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CHAPTER 2

NON-CURRENT LIABILITIES
PROBLEMS
2-1.

(Ruby Corporation)
At 8%
Bond issue price
Nominal interest for 2009
Interest expense for 2009
Premium/discount amortization in 2009
Bond carrying value at December 31, 2009
Nominal interest for 2010
Interest expense for 2010
Premium/discount amortization in 2010
Bond carrying value at December 31, 2010

1,081,145
50,000
43,246
6,754
1,074,391
100,000
85,671
14,059
1,060,332

At 11%
962,280
50,000
52,925
2,925
965,205
100,000
106,342
6,342
971,547

Computations:
At 8%
Issue price = (1,000,000 x 0.6756) + (50,000 x 8.1109)
= 675,600 + 405,545 = 1,081,145

Date
06/30/09
12/31/09
06/30/10
12/31/10

A
B

=
=

A
Interest
Paid

B
Interest
Expense

C
Premium
Amortization

50,000
50,000
50,000

43,246
42,976
42,695

6,754
7,024
7,035

D
Bond
Carrying Value
1,081,145
1,074,391
1,067,367
1,060,332

Face value x 5%
Carrying value, beg of year x 4%

At 11%
Issue price = (1,000,000 x 0.5854) + (50,000 x 7.5376)
= 585,430 + 376,880 = 962,280

Date
06/30/09
12/31/09
06/30/10
12/31/10

2-2.

A
Interest
Paid

B
Interest
Expense

C
Discount
Amortization

D
Bond
Carrying Value

50,000
50,000
50,000

52,925
53,086
53,256

2,925
3,086
3,256

962,280
965,205
968,291
971,547

(Fire Company)
(a)
Issue price
Present value of face value
(4,000,000 x 0.5084)
Present value of interest payments (320,000 x 7.0236)
Issue price

(b)

Amortization Table

P2,033, 600
2,247,552
P4,281,152

Chapter 2 - Non-Current Liabilities

Date
3/01/09
8/31/09
2/28/10
8/31/10
2/28/11

(c)
03/01/09

08/31/09

12/31/09

12/28/10

2-3.

(b)

(Onyx)
(a)

Interest
Expense
299,681
298,258
296,736
295,108

Premium
Amortization
20,319
21,742
23,264
24,892

Cash
Bonds Payable
Premium on Bonds Payable

Bond Carrying
Value
4,281,152
4,260,833
4,239,091
4,215,827
4,190,935

4,281,152
4,000,000
281,152

Interest Expense
Premium on Bonds Payable
Cash

299,681
20,319

Interest Expense (298,258 x 4/6)


Premium on Bonds Payable
Interest Payable (320,000 x 4/6)

198,839
14,494

Interest Expense
Premium on Bonds Payable
Interest Payable
Cash

99,419
7,248
213,333

(Metal Corporation)
Market value of bonds
Market value of warrants
Total issue price
(a)

2-4.

Interest
Paid
320,000
320,000
320,000
320,000

320,000

213,333

320,000

5,000,000 x .98
4,900,000
5,000 x 70
350,000
5,250,000

Cash
Discount on Bonds Payable
Bonds Payable
Share Warrants Outstanding

5,250,000
100,000

Cash (5,000 x 20 x 20)


Share Warrants Outstanding
Ordinary Shares (5,000 x 20 x 15)
Share Premium

2,000,000
350,000

5,000,000
350,000

1,500,000
850,000

Issue price of bonds with warrants (1,000,000 x 1.03)

Bond price without warrants


1,000,000 x 0.3220
100,000 x 5.6502
Value of share warrants
(b)

Interest Expense for 2009 (887,020 x 12% x 10/12

(c)

Bond carrying value, March 1, 2009


Amortization through December 31, 2009
887,020 x 12% x 10/12
1,000,000 x 12% x 10/12

10

1,030,000
322,000
565,020

887,020
142,980
88,702
887,020

88,702
83,333

5,369

Chapter 2 - Non-Current Liabilities

Bond carrying value, December 31, 2009


(d)

2-5.

892,389

Cash (1,000 x 30 x 50)


Share Warrants Outstanding
Ordinary Share (30,000 x 25)
Share Premium

1,500,000
142,980
750,000
892,980

(Celeron Company)
(a)
Issue price of convertible bonds
Issue price of bonds without conversion privilege
2,000,000 x 0.5674
200,000 x 3.6048
Allocation to equity
(b)

2,000,000
1,134,800
720,960

1,855,760
144,240

Amortization Table
Interest
Interest
Date
Paid
Expense
07/01/09
06/30/10
200,000
222,691
06/30/11
200,000
225,414
06/30/11
06/30/11
06/30/12
80,000
91,386
06/30/13
80,000
92,572
06/30/14
80,000
94,316*
*Adjusted; difference is due to rounding off.

(c)
07/01/09

Premium
Amortization
22,691
25,414
11,386
12,752
14,316

Cash
Discount on Bonds Payable
Bonds Payable

2,000,000
144,240
2,000,000
144,240

PIC Arising from Bond Conversion Privilege

06/30/10

06/30/11

06/30/11

Interest Expense
Discount on Bonds Payable
Cash

222,691

Interest Expense
Discount on Bonds Payable
Cash

225,414

Bonds Payable
PIC Arising from Conversion Privilege
Discount on Bonds Payable
Ordinary Share
Share Premium

22,691
200,000
25,414
200,000
1,200,000
86,544

Carrying value,bonds converted (1,903,865 x 120/200

Face value of bonds converted


Discount on bonds payable cancelled
Value of equity converted (144,240 x 120/200)
Par value of ordinary shares issued (120 x 80 x 100)

11

Bond Carrying
Value
1,855,760
1,878,451
1,903,865
(1,142,319)
761,546
772,932
785,684
800,000

57,681
960,000
268,863

1,142,319
1,200,000
57,681
86,544
960,000

Chapter 2 - Non-Current Liabilities

06/30/12

06/30/13

06/30/14

06/30/14

Interest Expense
Discount on Bonds Payable
Cash

91,386

Interest Expense
Discount on Bonds Payable
Cash

92,752

Interest Expense
Discount on Bonds Payable
Cash

94,316

Bonds Payable
PIC Arising from Bond Conversion Privilege

11,386
80,000
12,752
80,000
14,316
80,000
800,000
57,696

Cash

800,000
57,696

PIC from Unexercised Bond Conversion Privilege

(144,240 86,544)
2-6.

(Iron Company)
Bonds Payable
Premium on Bonds Payable (450,000 x 2/20)
PIC Arising from Bond Conversion Privilege(320,000 x 2/20)

2,000,000
45,000
32,000

Ordinary Shares (1,000 x 60 x 20)


Share Premium
2-7.

1,200,000
877,000

(Lim Corporation)
(a)

Cash
Bonds Payable
Premium on Bonds Payable

5,500,000
5,000,000
200,000
300,000

PIC Arising from Bond Conversion Privilege

(b)

Bonds Payable
Premium on Bonds Payable (5,000 x 1/5)
PIC Arising from Bond Conversion Privilege

1,000,000
10,000
60,000

Ordinary Share (200 x 40 x 100)


Share Premium
300,000 x 1/5 = 60,000
(c)

Bonds Payable
Premium on Bonds Payable (5,000 x 2/5)
PIC Arising from Bond Conversion Privilege

800,000
270,000
2,000,000
20,000
120,000

Cash (2,000,000 x 1.04)


Gain on Retirement of Bonds

2,080,000
10,000
50,000

PIC from Unexercised Bond Conversion Privilege

Retirement price

2,080,000

Retirement price on account of liability

2,000,000 x 1.005
Retirement price on account of equity

Carrying value of bonds retired


Face value
Unamortized premium (50,000 x 2/5)

12

2,010,000
70,000
2,000,000
___20,000
2,020,000

Chapter 2 - Non-Current Liabilities

Retirement price of bonds (2M x 1.005)

Gain on retirement of bonds

2,010,000
10,000

Carrying value of equity cancelled


Retirement price on account of equity

Gain on cancellation taken to equity


2-8.

120,000
70,000
50,000

(Emerald Corporation)
The following table may facilitate the computations required in this problem.
Date
12/01/09
06/01/10
12/01/10
06/01/11
12/01/11
06/01/12
12/01/12
06/01/13
12/01/13
06/01/14
12/01/14

Interest
Paid
300,000
300,000
300,000
300,000
300,000
180,000
180,000
180,000
180,000
180,000

Interest
Expense
269,304
267,769
266,157
264,465
262,688
156,494
155,318
154,084
152,788
151,443*

Premium
Amortization
30,696
32,231
33,843
35,535
37,312
23,506
24,682
25,916
27,212
28,557

Bond
Carrying Value
5,386,072
5,355,376
5,323,145
5,289,302
5,253,767
5,216,455
3,106,367
3,081,685
3,055,769
3,028,557
3,000,000

*Adjusted; difference is due to rounding off.


(a)

Carrying value, December 1, 2006 (see, table)

5,323,145
____5,640
5,317,505

Amortization for one month (33,843 x 1/6)


Carrying value, December 31, 2010
(b)

(c)

Interest Expense for year 2010


January 1-June 1, 2010 (269,304 x 5/6)
June 1-December 1, 2010
December 1-31, 2010 (266,157 x 1/6)
Total

224,420
267,769
_44,360
536,549

Carrying value of bonds retired on December 1, 2011

5,253,767 x 2/5
Carrying value of bonds retired on April 1, 2012

2,101,507
____9,950
2,091,557

(d)

Carrying value of bonds retired


Redemption price (2,000,000 x 1.04)
Gain on redemption of bonds

2,091,557
2,080,000
11,557

(e)

Carrying value of remaining bonds, December 1, 2011


Amortization through December 31, 2011 (24,682 x 1/6)
Carrying value of remaining bonds, December 31, 2011

3,106,367
4,114
3,102,253

(f)

On bonds redeemed:

Amortization through April 1, 2012 (37,312 x 4/6 x 2/5)

January 1-April 1, 2012 (262,688 x 2/5 x 3/6)

2012
52,538

203

On remaining bonds
January 1-June 1, 2012 (262,688 x 3/5 x 5/6)

June 1-December 1, 2012


December 1-31, 2012 (155,318 x 1/6)
January 1-June 1, 2013 (155,318 x 5/6)

13

131,344
156,494
25,886
129,432

Chapter 2 - Non-Current Liabilities

June 1-December 1, 2013


December 1-31, 2013 (152,788 x 1/6)
Interest Expense
2-9.

(Ohio Company)

Interest
Expense
1,014,730
999,908
983,901
966,613
473,971
463,889

Premium
Amortization
185,270
200,092
216,099
233,387
126,029
136,111

(a)

Effective interest (12,734,120 50,000) x 8%


Nominal interest (10,000,000 x 12%
Amortization of premium for 2009

(b)

Carrying value of bonds on December 31, 2012 (see table)

(c)

Carrying value of bonds called (11,849,272 x 5/10)


Call price/retirement price (5,000,000 x 110%)
Gain on retirement of bonds

(d)

Interest Expense for year 2014 (see table)

(e)

Unamortized premium on bonds payable, Dec. 31, 2014

5,662,496 5,000,000
2-10.

154,084
25,465
308,981

Partial Amortization Table


Interest
Paid
1,200,000
1,200,000
1,200,000
1,200,000
600,000
600,000

Date
01/01/09
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14

______
366,262

Bond Carrying
Value
12,684,120
12,498,850
12,298,758
12,082,659
11,849,272
5,798,607
5,662,496

1,014,730
1,200,000
185,270
11,849,272
5,924,636
5,050,000
874,636
463,889
662,496

(Sim Company)
Partial Amortization Table
Date
03/01/09
09/01/09
03/01/10
09/01/10
03/01/11
09/01/11
03/01/12
09/01/12

(a)

Nominal
Interest

Effective
Interest

Premium
Amortization

85,000
85,000
85,000
85,000
85,000
85,000
85,000

88,335
88,485
88,642
88,806
88,977
89,156
89,343

3,335
3,485
3,642
3,806
3,977
4,156
4,343

Carrying amount of the bonds, December 31, 2009

88,335
3,335
1,966,335
2,323
1,968,658

(c)

Retirement price (at face value)


Accrued interest (2,000,000 x 8.5% x 4/12)
Amount of cash paid on June 30, 2012

2,000,000
56,667
2,056,667

(d)

Carrying value, March 1, 2012 (see table)


Amortization through June 30, 2012 (4,343 x 4/6)
Carrying value, June 30, 2012
Retirement price (at face value)

1,985,401
2,895
1,988,296
2,000,000

(b)

Interest expense recorded on September 1, 2009


Discount amortization recorded on September 1, 2009
Carrying amount of the bonds, September 1, 2009

Bond
Carrying value
P1,963,000
1,966,335
1,969,820
1,973,462
1,977,268
1,981,245
1,985,401
1,989,744

Amortization through December 31, 2009 (3,485 x 4/6)

14

Chapter 2 - Non-Current Liabilities

Loss on retirement of bonds


2-11.

11,704

(Lim Company)
(a)

Issue price of the bonds


Principal
Due Date
Due
12/31/10
2,000,000
12/31/11
2,000,000
12/31/12
2,000,000
12/31/13
2,000,000
12/31/14
2,000,000
Selling price of bonds

(b)
Principal
Due

Interest
Due
800,000
640,000
480,000
320,000
160,000

Amount
Due
2,800,000
2,640,000
2,480,000
2,320,000
2,160,000

Amortization Table
Interest
Effective
Due
Interest

Due Date
12/31/09
12/31/10
2,000,000
800,000
12/31/11
2,000,000
640,000
12/31/12
2,000,000
480,000
12/31/13
2,000,000
320,000
12/31/14
2,000,000
160,000
*Adjusted; difference is due to rounding off.

1,088,392
882,999
672,159
455,218
231,296

Present Value
PV Factor
0.8929
0.7972
0.7118
0.6355
0.5674

2,500,120
2,104,608
1,765,264
1,474,360
1,225,584
P9,069,936

Discount
Amortization

Carrying
Value, end
P9,069,936
7,358,328
5,601,327
3,793,486
1,928,704
-0-

288,392
242,999
192,159
135,218
71,296*

(c)

12/31/09

12/31/10

12/31/11

2-12.

Cash
Discount on Bonds Payable
Bonds Payable

9,069,936
930,064

Interest Expense
Discount on Bonds Payable
Cash

1,088,392

Bonds Payable
Cash

2,000,000

10,000,000
288,392
800,000
2,000,000

Interest Expense
Discount on Bonds Payable
Cash

882,999
242,999
640,000

Bonds Payable
Cash
(Blue Sapphire Corporation)
(a) Issue price of the bonds
Principal
Due Date
Due
12/31/09
2,000,000
12/31/10
2,000,000
12/31/11
2,000,000
12/31/12
2,000,000
Selling price of bonds
(b)
Due Date
01/01/09
12/31/09
12/31/10
12/31/11

Principal
Due
2,000,000
2,000,000
2,000,000

2,000,000
2,000,000
Interest
Due
960,000
720,000
480,000
240,000

Amount
Due
2,960,000
2,720,000
2,480,000
2,240,000

Amortization Table
Interest Due
Effective
Interest
960,000
720,000
480,000

15

695,004
513,804
337,308

Present Value
PV Factor
0.9259
0.8573
0.7938
0.7355

Discount
Amortization
264,996
206,196
142,692

2,740,664
2,331,856
1,968,624
1,646,400
P8,687,544

Carrying
Value, end
8,687,544
6,422,548
4,216,352
2,073,660

Chapter 2 - Non-Current Liabilities

12/31/12
2,000,000
240,000
*Adjusted; difference is due to rounding off.

166,340*

73,660

-0-

(c)

01/01/09

12/31/09

Cash
Bonds Payable
Premium on Bonds Payable
Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable
Cash

12/31/10

8,000,000
687,544
695,004
264,996
960,000
2,000,000
2,000,000

Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable
Cash

2-13.

8,687,544

513,804
206,196
720,000
2,000,000
2,000,000

(KFC Delivery Service)


(a)
6,949,800/9,000,000 = 0.7722
This present value factor for three periods is
under the rate of 9% (Table II, Present Value of a Single Payment). Hence,
effective yield for this transaction is 9%.
(b)

Date
09/01/09
08/31/10
08/31/11
08/31/12

Amortization
9% x 6,949,800 = 625,482
9% x 7,575,282 = 681,775
9% x 8,257,057 = 742,943*

Carrying Value of Note


6,949,800
7,575,282
8,257,057
9,000,000

*Adjusted; difference is due to rounding off.

(c)

Interest expense for 2009 (625,482 x 4/12)

208,494

Carrying value, September 1, 2009


Amortization through December 31, 2009
Carrying value, December 31, 2009

6,949,800
280,494
7,158,294

(d)
09/01/09

12/31/09
09/01/10
12/31/10
09/01/11
12/31/11

Land
Discount on Notes Payable
Notes Payable

6,949,800
2,050,200
9,000,000

Interest Expense
Discount on Notes Payable

208,494

Interest Expense (625,482 -208,494)


Discount on Notes Payable

416,988

Interest Expense (681,775 x 4/12)


Discount on Notes Payable

227,258

Interest Expense (681,775 227,258)


Discount on Notes Payable

454,517

Interest Expense (742,943 x 4/12)


Discount on Notes Payable

247,648

16

208,494
416,988
227,258
454,517
247,648

Chapter 2 - Non-Current Liabilities

09/01/12
2-14.

Interest Expense (742,943 247,648)


Discount on Notes Payable

495,295
495,295

(JFC)
(a)

2009
6,949,800 x 9%= 625,482
625,482 x 4/12
625,482 x 8/12
6,949,800 x 1.09 = 7,575,282
7,575,282 x 9%= 681,775
681,775 x 4/12
681,775 x 8/12
7,575,282 x 1.09 = 8,253,057
8,253,057 x 9%= 743,135
743,135 x 4/12
Totals

2010

2011

208,494
416,988
227,258
454,517
_______
208,494

_______
644,246

247,712
702,229

(b)

Notes Payable
Accrued interest (208,494 + 644,246)
Total, December 31, 2010

6,949,800
852,740
7,802,540

(c)

Non-current Liabilities
Notes Payable
Accrued interest (208,494 + 644,246)
December 31, 2010

6,949,800
852,740
7,802,540

Current Liabilities
Accrued interest
Total, December 31, 2011

6,949,800
1,554,969
8,504,769

(d)

09/01/09
12/31/09
12/31/10
12/31/11
12/31/12

2-15.

Land
Notes Payable

6,949,800
6,949,800

Interest Expense
Interest Payable

208,494

Interest Expense
Interest Payable

644,246

Interest Expense
Interest Payable

702,229

208,494
644,246
702,229

Interest Expense (adjusted)


Interest Payable
Notes Payable
Cash

495,231
1,554,969
6,949,800
9,000,000

(Wendys Catering Service)


(a)
Present value of note (800,000 x 3.2397)
(b)

Date

Principal Due

Amortization

4/01/09
3/31/10
800,000
233,258
3/31/11
800,000
182,252
3/31/12
800,000
126,654
3/31/13
800,000
66,076*
*Adjusted; difference is due to rounding off.

17

2,591,760
Carrying Value of Note
2,591,760
2,025,018
1,407,270
733,924
-0-

Chapter 2 - Non-Current Liabilities

(c)

04/01/09

12/31/09
03/31/10

Equipment
Discount on Notes Payable
Notes Payable

2,591,760
608,240
3,200,000

Interest Expense (233,258 x 9/12)


Discount on Notes Payable

174,944

Notes Payable
Interest Expense
Cash

800,000
58,314

174,944

800,000
58,314

Discount on Notes Payable (233,258-174,944)

12/31/10
03/31/11

Interest Expense (182,252 x 9/12)


Discount on Notes Payable

136,689

Notes Payable
Interest Expense
Cash

800,000
45,463

136,689

800,000
45,563

Discount on Notes Payable (182,252-136,689)

12/31/11
03/31/12

Interest Expense (126,654 x 9/12)


Discount on Notes Payable

94,991
94,991

Notes Payable
Interest Expense
Cash

800,000
31,663
800,000
31,663

Discount on Notes Payable (126,654-94,991)

12/31/12

03/31/13

Interest Expense (66,076 x 9/12)


Discount on Notes Payable

49,557
49,557

Notes Payable
Interest Expense
Cash

800,000
16,519
800,000
16,519

Discount on Notes Payable (66,076-49,557)

2-16.

(Burgees Food Corporation)


(a)
Principal Payment
Date
04/01/09
03/31/10
03/31/11
03/31/12
03/31/13

Annual Payment

Interest

800,000
800,000
800,000
800,000

233,258
182,252
126,654
66,053

*Adjusted
(b)
04/01/09
Equipment
Notes Payable
12/31/09
04/01/10

566,742
617,748
673,346
733,947*

Carrying Value
2,591,760
2,025,018
1,407,270
733,924
-0-

2,591,760
2,591,760

Interest Expense (233,258 x 9/12)


Interest Payable

174,944

Interest Payable
Interest Expense (233,258 174,944)
Notes Payable

174,944
58,314
566,748

18

174,944

Chapter 2 - Non-Current Liabilities

Cash
12/31/10
04/01/11

12/31/11
04/01/12

12/31/12
04/01/13

(c)

800,000

Interest Expense (182,252 x 9/12)


Interest Payable

136,689

Interest Payable
Interest Expense (182,252 136,689)
Notes Payable
Cash

136,689
45,563
617,748

Interest Expense (126,654 x 9/12)


Interest Payable
Interest Payable
Interest Expense (126,654 94,991)
Notes Payable
Cash
Interest Expense (66,053 x 9/12)
Interest Payable
Interest Payable
Interest Expense (66,053 49,540)
Notes Payable
Cash

136,689

800,000
94,991
94,991
94,991
31,663
673,346
800,000
49,540
49,540
49,540
16,513
733,947
800,000

Current portion at December 31, 2010


Notes Payable
Interest Payable

617,748
136,689

Noncurrent portion at December 31, 2010


Notes Payable

1,407,270

2-17.
(a)

(b)

(c)

(South Company
Notes Payable
Interest Payable
Cost of Sales
Inventory of Machine Parts
Sales
Gain on Debt Restructuring
(Jay Company)
Bonds Payable
Interest Payable
Ordinary Share
Share Premium

900,000
90,000
650,000
650,000
800,000
190,000
10,000,000
900,000
7,500,000
3,400,000

(Capshell Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Gain on Debt Restructuring
Present value of future payments
8,000,000 x 0.7972
= 6,377,600
8,000,000 x 8% x 1.6901 = 1,081,664
Total
7,459,264
Carrying value of liability
11,200,000
Gain on debt restructuring
3,740,736

19

10,000,000
1,200,000
7,459,264
3,740,736

Chapter 2 - Non-Current Liabilities

Alternatively, the entry may be recorded as:


Notes Payable
Interest Payable
Discount on Restructured Notes Payable
Restructured Notes Payable
Gain on Debt Restructuring
(d)

(Solid Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Gain on Debt Restructuring

10,000,000
1,200,000
540,736
8,000,000
3,740,736
3,000,000
330,000
3,111,024
218,976

Present value of future payments


3,000,000 x 0.5935
= 1,780,500
3,000,000 x 12% x 3.6959 = 1,330,524
Total
3,111,024
Carrying value of liability
3,330,000
Gain on debt restructuring
218,976

Alternatively, the entry may be recorded as:


Notes Payable
Interest Payable

3,000,000
330,000

Premium on Restructured Notes Payable

Restructured Notes Payable


Gain on Debt Restructuring
MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10

D
D
D
C
D
D
D
C
D
C

MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

C
B
B
D
A
A
D
B
A
C

Problems
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28

D
B
A
B
B
C
A
D

MC29
MC30
MC31
MC32
MC33

D
C
A
A
B

MC34

(1,000,000 x 0.38554) + (80,000 x 6.14457) = 877,106


(1,000 x 0.31) + (40 x 11.47) = 768.80
(2,000,000 x 97%) + (2,000,000 x 10% x 3/12) = 1,990,000
(2,000 X 1,040) - 2,000,000 = 80,000
(4,000,000 x 97%) + (4,000,000 x 12% x 3/12) = 4,000,000
1,070,000 - (96% x 1,000,000) = 110,000
1,000,000 x 12% x 1/12 = 10,000
1,000,000 - 30,000 + 50,000 = 1,020,000;
1,020,000 - (40,000 x 20) - 10,000 = 210,000
Using the book value method, no gain or loss is recorded upon conversion
1,032,880 x 10% x 6/12 = 51,644
1,032,880 - {(1,000,000 x 6%) - 51,644}= 1,024,524
1,878,000 - {(10% x 1,878,000) -(2,000,000 x 9%) = 1,885,800
10,000,000 1,145,000 = 8,855,000;
(8,855,000 x 6%) - (10,000,000 x 5%) = 31,300
5,680,000 x 8% x 6/12 = 227,200

20

111,024
3,000,000
218,976

Chapter 2 - Non-Current Liabilities

MC35

MC36
MC37

C
D

MC38
MC39

B
D

MC40
MC41
MC42

B
C

MC43
MC44

(2,100,000 x 6%) (2,000,000 x 7%) = 14,000; 2,100,000 14,000 = 2,086,000 BCV;


BCV of P2,086,000 face value of P2,000,000 = P86,000 premium
1,032,880 x 10% = 103,288
1,902,800 x 10% = 190,280 effective interest; 190,280 effective interest nominal interest of
160,000=30,280 discount amortization; carrying value = 1,902,800 + 30,280 principal
payment of 400,000 = 1,533,080
2,400,000 X 12% = 288,000
2,400,000 1,000,000 + 288,000 = 1,688,000
1,688,000 X 12% = 202,560; 1,000,000 202,560 = 797,440
3,000,000 2,400,000 = 600,000; 600,000 288,000 = 312,000
4,500,000 3,000,000 = 1,500,000
6,000,000 + 600,000 = 6,600,000
(6000,000 x 0.6209) +(6000,000 x 8% x 3.7908) = 5,544,984
6,600,000 5,544,984= 1,055,016
6,600,000 [(5,000,000 x .6209) +(5,000,000 x .12 x 3.7908)] =1,221,020
8,000,000 + 640,000 = 8,640,000
(6,000,000 x 0.8573) + (6,000,000 x 10% x 1.7833) = 6,213,780
8,640,000 6,213,780 = 2,426,220

21