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Accountancy (Pamantasan ng Lungsod ng Maynila)

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BONDS PAYABLE

On April 1, 2010, Greg Company issued at 99 plus accrued interest, 2000 of its 8% P1000 face
value bonds. The bonds are dated January 1, 2010, mature on January 1, 2020, and pay interest
on January 1 and July 1. Greg paid bond issue cost of P70,000. From the bond issuance, what is
the net cash received by Greg Company?

Issue Price (2,000,000 x 99%) P1,980,000

Accrued Interest from January 1 to April 1
(2,000,000 x 8% x 3/12) 40,000
Total 2,020,000
Less: bond issue cost 70,000
Net cash received P 1,950,000

On November 1, 2010, Mason Company issued P8, 000,000 of its 10-year, 8% term bonds dated
October 1, 2010. The bonds were sold to yield 10% with total proceeds of P7, 000,000 plus
accrued interest. Interest is paid every April and October 1. What should Mason report for
accrued interest payable in its December 31, 2010 statement of financial position?

Accrued interest from October 1 to December 31

(8,000,000 x 8% x 3/12) P160,000

On June 30, 2010, Huff Company issued at 99, 5000 of its 8%, P1, 000 face value bonds. The
bonds were issued through an underwriter to whom Huff paid bond issue cost of P425, 000. On
June 30, 2010, what should be reported as bond liability?

Issue price (P5, 000,000 x 99%) 4,950,000

Bonds payable (5,000 x 1,000) 5,000,000

Discount on B/P (50,000)
Bond issue cost (425,000)
Carrying amount of bonds payable P4, 535,000

Note: kapag premium i-add siya sa bonds payable

Kapag hinahanap ang carrying amount ng bonds payable wag ng i-add ang accrued
Interest payable. Iaadd lang siya sa issue price kapag hinahanap ang net cash received.

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Aye Company is authorized to issue P5, 000,000 of 6%, 10-year bonds dated July 1, 2010 with
interest payments on June 30 and December 31. When the bonds are issued on November 1,
2010, Aye Company received cash of P5, 150,000 including accrued interest. What is the
discount or premium from the issuance of the bonds payable?

Cash received P5, 150,000

Accrued interest from June 30 to November 1, 2010
(5,000,000 x 6% x 4/12) (100,000)
Issue price 5, 050, 000
Face value 5, 000, 000
Premium on bonds payable 50,000

On July 1, 2010, Tara Company issued 4000 of its 8%, P1, 000 face value bonds payable for
P3, 504 ,000. The bonds were issued to yield 10%. The bonds are dated July 1, 2010 and mature
on July 1, 2020. Using the effective interest method, how much of the bond discount should be
amortized for the six months ended December 31, 2010?

On January 1, 2010, Carrow Company issued its 10% bonds in the face amount of P1, 000, 000
that mature on January 1, 2010. The bonds were issued for P 886, 000 to yield 12%, resulting in
bond discount of P114, 000. Carrow uses the interest method of amortizing the bond discount.
Interest is payable on Januaryb1 and July 1. For the year ended December 31, 2010, what
amount should be reported as bond interest expense?

On January 1, 2010, Wolf Company issued its 10% bonds in the face amount of P5, 000, 000,
which mature on January 1, 2020. The bonds were issued for P5, 675, 000 to yield 8%, resulting
in bond premium of P675, 000. Wold uses the interest method of amortizing bond premium.
Interest is payable annually on December 31.

On December 31, 2010, what is the adjusted unamortized bond premium?

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NOTE PAYABALE

On September 1, 2009, Pine Company issued a note payable on National Bank in the amount of
P1, 800,000, bearing interest at 12%, and payable in 3 equal annual principal payments of P600,
000. On this date, the bank’s prime rate was 11%. The first interest and principal payment was
made on September 1, 2010.

On December 31, 2010, what should be reported as accrued interest payable?

Note Payable, September 1, 2009 P1, 800, 000

Payment on September 1, 2010 (600, 000)
Balance, September 1, 2010 1, 200, 000

Accrued interest payable from September 1 to December 31, 2010

(1, 200, 000 x 12% x 4/12) 48,000

January 1 – August 31, 2010 (1, 8000, 000 x 12% X 4/12) 144,000
September 1 – December 31, 2010 48,000
Total interest expense 192, 000

On December 31, 2010, Boston Company purchased a machine from Heliz Company in
exchange for a noninterest bearing note requiring 8 payments of 200,000. The first payment
was made on December 31, 2010 and the others are due annually on December 31. At date of
issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are
as follows:

PV of an ordinary annuity of 1 at 11% for 8 periods 5.146

PV of an annuity of 1 in advance at 11% for 8 periods 5.712

On December 31, 2010, what should be reported as carrying amount of the note payable?

PV of note payable (200, 000 x 5.712) P1, 142, 400

Payment on December 31, 2010 (200,000)
PV of note payable- Dec. 31, 2010 942, 000

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Joshua Company bought a new machine on January present valye of 1 at 12% for five periods is
0.1, 2010 and agreed to pay in equal annual instalment of P600, 000 at the end of each of the
next five years. The prevailing interest rate for this type of transaction is 12%.

The present value of an ordinary annuity of 1 at 12% for five periods is 3.60. the present value
of 1 at 12% for five periods is 0.567.

How much should Joshua report as note payable in the statement of financial position if
financial statements were prepared on January 1, 2010?
PV of note payable on January 1, 2010(600, 000 x 3.60) 2, 160, 000

What is the interest expense on the note payable for 2010?

Interest expense (2, 160, 000 x 12%) 259, 200

On March 1, 2009, Fine Company borrowed P1, 000, 000 and signed a 2-year note bearing
interest at 12% per annum compounded annually. Interest is payable in full at maturity on
February 28, 2011. What amount should be reported as accrued interest payable on December
31, 2010?

Accrued interest from March 1, 20089 to February 28, 2010

(1,000,000 x 12%) 120,000
Accrued interest from March 1 to December 31, 2010
(1,000,000 + 120,000 x 12% x 10/12) 112,000
Accrued interest payable, December 31, 2010 232,000

NONINTEREST BEARING NOTE IS ISSUED FOR PROPERTY

On January 1, 2012, an entity acquired equipment with a cash price of P350, 000 for P500, 000,
P100, 000 down and the balance payable in 4 equal annual instalments.
Find first the discount on N/P
Equipment 350, 000
Discount 150, 000
Cash 100, 000
Note payable 400, 000

Year N/P Fraction Amortization

2012 400, 000 4/10 60, 000
2013 300, 000 3/10 45, 000
2014 200, 000 2/10 30, 000
2015 100, 000 1/10 15, 000
1, 000, 000 150, 000

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NONINTEREST BEARING NOTE IS ISSUED FOR PROPERTY- no cash price

On January 1, 2012, an entity acquired an equipment for P1, 000, 000 payable in 5
equal annual instalments on every December 31 of each year.

The cost of the equipment is equal to the PV of the P200, 000 annual instalments
in 5 years at an appropriate rate of 10%. The rate of 10% is assumed to be the
prevailing market rate of interest.

Equipment (200, 000 x 3.7908) 758, 160

Discount on N/P 241, 840
Note payable 1, 000,000

NONINTEREST BEARING note payable lump sum

On January 1, 2012, an entity acquired an equipment for P1, 000, 000. The entity paid
P100, 000 down and signed a noninterest bearing note for the balance which is due after three
years on January 1, 2015. The present value of 1 for 3 periods is 0.7513.

Downpayment P100, 000

Present value of note (900, 000 x .7513) 676, 170
Cost of Equipment 776, 170

Face value of N/P 900, 000

Present value of N/P 676, 170
Imputed interest/ discount on NP 223, 830

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