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File - Lecture notes 1,3,7,10

Accounting (Ramon Magsaysay Memorial Colleges)

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Answer Key
Lecture 4 Bonds Payable Assignment
____ 1. On December 31, 2016 , Boheme Company reported a 9% bonds payable due December 31, 2021 with a
carrying amount of P15,405,000. The bonds were issued on December 31,2012 and had a face amount of
P15,000,000 with interest payable semiannually on June 30 and December 31 of each year .
On December 31, 2016 , the entity retired P5,000,000 of these bonds at 98.
What amount should be reported as gain or loss on the retirement of the bonds for 2016 ?
a. 235,000 gain c. 100,000 gain
b. 235,000 loss d. 100,000 loss

ANSWER : A
Carrying amount – Dec. 31, 2016 15,405,000
Multiplied by : 5/15
Carrying amount of retired bonds 5,135,000
Less: Retirement price (5M X.98) 4,900,000
Gain on early retirement 235,000 Gain

____ 2. On July 1, 2016 , Carr Company issued at 104 , five thousand of 10% P1,000 face value bonds. The bonds
were issue through an underwriter to whom the entity paid bond issue cost of P125,000.
On July 1, 2016 , what amount should be reported as bond liability ?
a. 4,875,000 c. 5,200,000
b. 5,075,000 d. 5,325,000

ANSWER : B
Face amount of Bonds (5,000 x P1,000) P5,000,000
Multiplied by : Issue price 104%
Issue price 5,200,000
Less: Bond issue cost (125,000)
Bond liability – carrying amount 5,075,000

____ 3. On December 31, 2016 , Marie Company reported bonds payable of P7,360,000 and accrued interest payable
of P200,000 . The bonds are retired on December 31, 2016 for P8,160,000, excluding accrued interest.
What amount should be reported as gain or loss on extinguishment of bonds payable ?
a. 800,000 gain c. 600,000 gain
b. 800,000 loss d. 600,000 loss

ANSWER : B
Carrying amount of retired bonds 7,360,000
Less: Retirement price (5M X.98) 8,160,000
Loss on early retirement 800,000 Loss

____ 4. Zola Company had the following long-term debt :

Bonds maturing in installments, secured by machinery 1,000,000
Bonds maturing on a single date, secured by realty 1,800,000

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Collateral trust bonds 2,000,000

What is the total amount of debenture bonds ?
a. 2,000,000 c. 1,800,000
b. 1,000,000 d. 0

ANSWER : D
A debenture is a type of bond that is unsecured by collateral .
All the bonds of Zola Company are secured. Hence , there is no debenture bonds.
____ 5. On March 1, 2015 , Cain Company issued at 103 plus accrued interest 4,000 of 9% , P1,000 face value bonds.
The bonds are dated January 1, 2015 and mature on January 1, 2025 . Interest is payable semiannually on
January 1 and July 1 . The entity paid bond issue cost of P200,000.
What is the net cash received from the bond issuance ?
a. 4,320,000 c. 4,120,000
b. 4,180,000 d. 3,980,000

ANSWER : D
Face amount of Bonds (4,000 x P1,000) P4,000,000
Multiplied by : Issue price 103%
Issue price received 4,120,000
Add: Accrued interest received (4M X 9% X 2/12) 60,000
(From January 1 to March 1)
Less: Bond issue cost paid (200,000)
Net cash received 3,980,000

____ 6. On January 31, 2015 , Beau Company issued P3,000,000 maturity value , 12% bonds for P3,000,000 cash.
The bonds are dated December 31, 2014 and mature on December 31, 2024. Interest is payable semianually
on June 30 and December 31.
What amount of accrued interest payable should be reported on September 30, 2015 ?
a. 270,000 c. 180,000
b. 240,000 d. 90,000

ANSWER : D
Accrued interest ( From June 30 – September 30) 3M X 12% x 3/12 90,000
____ 7. On January 1, 2015 , Wolf Company issued 10% bonds in the face amount of P5,000,000 , which mature on
January 1, 2025. The bonds were issued for P5,675,000 to yield 8%, resulting in bond premium of P675,000 .
The entity used the interest method of amortizing bond premium. Interest is payable annually on December
31.
On December 31, 2015 , what is the adjusted unamortized bond premium ?
a. 675,000 c. 607,500
b. 629,000 d. 507,500

ANSWER : B
Date Interest Paid Interest Expense Premium Carrying amount
(5M X 10%) (CA X 8%) Amortization
January 5,675,000
1, 2015
December 500,000 454,000 46,000* 5,629,000
31, 2015

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Journal entry to record premium amortization:

Premium on bonds payable 46,000
Interest Expense 46,000

Premium on bonds – January 1, 2015 675,000

Less: Amortization (46,000)
Premium on bonds – Dec. 31 629,000

Lecture 4 Bonds Payable Assignment

Answer Section
MULTIPLE CHOICE

1. ANS: A PTS: 1
2. ANS: B PTS: 1
3. ANS: B PTS: 1
4. ANS: D PTS: 1
5. ANS: D PTS: 1
6. ANS: D PTS: 1
7. ANS: B PTS: 1

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