NAME:_________________________________

DATE:_______________________ SCHEDULE:_______________________________

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY

ACC 412 - NCL

PROBLEM 1
On January 1, 2017, KAYANG KAYA CO. issued 5 year bonds with a face value of P10,000,000 and stated
interest of 10%. Interest on the bonds is payable annually on December 31. The company uses the effective
interest method.

Requirements:
1. Prepare amortization table and provide all necessary journal entries (with date) in each of the following
independent assumptions:
a. Bonds were issued at face amount.
b. Bonds were issued to yield 8%.
c. Bonds were issued to yield 12%.

PROBLEM 2
On July 1, 2017, KAYA CO. issued 5 year bonds with a face value of P10,000,000 and stated interest of
10%. Interest on the bonds is payable semi-annually on June 30 and December 31. The company uses the
effective interest method.

Requirements:
1. Prepare amortization table and provide all necessary journal entries (with date) in each of the following
independent assumptions:
a. Bonds were issued at face amount.
b. Bonds were issued to yield 8%.
c. Bonds were issued to yield 12%.

PROBLEM 3
On January 1, 2017, MADALI CO. issued 10% bonds with a face value of P9,000,000 payable in three equal
annual installment starting December 31, 2017. Interest on the bonds is payable annually on December 31.
The company uses the effective interest method.

Requirements:
1. Prepare amortization table and provide all necessary journal entries (with date) in each of the following
independent assumptions:
a. Bonds were issued at face amount.
b. Bonds were issued to yield 8%.
c. Bonds were issued to yield 12%.

PROBLEM 4
On July 1, 2017, EASY CO. issued 3 year bonds with a face value of P10,000,000 and stated interest of
10%. Interest on the bonds is payable semi-annually on June 30 and December 31. The company uses the
effective interest method. Bonds were issued to yield 12%.

Requirements: Provide journal entries for retirement of the bonds in each of the following independent
assumptions.
a. On December 31, 2017 at face amount.
b. On December 31, 2017 at 105
c. On March 30, 2018 at 105
d. On June 30, 2020
PROBLEM 5
BABAWI CO. issued 5,000, 10% 5 year bonds with a face value of P1,000 each at 103 on January 1, 2017.
Each bond is accompanied by warrant that permits the bondholder to purchase 10 shares of common stock,
P100 par, at P110 per share. The nominal rate is payable annually on December 31. When the bonds are
issued, the prevailing market rate of interest for similar bonds without warrants is 12% per annum.

Requirements: Provide journal entry.

a. To record the issuance of the bonds
b. Assuming all warrants was exercised.
c. Assuming 40% of the warrants were exercised and 60% were expired.

PROBLEM 6
On January 1, 2018, PASADO CO. issued its 10%, 3 year, P1,000,000 convertible bonds at 102. Each
P1,000 bond is convertible into 8 shares with par value of P100. Principal is due on December 31, 2020 but
the interests are due annually at each year-end. When the bonds were issued, they were selling at a yield to
maturity market rate of 12% without conversion option. On December 31, 2018, the bonds were converted
into shares.
Requirements: Provide journal entry:
a. To record the issuance of bonds
b. Assuming 40% of the bonds were converted
c. Assuming all the bonds were converted

PROBLEM 7
SANA CO. showed the following data on December 31, 2017:
Notes payable, 10% P20,000,000
Interest payable 2,000,000

Under debt restructuring, prepare journal entry to extinguish the debt under each of the following
assumptions:
1. The creditor agrees to accept equipment with a cost of P10,000,000 and P3,000,000 accumulated
depreciation for full settlement of debt. The fair value of the equipment is P8,000,000.
2. The creditor agrees to accept 50,000 ordinary shares, P100 par value for full settlement of debt. The
fair value of the shares is P150. The fair value of the liability is P11,000,000.
3. In the agreement with the creditor, the company obtained the following changes in the terms of the
note.
a. The accrued interest is forgiven.
b. The principal is reduce to P8,000,000 and due after 3 years.
c. The new interest rate is 8% which is payable annually starting December 31, 2018.

PROBLEM 8
1. On January 1, 2015, Solis Co. issued its 10% bonds in the face amount of P3,000,000, which mature
on January 1, 2020. The bonds were issued to yield 8%. Solis uses the effective-interest method of
amortizing bond premium. Interest is payable annually on December 31. At December 31, 2018, the
carrying value of the bonds should be
___________________

2. On July 1, 2013, Noble, Inc. issued 9% bonds in the face amount of P5,000,000, which mature on
July 1, 2019. The bonds were issued to yield 10%. Noble uses the effective-interest method of
amortizing bond discount. Interest is payable annually on June 30. At December 31, 2016, the
carrying value of the bonds should be
___________________

3. On January 1, 2015, Huff Co. sold P1,000,000 of its 10% bonds to yield 12%. Interest is payable
semiannually on January 1 and July 1. What amount should Huff report as interest expense for the
year 2016?
___________________

4. On January 1, 2015, Crown Company sold property to Leary Company. There was no established
exchange price for the property, and Leary gave Crown P200,000 and a P2,000,000 zero-interest-
 bearing note payable in 5 equal annual installments of P400,000, with the first payment due
December 31, 2015. What should be the balance of the Notes Payable account on the books of Leary
at December 31, 2016 after adjusting entries are made, assuming that the effective-interest method is
used?
___________________

5. On January 1, 2015, Crown Company sold property to Leary Company. There was no established
exchange price for the property, and Leary gave Crown P200,000 and a P2,000,000 zero-interest-
bearing note payable in 5 equal annual installments of P400,000, with the first payment due
December 31, 2015. What is the balance of discount on notes payable as of December 31, 2015?
___________________

6. Franzia Company issues 5,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2015. Interest is paid
on July 1 and January 1. The balance reported in the bonds payable account on the December 31,
2016 statement of financial position?
___________________

7. At the beginning of 2015, Winston Corporation issued 10% bonds with a face value of P600,000.
These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The
bonds were sold to yield 12%. Winston uses a calendar-year reporting period. Using the effective-
interest method of amortization, what amount of interest expense should be reported for 2016?
___________________

8. On January 2, 2015, a calendar-year corporation sold 8% bonds with a face value of P600,000. These
bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds
were sold to yield 10%. Using the effective-interest method of computing interest, how much is the balance
of discount on bonds payable on December 31, 2016?
___________________

8. A company issues P5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2015. Interest is paid
on June 30 and December 31. Using effective-interest amortization, what will the carrying value of
the bonds be on the December 31, 2017 statement of financial position?
___________________

9. Feller Company issues P20,000,000 of 10-year, 9% bonds on March 1, 2015 at 97 plus accrued
interest. The bonds are dated January 1, 2015, and pay interest on June 30 and December 31. What is
the total cash received on the issue date?
___________________

10. Downing Company issues P5,000,000, 6%, 5-year bonds dated January 1, 2015 on January 1, 2015.
The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%.
What are the proceeds from the bond issue?
___________________