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    Chapter 3 Bonds Payable

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    Shiela Dimaculangan
    This document contains 5 solutions that illustrate the accounting for bonds payable with different features such as discounts, premiums, and conversion options. The solutions show the initial recognition of the bonds, subsequent interest expense and amortization of discounts or premiums over the life of the bonds, and recognition of gains or losses upon retirement or conversion of the bonds. Key figures such as present value, interest payments, discounts/premiums, and cash flows are presented.

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    Chapter 3 Bonds Payable

    Uploaded by

    Shiela Dimaculangan
    19 views6 pages
    This document contains 5 solutions that illustrate the accounting for bonds payable with different features such as discounts, premiums, and conversion options. The solutions show the initial recognition of the bonds, subsequent interest expense and amortization of discounts or premiums over the life of the bonds, and recognition of gains or losses upon retirement or conversion of the bonds. Key figures such as present value, interest payments, discounts/premiums, and cash flows are presented.

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    Chapter 3 Bonds payable

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    This document contains 5 solutions that illustrate the accounting for bonds payable with different features such as discounts, premiums, and conversion options. The solutions show the initial recognition of the bonds, subsequent interest expense and amortization of discounts or premiums over the life of the bonds, and recognition of gains or losses upon retirement or conversion of the bonds. Key figures such as present value, interest payments, discounts/premiums, and cash flows are presented.

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    © All Rights Reserved
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    19 views6 pages

    Chapter 3 Bonds Payable

    Uploaded by

    Shiela Dimaculangan
    This document contains 5 solutions that illustrate the accounting for bonds payable with different features such as discounts, premiums, and conversion options. The solutions show the initial recognition of the bonds, subsequent interest expense and amortization of discounts or premiums over the life of the bonds, and recognition of gains or losses upon retirement or conversion of the bonds. Key figures such as present value, interest payments, discounts/premiums, and cash flows are presented.

    Copyright:

    © All Rights Reserved
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    of 6

    CHAPTER 3: BONDS PAYABLE AND OTHER CONCEPTS

    1 SOLUTION

    Jan-01 Cash ₱ 1,903,927.00


    20x1 Discount on bonds payable ₱ 96,073.00
    Bonds payable ₱ 2,000,000.00

    DATE INTEREST PAYMENTS INTEREST EXPENSE AMORTIZATION PRESENT VALUE


    1/1/x1 1,903,927
    12/31/x1 200,000 228,471 28,471 1,932,398
    12/31/x2 200,000 231,888 31,888 1,964,286
    12/31/x3 200,000 235,714 35,714 2,000,000

    Dec-31 Interest expense ₱ 228,471.00


    20x1 Cash ₱ 200,000.00
    Discount on bonds payable ₱ 28,471.00

    Dec-31 Interest expense ₱ 231,888.00


    20x2 Cash ₱ 200,000.00
    Discount on bonds payable ₱ 31,888.00

    Dec-31 Interest expense ₱ 235,714.00


    20x3 Cash ₱ 200,000.00
    Discount on bonds payable ₱ 35,714.00

    2 SOLUTION

    Jan-01 Cash (2,206,168 - 106,694) ₱ 2,099,474.00


    20x1 Bonds payable ₱ 2,000,000.00
    Premium on B/P (squeeze) ₱ 99,474.00

    DATE INTEREST PAYMENTS INTEREST EXPENSE AMORTIZATION PRESENT VALUE


    1/1/x1 2,099,474
    12/31/x1 240,000 209,947 30,533 2,069,421
    12/31/x2 240,000 206,942 33,058 2,036,363
    12/31/x3 240,000 203,637 36,363 2,000,000
    Dec-31 Interest expense ₱ 209,947.00
    20x1 Premium on bonds payable ₱ 30,533.00
    Cash ₱ 240,000.00

    Dec-31 Interest expense ₱ 231,888.00


    20x2 Premium on bonds payable ₱ 33,058.00
    Cash ₱ 240,000.00

    Dec-31 Interest expense ₱ 235,714.00


    20x3 Premium on bonds payable ₱ 36,363.00
    Cash ₱ 240,000.00

    3 SOLUTION

    DATE INTEREST PAYMENTS INTEREST EXPENSE AMORTIZATION PRESENT VALUE


    1/1/x1 2,151,632
    12/31/x1 240,000 215,163 24,837 2,126,795
    12/31/x2 240,000 212,680 27,320 2,099,475
    12/31/x3 120,000 104,974 15,026 2,084,449

    Jul-31 Interest expense ₱ 104,974.00


    20x3 Premium on bonds payable ₱ 15,026.00
    Interest payable ₱ 120,000.00

    Jul-31 Bonds payable ₱ 2,000,000.00


    20x3 Premium on bonds payable ₱ 84,499.00
    Interest payable ₱ 120,000.00
    Cash (2M x 102%) ₱ 2,040,000.00
    Gain on retirement of bonds ₱ 164,449.00

    4 SOLUTION

    INITIAL RECOGNITION:
    Issue price (2M X 105%) 2,100,000
    Fair value of bonds without conversion feature -1,903,926
    EQUITY COMPONENT 196,074
    FUTURE CASH PV FACTORS @ 12%, PRESENT VALUE
    FLOW n=3
    Principal 2,000,000 0.71178 1,423,560
    Interest 200,000 2.401831 480,366
    FAIR VALUE OF BONDS WITHOUT CONVERSION FEATURE 1,903,926

    Jan-01 Cash (2M x 105%) 2,100,000


    20x1 Discount on bonds payable 96,074
    Bonds payable 2,000,000
    Share premium 196,074

    SUBSEQUENT MEASUREMENT:
    DATE INTEREST PAYMENTS INTEREST EXPENSE AMORTIZATION PRESENT VALUE
    1/1/x1 1,903,926
    12/31/x1 200,000 228,471 28,471 1,932,397
    12/31/x2 200,000 231,888 31,888 1,964,285
    12/31/x3 200,000 235,715 35,715 2,000,000

    Dec-31 Interest expense ₱ 228,471.00


    20x1 Discount on bonds payable ₱ 28,471.00
    Cash ₱ 200,000.00

    Dec-31 Interest expense ₱ 231,888.00


    20x2 Discount on bonds payable ₱ 31,888.00
    Cash ₱ 200,000.00

    Dec-31 Bonds payable ₱ 2,000,000.00


    20x2 Discount on bonds payable ₱ 35,715.00
    Share capital ₱ 1,600,000.00
    Share premium ₱ 364,285.00

    Dec-31 Share premium - conversion feature ₱ 196,074.00


    20x2 Share premium ₱ 196,074.00
    5 SOLUTION

    INITIAL MEASUREMENT
    INITIAL RECOGNITION:
    Issue price (2M X 105%) 2,200,000
    Fair value of bonds without conversion feature -1,903,926
    EQUITY COMPONENT 296,074

    FUTURE CASH PV FACTORS @ 12%, PRESENT VALUE


    FLOW n=3
    Principal 2,000,000 0.71178 1,423,560
    Interest 200,000 2.401831 480,366
    FAIR VALUE OF BONDS WITHOUT CONVERSION FEATURE 1,903,926

    DATE INTEREST PAYMENTS INTEREST EXPENSE AMORTIZATION PRESENT VALUE


    1/1/x1 1,903,926
    12/31/x1 200,000 228,471 28,471 1,932,397
    12/31/x2 200,000 231,888 31,888 1,964,285
    12/31/x3 200,000 235,715 35,715 2,000,000

    RETIREMENT:
    Retirement price 2,000,000
    Fair value of bonds without conversion feature -1,981,982
    RETIREMENT PRICE ALLOCATED TO EQUITY COMPONENT 18,018

    FUTURE CASH PV FACTORS @ 12%, PRESENT VALUE


    FLOW n=3
    Principal 2,000,000 0.900901 1,801,802
    Interest 200,000 0.900901 180,180
    FAIR VALUE OF BONDS WITHOUT CONVERSION FEATURE 1,981,982
    Jan-01 Cash ₱ 2,200,000.00
    20x1 Discount on bonds payable ₱ 96,074.00
    Bonds payable ₱ 2,000,000.00
    Share premium ₱ 296,074.00

    Dec-31 Interest expense ₱ 228,471.00


    20x2 Discount on bonds payable ₱ 28,471.00
    Cash ₱ 200,000.00

    Dec-31 Interest expense ₱ 231,888.00


    20x2 Discount on bonds payable ₱ 31,888.00
    Cash ₱ 200,000.00

    Dec-31 Bonds payable ₱ 2,000,000.00


    20x2 Loss on extinguishment of bonds ₱ 17,697.00
    Discount on bonds payable ₱ 35,715.00
    Cash ₱ 1,981,982.00

    Dec-31 Share premium- conversion premium ₱ 278,056.00


    20x2 Share premium ₱ 278,056.00

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