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Preliminary Exam - Intermediate Accounting 3
Preliminary Exam - Intermediate Accounting 3
YEAR/COURSE: ___________________________________
GENERAL RULES:
Use BLACK or BLUE pen. Using a pencil for writing final answers is not allowed.
Use BASIC CALCULATOR.
Write your final answer at the answer sheet indicated in the first page. Your solutions must be written in your worksheet.
Strictly, NO ERASURES in the answer sheet.
“NO ADMISSION SLIP, NO EXAMINATION” is strictly followed.
You have exactly four (4) hours to finish the examination. GOOD LUCK!
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1. On October 1, 2014, Jammy Corporation issued, at 99 excluding accrued interest, 2,000 of its 8% ₱1,000 bonds. The bonds are dated
January 1, 2014, mature on January 1, 2024, and pay interest on July 1 and January 1. Jammy paid transaction costs of ₱70,000. From the
bond issuance, Jammy receive net cash of:
2. On January 2, 2014, Ariel Co. issued 9% bonds in the amount of ₱1,000,000, which mature on January 2, 2024. The bonds were issued
for ₱939,000 to yield 10%. Interest is payable annually on December 31. Ariel uses the interest method of amortizing bond discount. In its
December 31, 2014 statement of financial position, what amount should Ariel report as bonds payable?
5. On February 1, 2006, Marimar Company issued 12%, P2,000,000 face amount, 10 year bonds for P2,234,000 plus accrued interest. The
bonds are dated November 1, 2005 and interest is payable on May 1 and November 1. The entity uses the straight line method of
amortization. Marimar reacquired all of these bonds at 102 on May 1, 2009 and retired them. Ignoring income tax, what was Marimar’s gain
on the bond retirement?
6. Total cash receive from the sale of P2 million bonds on April 1, 2005
7. Interest expense for 2005
8. Carrying amount of bonds payable as of December 31, 2005
9. Gain or loss on retirement of P1 million bonds on April 1, 2010
10. Gain or loss on retirement of remaining bonds on June 30, 2010
14. On January 1, 2011, Curtis Company issued 10 year bonds with a face amount of P5,000,000 and a stated interest rate of 8% payable
annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:
Present value of 1 for 10 periods at 10% 0.3855
Present value of an ordinary annuity of 1 for 10 periods at 10% 6.145
The total issue price of the bonds is:
On January 1, 2010, the convertible bond has a fair value of P4,400,000. Calauag makes a tender offer to the holders to repurchase the
bonds for P4,400,000. The holders of the P2,000,000 bonds accepted the offer. At the fate of repurchase, Calauag could have issued non-
convertible debt with a five-year term bearing a coupon interest rate of 8 percent.
On December 31, 2010, to induce the holders of the remaining bonds to convert the bonds promptly, Calauag reduces the conversion price to
P20 if the bonds are converted before March 1, 2011 (ie within 2 months). The market price of Calauag’s ordinary shares on the date the
terms are amended is P32 per share.
15. The proceeds from issuance of convertible bonds to be allocated to the equity component is
16. The carrying amount of the bonds on December 31, 2009 is
17. The amount to be recognized in profit or loss as a result of the repurchase of the bonds on January 1, 2010 is
18. The repurchase of the bonds on January 1, 2010 decreased equity by
19. The amount to be recognized in profit or loss as a result of the amendment of the terms on December 31, 2010 is
20. How much of the net proceeds represent the equity component?
21. How much of the net proceeds represent the debt component?
22. During 2014, Colocar Corporation issued at 95, one thousand of its 8%, ₱5,000 bonds due in ten years. One detachable stock purchase
warrants entitling the holder to buy 20 shares of Colocar’s ordinary shares was attached to each bond. Shortly after issuance, the bonds are
selling at 10% ex-warrant, and each warrant was quoted at ₱60. What amount, if any, of the proceeds from the bond issuance should be
recorded as part of Colocar’s shareholders’ equity?