Chapter 6
Discount on Bonds Payable
Given:
Face Amount of Bonds 1,000,000.00
Discount on Bonds - 35,460.00
Carrying Amount 964,540.00 Annual Rate
Effective/Market Interest Rate 10% 5%
Coupon Rate 8% 4%
Term: SEMI ANNUAL 2 4
DATE Interest Paid Interest Expense Discount Amort
a b c
a =1Million x 4% b= Prev d x 5% c=b-a
January 1, 2024
June 30, 2024 40,000 48,227 8,227
Dec 31, 2024 40,000 48,638 8,638
June 30, 2025 40,000 49,070 9,070
Dec 31, 2025 40,000 49,525 9,525
35,460
Premium on Bonds Payable
Given:
Face Amount of Bonds 1,000,000.00
Premium on Bonds 49,740.00
Carrying Amount 1,049,740.00 Annual Rate
Effective/Market Interest Rate 10% 10%
Coupon Rate 12% 12%
Term: ANNUAL 3 3
DATE Interest Paid Interest Expense Premium Amort
a b c
a =1Million x 12% b= Prev d x 10% c=a-b
January 1, 2024
Dec 31, 2024 120,000 104,974 15,026
Dec 31, 2025 120,000 103,471 16,529
Dec 31, 2026 120,000 101,815 18,185
49,740
ILLUSTRATION 1
Amount PV Factor Present Value
Principal 4,000,000 0.7350 2,940,000
Interest Payments 240,000 3.3121 794,904
Present Value of Bonds Payable on Issue Date/ISSUE PRICE 3,734,904
Times of Payment 1 IF
Lumpsum
ANNUAL RATE to be USED
PV of 1
Nominal Rate 6% 6% NOT USED
Effective Rate 8% 8% 0.7350
Terms: ANNUAL 4 4
DATE Interest Paid Interest ExpenseDISCOUNT AMORT
a b c
a =4Million x 6% b= Prev d x 8% c=b-a
January 1, 2024
Dec 31, 2024 240,000 298,792 58,792
Dec 31, 2025 240,000 303,496 63,496
Dec 31, 2026 240,000 308,575 68,575
Dec 31, 2027 240,000 314,233 74,233
265,096
ILLUSTRATION 2
Amount PV Factor Present Value
Principal 5,000,000 0.7462 3,731,000
Interest Payments 300,000 5.0757 1,522,710
Present Value of Bonds Payable on Issue Date/ISSUE PRICE 5,253,710
Times of Payment 2 IF
Lumpsum
ANNUAL RATE to be USED
PV of 1
Nominal Rate 12% 6% NOT USED
Effective Rate 10% 5% 0.7462
Terms: SEMI ANNUAL 3 6
DATE Interest Paid Interest Expense PREMIUM AMORT
a b c
a =5Million x 6% b= Prev d x 5% c=a-b
January 1, 2024
June 30, 2024 300,000 262,686 37,314
Dec 31, 2024 300,000 260,820 39,180
June 30, 2025 300,000 258,861 41,139
Dec 31, 2025 300,000 256,804 43,196
June 30, 2026 300,000 254,644 45,356
Dec 31, 2026 300,000 252,475 47,525
253,710
JOURNAL ENTRIES
Date Account Title
January 1, 2024 Cash
Discount on BP
Bonds Payable
June 30, 2024 Interest Expense
Discount on BP
Carrying Amount Cash
d
d = Prev d + c Dec 30, 2024 Interest Expense
964,540 Discount on BP
972,767 Cash
981,405
990,475
1,000,000
JOURNAL ENTRIES
Date Account Title
January 1, 2024 Cash
Premium on BP
Bonds Payable
Dec 31, 2024 Interest Expense
Premium on BP
Carrying Amount Cash
d
d = Prev d - c Dec 30, 2025 Interest Expense
1,049,740 Premium on BP
1,034,714 Cash
1,018,185
1,000,000
DISCOUNT
IF
Installment
PV of Ord. Annuity
NOT USED USE ONLY for INTEREST PAYMENTS
3.3121
Carrying Amount
d
d = Prev d + c
3,734,904
3,793,696
3,857,192
3,925,767
4,000,000
PREMIUM
IF
Installment
PV of Ord. Annuity
NOT USED USE ONLY for INTEREST PAYMENTS
5.0757
Carrying Amount
d
d = Prev d - c
5,253,710
5,216,396
5,177,216
5,136,077
5,092,881
5,047,525
5,000,000
Debit Credit
964,540
35,460
1,000,000
48,227
8,227
40,000
48,638
8,638
40,000
Debit Credit
1,049,740
49,740
1,000,000
104,974
15,026
120,000
103,471
16,529
120,000
SERIAL BONDS
Face amount of Bonds 3,000,000
Nominal Rate 12%
Effective rate 10%
Date of Issue Jan 1, 2024
Annual Payment every Dec 31 1,000,000
Interest is payable annually 31-Dec
Present Value of 1 @ 10% 1
One period 0.9091
Two period 0.8265
Three period 0.7514
DATE Principal Payment Interest Comp. Interest Payment
(3Million / 3)
Dec 31, 2024 1,000,000 3,000,000 x 12% 360,000
Dec 31, 2025 1,000,000 2,000,000 x 12% 240,000
Dec 31, 2026 1,000,000 1,000,000 x 12% 120,000
TOTAL PRESENT VALUE OF
FACE AMOUNT
PREMIUM ON BONDS PAYAB
DATE Interest Paid Interest Expense
a b
Jan 1, 2024
Dec 31, 2024 360,000 310,257
Dec 31, 2025 240,000 205,283
Dec 31, 2026 120,000 101,892
TOTAL PV Factor Present Value
a b c=axb
1,360,000 0.9091 1,236,376
1,240,000 0.8265 1,024,736
1,120,000 0.7513 841,456
RESENT VALUE OF BONDS PAYABLE 3,102,568
3,000,000
M ON BONDS PAYABLE 102,568
Premium AMORT Principal PaymentCarrying Amount
c=a-b d= given e = Prev e - (c+d)
3,102,568
49,743 1,000,000 2,052,825
34,717 1,000,000 1,018,108
18,108 1,000,000 -
Interest Rate at 12%
Amount PV Factor Present Value
Principal 10,000,000 0.7118 7,118,000
Interest Payments 900,000 2.4018 2,161,620
Present Value of Bonds Payable on Issue Date/ISSUE PRI 9,279,620
Times of Payment 1 IF
Lumpsum
ANNUAL RATE to be USED
PV of 1
Nominal Rate 9% 9% NOT USED
Effective Rate 12% 12% 0.7118
Terms: ANNUAL 3 3
DATE Interest Paid Interest Expense DISCOUNT AMORT
a b c
a =10Million x 9% b= Prev d x 12% c=b-a
January 1, 2024
Dec 31, 2024 900,000 1,113,554 213,554
Dec 31, 2025 900,000 1,139,181 239,181
Dec 31, 2025 900,000 1,167,645 267,645
720,380
Interest Rate at 11%
Amount PV Factor Present Value
Principal 10,000,000 0.7312 7,312,000
Interest Payments 900,000 2.4437 2,199,330
Present Value of Bonds Payable on Issue Date/ISSUE PRI 9,511,330
Times of Payment 1 IF
Lumpsum
ANNUAL RATE to be USED
PV of 1
Nominal Rate 9% 9% NOT USED
Effective Rate 11% 11% 0.7312
Terms: ANNUAL 3 3
DATE Interest Paid Interest Expense DISCOUNT AMORT
a b c
a =10Million x 9% b= Prev d x 11% c=b-a
January 1, 2024
Dec 31, 2024 900,000 1,046,246 146,246
Dec 31, 2025 900,000 1,062,333 162,333
Dec 31, 2026 900,000 1,080,091 180,091
488,670
Issue Price 9,511,330
PV @ 12% 9,279,620
DISCOUNT Variance 231,710
IF
Installment
PV of Ord. Annuity
NOT USED USE ONLY for INTEREST PAYMENTS
2.4018
Carrying Amount
d
d = Prev d + c
9,279,620
9,493,174
9,732,355
10,000,000
Issue Price 9,511,330
PV @ 11% 9,511,330
DISCOUNT Variance -
IF
Installment
PV of Ord. Annuity
NOT USED USE ONLY for INTEREST PAYMENTS
2.4437
Carrying Amount
d
d = Prev d + c
9,511,330
9,657,576
9,819,909
10,000,000
GIVEN
Face Amount 10,000,000
Discount on Bonds Payable - 248,790
Issue Price 9,751,210 Before Bond Issue Cost
Less: Bond Issue Cost - 239,880
Net Proceeds 9,511,330 After Bond Issue Cost
Rates Before Bond Issue Cost
Nominal Rate 9%
Effective Rate 10% - 248,790
Rates After Bond Issue Cost
Nominal Rate 9%
Effective Rate ? - 488,670
GIVEN
Face Amount 10,000,000
Discount on Bonds Payable - 248,790
Issue Price 9,751,210 Before Bond Issue Cost
Less: Bond Issue Cost - 239,880
Net Proceeds 9,511,330 After Bond Issue Cost
Rates Before Bond Issue Cost
Nominal Rate 9%
Effective Rate 10%
Rates After Bond Issue Cost
Nominal Rate 9%
Effective Rate ?
Problem 1
On January 1, 2024, ANYEONG Corporation is considering to issue a three-year 10% P15,000,000 bond
The principal will be due on its maturity and interest is payable every June 30 and December 31.
The determined market interest rate is 12%
Requirements:
1. What is the initial measurement of the bonds issued by the Company?
2. What is the carrying amount of the bonds on December 31, 2025?
3. What is the balance of the unamortized cost on December 31, 2025?
4. If on December 31, 2025, the company planned to retire all the bonds issued
at 95, the gain or loss on the retirement will be?
5. The sum of the interest expense from Dec 31, 2024 and 2025 will be?
Problem 2
GLOBAL Corporation issued a three-year 12% P9,000,000 bonds on January 1, 2024 in which the princ
maturity and the interest are payable every December 31. The market rate upon the issuance is at 8%
The bond issue cost amounted to 243,864
Requirements:
1. What is the initial measurement of the bonds upon issuance?
2. What is the market rate AFTER the bonds issue cost?
3. What is the carrying amount of bonds on Dec 31, 2024?
4. How much is the amortization of discount/premium on December 31, 2025?
5. What is the premium/discount upon issuance? (SPECIFY if Discount or Premium)
INSTRUCTIONS:
1. ANSWER this in a yellow paper. Handwritten.
2. NO ERASURES. Include solutions.
3. Scan/convert into PDF File.
4. Submit before 3PM in my email. [email protected].
5. FILE NAME: SURNAME_First Name_BSA2B1.
e.g REGAL_Renz_BSA2-B1.pdf
r 10% P15,000,000 bonds.
and December 31.
2024 in which the principal is to be paid on its
pon the issuance is at 8%.
