortization using the bond
outstanding method.
2. Journal entries for the year 2024.
3. Calculate the following
g. Amortization of discount on 12/31/2024.
h. Interest expense for 2024.
i. Carrying value of bonds, 12/31/2025.
Problem 3:
On June 1, 2024 A Company sold P6,000,000 face value bonds at P6,580,000
plus accrued interest. The bonds are dated March 1, 2024 and mature in 5
years. The annual Interest of 10% is payable semi-annually on March 1 and
September 1.
Required: Using straight line amortization.
1. Journal entries for the year 2024 and 2025
2. Compute the following:
a. Interest expense for 2024.
b. Balance of amortization on bonds payable 12/31/24.
c. Interest expense for 2025.
d. Carrying amount of the bonds on 12/31/25.
Problem 4:
Kat Company decided to raise additional capital by issuing P5,000,000 face
amount 5-year bonds with interest rate of 12% payable annually on
December 31. To help the sale of the bonds, share warrants are issued-one
warrant for each P1,000 bond sold. The warrant entitles the holder to
purchase five shares at P100 per share. The par value of the share is P50. It
is reliably determined that the value of the warrants is P30 each at the time
of the issuance of the bonds. The bonds are sold for P5,100,000 with
warrants but would have sold only at P4,657,000 without the warrants with
14% effective yield. The investor exercise the warrants of the due date
granted.
Requirements:
a. Journal entries at the time of the sale of bonds.
b. How is the carrying amount of bonds 2 years after issuance?
c. How much is the amortization expense 3-year after issuance?
d. Journal entries upon the exercise of the warrants.
Problem 5:
At the beginning of current year, S Company issued 2,000 convertible bonds.
The bonds have a tree-year term and are issued at 110 with a face amount of
1,000 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 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.
Requirements:
a. Journal entries at the time of the sale of bonds.
b. How is the carrying amount of bonds 1 year after issuance?
c. How much is the amortization expense 2-year after issuance
d. Journal entries upon the conversion of the bonds.
Problem 1:
S Company issued 4-year 12% convertible bonds with face amount of
P5,000,000 at 105’ on January 1, 2024, maturing on January 1, 2029 and
paying interest annually on December 31. It is reliably ascertained that the
bonds would sell at P4,700,000 without the conversion feature with an
effective yield of 14%. Each bond is convertible into 8 shares of P100 par
value share capital. On December 31, 2024, all of the bonds are converted
into share capital. On December 31, 2024, all of the bonds are converted into
share capital. At this time, the share has a market value of P150 and the
bonds are quoted at 101.
Required:
a. Journal entries to record the issuance of the bonds on January 1,
2024.
b. Journal entries to record the conversion of bonds on December 31,
2024.
Problem 2;
On January 1, 2024 Ace Company bought an equipment with a carrying
amount of P4,800,000 in exchange for a P6,000,000 non-interest bearing
note due January 1, 2027. There was no established exchange price for the
equipment. The prevailing rate of interest for a note of this type on January
1, 2024 was 10% The present value of 1 at 10% for three periods is 0.75.
Required: Compute the following
a. Interest expense on December 31, 2025 __________ Dec 31. 2026
__________
b. Carrying amount of the Note Payable Dec, 31. 2025 __________ Dec.
31, 2026 __________
Problem 3;
On December 31, 2024, Hanes Company bought a machine to Doom
Company in exchange for a noninterest bearing note requiring ten annual
payments of P500,000. Doom made the first payment on December 31,
2025. The market interest rate of the note is 8% and the present value of
ordinary annuity of 1 at 8% for 10 periods is 6.71.
Required: Compute the following
a. Interest expense on December 31, 2025 __________ Dec 31. 2026
__________
b. Carrying amount of the Note Payable Dec. 31, 2024 ___________ Dec.
31, 2025 __________
Problem 4;
Tex Company issued a P500,000 non-interest bearing note on December 31,
2024 in exchange for a machine with a cash price of P375,000. The note is
payable for 5 equal annual payments starting December 31, 2025.
Required: Compute the following
a. Interest expense on December 31, 2024 __________ Dec. 31, 2025
__________
b. Carrying amount of the Payable Dec. 31, 2025 __________ Dec. 31,
2026 __________
Problem 5:
H Company is indebted to Apex Company under a P5,000,000, 12%, three
year note Dated December 31, 2022. Because of financial difficulties
developing in 2024, H Company owed accrued interest of P600,000 on
December 31, 2024. Under a debt restructuring on December 31, 2024, A
Company agreed to settle the note and accrued interest for attract of land
having a fair value of P4,500,000. The acquisition cost of the land is
P3,600,000. What amount of gain on extinguishment should H Company
report as component of income tax from continuing operations in 2024?
__________
Problem 6:
The following information pertains to the transfer of real estate pursuant to a
debt restructuring by K Company to M Company in full liquidation of K
Company’s liability to M Company.
Carrying amount of liability liquidated 1,500,000
Carrying amount of real estate transferred 1,000,000
Fair value of real estate transferred 1,200,000
What amount of gain on extinguishment should K Company report as
component of Income? __________
Problem 7:
On January 1, 2024 G Company had an overdue 10% note payable to Mex
Bank at P10,000,000 and accrued interest of P1,000,000. To help the
financial difficulty, the Bank granted an concession for a debt restructuring
with the following provisions:
-The principal obligation reduced to P9,000,000.
-The accrued interest is forgiven.
-The date of maturity extended to December 31, 2027.
-Annual interest of 12% is to be paid for 4 years every December 31.
The present value of 1 at 10% for 4 periods is 0.683 and the present value of
an ordinary annuity of 1 at 10% for 4 periods is 3.17.
a. What is the present value of the new note payable on January 1,
2024? _________
b. What is the gain or loss on extinguishment of debt to be recognized
for 2024? __________
c. What is the interest expense to be recognized for 2024? __________
