CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
BATCH 94 OCTOBER 2023 CPALE
BONDS PAYABLE
1. On January 1, 2023, an entity issued 9% bonds in the face amount of P5,000,000 which mature on January
1, 2033. 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.
1. What amount should be reported as interest expense for 2023?
a. 469,500
b. 500,000
c. 450,000
d. 422,500
2. What is the carrying amount of the bonds payable on December 31, 2023?
a. 4,695,000
b. 4,704,750
c. 4,714,500
d. 5,000,000
2. On January 1, 2023, 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 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.
1. What is the interest expense for 2024?
a. 454,000
b. 458,960
c. 500,000
d. 450,320
2. What is the carrying amount of the bonds payable on December 31, 2024?
a. 5,695,960
b. 5,737,000
c. 5,629,000
d. 5,579,320
3. On January 1, 2023, an entity reported 10% bonds payable with carrying amount of P5,700,000. The
bonds had a face amount of P6,000,000 and were issued to yield 12%. The interest method of amortization
is used. Interest was paid on June 30 and December 31 of each year.
On July 1, 2023, the entity retired bonds payable with face amount of P2,000,000 at 102. The interest
payment on June 30, 2023 was made as scheduled.
1. What amount should be recorded as loss on the early extinguishment of the bonds payable?
a. 140,000
b. 126,000
c. 112,000
d. 154,000
2. What is a carrying amount of the remaining bonds payable on December 31, 2023?
a. 3,800,000
b. 3,828,000
c. 3,857,680
d. 3,798,620
3. What amount should be reported as interest expense for 2023?
a. 457,680
b. 571,680
c. 684,000
d. 456,000
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4. An entity issued 5,000 of 8% 10-year P1,000 face amount bonds with detachable warrants at 110. Each
bond carried a detachable warrant for 10 ordinary shares of P100 par value at a specified option price
of P120. Immediately after issuance, the market value of the bonds without warrants was P4,800,000
and the market value of the warrants was P1,200,000.
1. What is the initial carrying amount of bonds payable?
a. 5,500,000
b. 4,800,000
c. 4,400,000
d. 5,000,000
2. What amount should be recorded as increase in equity as a result of the bond issuance?
a. 1,200,000
b. 1,100,000
c. 500,000
d. 700,000
3. What amount should be recorded as share premium from the subsequent exercise of all share
warrants?
\
a. 1,700,000
b. 1,000,000
c. 2,100,000
d. 0
5. An entity issued P5,000,000 face amount 5-year bonds at 120. Each P1,000 bond was issued with 20
nondetachable share warrants. Each warrant entitled the bondholder to purchase one share of P20 par
value for P25. Immediately after issuance, the market value of each warrant was P5. The interest rate is
10% payable annually every December 31. The prevailing market rate of interest for similar bonds
without warrants is 12%. The PV of 1 at 12% for 5 periods is 0.57 and the PV of an ordinary annuity
of 1 at 12% for 5 periods is 3.60.
What amount should be recorded as increase in equity as a result of the bond issuance?
a. 1,350,000
b. 1,000,000
c. 2,000,000
d. 0
6. An entity issued 5,000 convertible bonds with P1,000 face amount per bond. The bonds mature in three
years and are issued at 120. Interest is payable annually every December 31 at a nominal 6% interest
rate. Each bond is convertible at anytime up to maturity into 100 shares with par value of P5. It is reliably
determined that the bonds would sell only at P4,500,000 without the conversion privilege.
What amount should be recorded as equity component of the original issuance of the convertible bonds?
a. 1,000,000
b. 1,500,000
c. 1,250,000
d. 0
7. After recording interest and amortization, an entity converted P5,000,000 of 12% convertible bonds into
50,000 shares of P50 par value. On the conversion date, the face amount of the bonds payable was
P5,000,000, the premium on bonds payable P1,000,000, the market value of the bonds P6,500,000 and
the share was publicly trading at 150.
When the bonds were originally issued, the equity component was recorded at P2,000,000. The entity
incurred P200,000 in connection with the bond conversion.
What amount of share premium should be recorded as a result of the bond conversion?
a. 6,000,000
b. 5,800,000
c. 5,300,000
d. 5,500,000
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