Mitch T.

Minglana
BSA 301

Problem 1:
Yellow Company received permission on January 1, 2020 to issue10% bonds
with face amount of P6, 000,000 maturing on January 1, 2030. Interest is
payable annually on December 31. The bonds are callable at 104 plus accrued
interest. On January 1, 2020, the entity issued the bonds for P6, 700,000 with
an effective yield of 12%. The fiscal year of the entity ends December 31. The
effective interest amortization is used.

Required:
1. Prepare journal entries relating to the bonds payable for 2020.
2020
Jan.1 Cash 6,700,000
Bonds Payable 6,000,000
Premium on bonds payable 700,000

Dec.1 Interest Expense (6,000,000x10%) 600,000

Cash 600,000

31 Premium on bonds payable 204,000

Interest expense 204,000

Interest paid 600,000

Interest expense (12%x6, 700,000) 804,000
Premium Amortization 204,000
2. Present the bonds payable on December 31, 2020.
ANSWER:
Noncurrent liabilities:
Bonds payable 6,000,000
Premium on bonds payable
(700,000-204,000) 496,000
Carrying Amount 6,496,000