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Audprob Answer 3 and 4
Audprob Answer 3 and 4
4. Your company has been engaged to examine the financial statements of Gloria Company for
the years ended in December 31, 2022 and December 31, 2021. You have been assigned to
review the liabilities and shareholders’ equity balances. You have learned that on January 1,
2020, Gloria Company issued a five-year, 8% bonds 5,000,000 at 110. Each 1,000 bond is
convertible into 8 shares of 100 par value ordinary share of Gloria Company, at the option of the
bondholder. Interest on the bonds is payable annually on December 31. Without the conversion
feature, the bonds would have sold to yield 10% to the holders. (Round present value factors to
four decimal places).
1. The issue price that was attributable to the debt is
a. 5,420,000
b. 5,399,350
c. 5,000,000
d. 4,620,820
2. What was the correct carrying value of the bonds on December 31, 2020?
a. 4,682,902
b. 4,744,984
c. 5,000,000
d. 5,467,402
3. What is the interest expense on these bonds for the year ending December 31, 2021?
a. 400,000
b. 437,932
c. 468,290
d. 500,000
4. 2,000,000 of the bonds were converted into ordinary shares on January 1, 2022. What
amount should have been credited to share premium upon conversion?
a. 652,149
b. 520,000
c. 400,000
d. 300,477
5. Disregard the information given in item 5. Assume, instead, that on January 1, 2022,
2,000,000 of the bonds were retired @ 109. The bonds without the conversion feature would
have sold @ 105 on this date. What amount of gain or loss should be recognized on the
retirement of bonds?
a. 40,000
b. 160,000
c. (59,523)
d. (199,523)
6. Disregard the assumption in item 5. Assume that on January 1, 2022, P2,000,000 of the
bonds were retired @ 109. The bonds without the conversion feature would have sold @
105 on this date. What should be the interest expense for the year ended in December 31,
2022?
a. 252,374
b. 285,072
c. 300,000
d. 475,119