BONDS PAYABLE

STRAIGHT PROBLEMS
PROBLEM NO. 1 PROBLEM NO. 3
On March 1, 2017, Pyne Furniture Co. issued P700,000 of On February 1, 2018, AmeriGas sold P300,000, 12
10 percent bonds to yield 8 percent. Interest is payable percent, ten-year bonds at 96 plus accrued interest.
semiannually on February 28 and August 31. The bonds Interest is payable semiannually on June 1 and December
mature in ten years. Pyne Furniture Co. is a calendar-year 1. The bond issue was dated December 1, 2017. On July
corporation. 31, 2019, P150,000 of the issue was reacquired at 95 plus
accrued interest.
REQUIRED:
REQUIRED:
1. Determine the issue price of the bonds.
2. Prepare an amortization table through the first two Make the entries on the issuer's books for the sale of the
interest periods using the effective-interest method. bonds, the payment of interest, amortization of premium
3. Prepare the journal entries to record bond-related or discount, and accrual of interest, and reacquisition as
transactions as of the following dates: needed for 2018 and 2019. Straight-line amortization is
(a) March 1, 2017 recorded at the end of the calendar year and accruals are
(b) August 31, 2017 reversed. (Round all calculations.)
(c) December 31, 2017
(d) February 28, 2018
4. Determine the carrying amount of the bonds as of PROBLEM NO. 4
December 31, 2017.
On January 2, 2014, Picard Enterprises issued P2,400,000
5. Compute the interest expense to be reported in 2017.
of 8 percent, 15-year semiannual coupon bonds. Each
bond is convertible into 40, P15 par, ordinary shares,
which was trading at P20 per share on the date of the
Partial amortization schedule:
bond issue. The bonds were issued at 106. Without the
Premium Amortized conversion feature, the bonds would have been issued for
Date NI (5%) EI (4%) Amort. cost 104.5.
3/01/09 P ?
8/31/09 P35,000 P31,806 P3,194 791,947 On January 3, 2019, all of the bonds were converted into
ordinary shares. The market price of the shares was P28
2/28/10 35,000 31,678 3,322 788,625
per share on the date of conversion. The issue premium is
amortized using the straight-line method.
PROBLEM NO. 2
REQUIRED:
On June 1, 2017, Jefferson Controls, Inc. issued
1. Provide the journal entry to record issuance of the
P12,000,000 of 10 percent bonds to yield 12 percent.
bonds.
Interest is payable semiannually on May 31 and November
2. Provide the journal entry to record the conversion of
30. The bonds mature in 15 years. Jefferson Controls,
the bonds.
Inc. is a calendar-year corporation.

REQUIRED:
PROBLEM NO. 5
1. Determine the issue price of the bonds.
On 1 January 2014, Entity A issued a 10 per cent
2. Prepare an amortization table through the first two
convertible debenture with a face value of P10,000,000
interest periods using the effective-interest method.
maturing on 31 December 2013. The debenture is
3. Prepare the journal entries to record bond-related
convertible into ordinary shares of Entity A at a conversion
transactions as of the following dates:
price of P25 per share. Interest is payable half-yearly in
(a) June 1, 2017
cash. At the date of issue, Entity A could have issued
(b) November 30, 2017
nonconvertible debt with a ten-year term bearing a coupon
(c) December 31, 2017
interest rate of 11 per cent.
(d) May 31, 2018
4. Determine the carrying amount of the bonds as of
On 1 January 2019, the convertible debenture has a fair
December 31, 2017.
value of P11,200,000. Entity A makes a tender offer to
5. Compute the interest expense to be reported in 2017.
the holder of the debenture to repurchase the debenture
for P11,200,000, which the holder accepts. At the date of
repurchase, Entity A could have issued non-convertible
Partial amortization schedule:
debt with a five-year term bearing a coupon interest rate
Discount Amortized of 8 per cent.
Date EI (6%) NI (5%) Amort. cost
06/01/09 P ? REQUIRED:
11/30/09 P620,885 P600,000 P20,885 10,368,965 1. Provide the journal entry to record issuance of the
05/31/10 622,138 600,000 22,138 10,391,103 bonds.
2. Compute the amount to be recognized in profit or loss
as a result of the repurchase of the debenture.
3. Compute the amount to be recognized in equity as a
result of the repurchase of the debenture.

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 MULTIPLE CHOICE PROBLEMS
1. Pulilio Company’s December 31, 2017 balance sheet
contained the following items in the long-term 5. Thunder Company floated a serial bond issue in 2015.
liabilities section: Details of the issue are as follows:
10% registered bonds, callable in Total amount P5,000,000
2018, due 2020, secured by Date of issue October 2, 2015
machinery P3,000,000 Proceeds from issue P4,900,000
11% bonds, convertible into ordinary Interest rate 5% per annum
shares beginning in 2018, due in Interest payment date October 1
2022, secured by realty 5,000,000 Maturity date P1,000,000 annually,
12% collateral trust bonds (P500,000 starting October 1, 2017
maturing annually) 7,000,000
Using the bond outstanding method of amortizing
What is the total amount of Pulilio’s term bonds and discount, compute the interest expense to be
debenture bonds, respectively? recognized for the year ended December 31, 2017.
a. P15,000,000 and P15,000,000 a. P237,500 c. P273,750
b. P 8,000,000 and P 7,000,000 b. P257,500 d. P261,250
c. P 8,000,000 and P 0
d. P 0 and P 7,000,000 6. In order to finance Francis Company’s planned
expansion, a 12% P10,000,000 face value bonds were
2. On March 1, 2017, Tiaong Company issued 10,000 of issued for P10,800,000, including accrued interest of
its P1,000 face value bonds at 95 plus accrued P200,000 on December 1, 2014. Interest is payable
interest. Tiaong Company paid bond issue cost of every October 1 and April 1. By the end of the year
P1,000,000. The bonds were dated November 1, 2016, the carrying amount of the bonds was reported
2008, mature on November 1, 2026, and bear interest at P10,300,000. Francis uses the straight line method
at 12% payable semiannually on November 1 and May to amortize premium and discount. On September 1,
1. The net amount that Tiaong receive from the bond 2017, Francis decided to reacquire the bonds at face
issuance is value plus accrued interest. What amount should
a. P8,900,000 c. P9,500,000 Francis record as gain on this early extinguishment of
b. P9,900,000 d. P8,500,000 debt?
a. P192,000 c. P204,000
3. On January 1, 2017, Marimar Company issued 10,000 b. P140,000 d. P120,000
of its 12%, P1,000 face value 5-year bonds at 105.
Interest on the bonds is payable annually every 7. On December 31, 2017, Atimonan Company issued
December 31. In connection with the sale of these 8,000 of its 8%, 10-year P1,000 face value bonds with
bonds, Marimar paid the following expenses: detachable share warrants at 120. Each bond carried
Promotion costs P100,000 a detachable warrant for two shares of Atimonan’s
Engraving and printing 400,000 P100 par value ordinary shares at a specified option
Underwriter’s commissions 500,000 price of P150. Immediately after issuance, the market
value of the bonds ex-warrants was P8,100,000 and
Using the straight line method, what amount should the market value of the warrants was P900,000. The
Marimar report as bond interest expense for the year issuance of the bonds increased Atimonan’s equity by
2017? a. P 900,000 c. P960,000
a. P1,100,000 c. P1,300,000 b. P1,500,000 d. P 0
b. P1,200,000 d. P1,600,000
8. On 1 January 2020, Entity A issued a 10 per cent
4. On December 31, 2016, Ulster Co. issued P200,000 of convertible debenture with a face value of P1,000,000
8% serial bonds, to be repaid in the amount of maturing on 31 December 2021. The debenture is
P40,000 each year. Interest is payable annually on convertible into ordinary shares of Entity A at a
December 31. The bonds were issued to yield 10% a conversion price of P25 per share. Interest is payable
year. The bond proceeds were P190,280 based on the half-yearly in cash. At the date of issue, Entity A could
present values at December 31, 2016 of the five have issued nonconvertible debt with a ten-year term
annual payments: bearing a coupon interest rate of 11 per cent.
Amounts Due On 1 January 2017, to induce the holder to convert the
Due Date Principal Interest PV 12/31/08 convertible debenture promptly, Entity A reduces the
12/31/17 P40,000 P16,000 P 50,900 conversion price to P20 if the debenture is converted
12/31/18 40,000 12,800 43,610 before 1 March 2017 (ie within 60 days). The market
12/31/19 40,000 9,600 37,250 price of Entity A’s ordinary shares on the date the
12/31/20 40,000 6,400 31,690 terms are amended is P40 per share.
12/31/21 40,000 3,200 26,830
P190,280 Compute the amount to be recognized in profit or loss
as a result of the amendment of the terms.
In its December 31, 2017 balance sheet, at what a. P400,000 c. P50,000
amount should Ulster report the carrying amount of b. P200,000 d. P 0
the bonds?
a. P139,380 c. P150,280
b. P149,100 d. P153,308

PROBLEM

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1. JR Company showed the following balances in 5. The December 31, 2016, balance sheet of Dodge
connection with its noncurrent liabilities on December Corporation includes the following items:
31, 2017. 9% bonds payable due December
Bonds payable – 10%, maturing P10,000,000 31, 2025 P1,400,000
December 31, 2022 Unamortized premium on bonds
Bonds payable – 12%, maturing 8,000,000 payable 37,800
December 31, 2027 The bonds were issued on December 31, 2015, at 103,
Discount on bonds payable 800,000 with interest payable on July 1 and December 31 of
Premium on bonds payable 500,000 each year. Dodge uses straight-line amortization.
Bond issue costs 200,000
On March 1, 2017, Dodge retired P560,000 of these
The discount is related to the 10% bonds payable and bonds at 98 plus accrued interest. What should Dodge
the premium and bond issue costs are applicable to the record as a gain on retirement of these bonds?
12% bonds payable. No bonds were retired during a. P26,320 c. P15,120
2017. How much interest expense on the bonds b. P26,040 d. P28,000
payable should JR report in its 2017 income
statement? (Use straight line amortization method) 6. An entity issued 2,000 convertible bonds on January 1,
a. P2,090,000 c. P2,070,000 2017. The bonds have a three-year term, and are
b. P1,870,000 d. P1,890,000 issued at par with a face value of P1,000 per bond.
Interest is payable annually in arrears at a nominal
2. On January 2, 2017, Lucban Company issued 9% annual interest rate of 6 per cent. Each bond is
bonds in the amount of P10,000,000 which mature on convertible at any time up to maturity into 250
January 2, 2027. The bonds were issued for ordinary shares. The entity has an option to settle the
P9,390,000 to yield 10% resulting in a bond discount principal amount of the convertible bonds in ordinary
of P610,000. Interest is payable annually on shares or in cash. When the bonds are issued, the
December 31. Lucban uses the interest method of prevailing market interest rate for similar debt without
amortizing bond discount. In its December 31, 2017 a conversion option is 9 per cent. At the issue date,
balance sheet, what amount should Lucban report as the market price of one ordinary share is P3. The
bonds payable? issuance of convertible bonds increased the entity’s
a. P10,000,000 c. P9,390,000 equity by
b. P 9,451,000 d. P9,429,000 a. P 0 c. P896,025
b. P151,878 d. P134,872
3. Mauban Company has outstanding a 7%, 10-year
P10,000,000 face value bond. The bond was originally Use the following information for the next two questions.
sold to yield 6% annual interest. Mauban uses the
On January 1, 2017, Entity A issues convertible bonds with
effective interest method to amortize bond premium.
a maturity of five years. The issue is for a total of 1,000
On January 1, 2017, the carrying amount of the
convertible bonds. Each bond has a par value of P1,000, a
outstanding bond was P10,500,000. What amount of
stated interest rate is 5% per year, and is convertible into
unamortized premium on bond should Mauban report
5 ordinary shares of Entity A. The convertible bonds were
in its December 31, 2017, balance sheet?
issued to Entity O at par. The per-share price for an Entity
a. P430,000 c. P570,000
A share is P15. Quotes for similar bonds issued by Entity A
b. P450,000 d. P550,000
without a conversion option (i.e., bonds with similar
principal and interest cash flows) suggest that they can be
4. On January 1, 2017, Entity A issues a debt instrument
sold for P900,000.
for a price of P1,250,000. The principal amount is
P1,250,000 and the debt instrument is repayable on 7. The issuance of convertible bonds increased Entity A’s
December 31, 2021. The rate of interest is specified in equity by
the debt agreement as a percentage of the principal a. P75,000 c. P100,000
amount as follows: 6% in 2017, 8% in 2018, 10% in b. P76,923 d. P 0
2019, 12% in 2020, and 16.4% in 2021. The interest
expense to be recognized in 2009 is 8. The carrying amount of bonds payable on Entity A’s
a. P 75,000 c. P125,000 books as of December 31, 2017 is
b. P131,000 d. P130,000 a. P1,000,000 c. P882,680
b. P 917,320 d. P938,085

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