Financial Accounting 2 Chapter 2 Solman

CHAPTER 2
NON-CURRENT LIABILITIES
PROBLEMS
2-1.
(Ruby Corporation)
At 8%
At 12%
Bond issue price

1,081,145
926,405
Nominal interest for 2012
50,000
50,000
Interest expense for 2012
43,246
55,584
Premium/discount amortization in 2012
6,754
5,584
Bond carrying value at December 31, 2012
1,074,391
931,989
Nominal interest for 2013
100,000
100,000
Interest expense for 2013
85,671
112,193
Premium/discount amortization in 2013
14,059
12,193
Bond carrying value at December 31, 2013
1,060,332
944,182
Computations: At 8%
Issue price = (1,000,000 x 0.6756) + (50,000 x 8.1109) = 675,600 +
405,545 = 1,081,145
A
B
C
D
Interest
Interest
Premium
Bond
Date
Paid
Expense
Amortization
Carrying Value
06/30/12
1,081,145
12/31/12
50,000
43,246
6,754
1,074,391
06/30/13
50,000
42,976
7,024
1,067,367
12/31/13
50,000
42,695
7,035
1,060,332
= Face value x 5%
= Carrying value, beg of year x 4%
At 12%
Issue price = (1,000,000 x 0.5584) + (50,000 x 7.3601) = 558,400 +
368,005 = 926,405
A
B
C
D
Interest
Interest
Discount
Bond
Date
Paid
Expense
Amortization
Carrying Value
06/30/12
926,405
12/31/12
50,000
55,584
5,584
931,989
06/30/13
50,000
55,919
5,919
937,908
12/31/13
50,000
56,274
6,274
944,182
2-2.
(Fire Company)
Correction to the text:

A = 5% x face value
B = 4% of previous carrying value
(a)
Issue price
Issue price
Present value of face value (4,000,000 x 0.6756)

Present value of interest payments (200,000 x 8.1109)
P2,702,400
1,622,180
P4,324,580
Chapter 2 - Non-Current Liabilities
Amortization Table
Interest
Interest
Premium
Bond Carrying
Date
Paid
Expense
Amortization
Value
3/01/12
4,324,580
8/31/12
200,000
172,983
27,017
4,297,563
2/28/13
200,000
171,903
28,097
4,269,466
8/31/13
200,000
170,779
29,221
4,240,245
2/28/14
200,000
169,610
30,390
4,209,855
(c)
03/01/12
Cash
4,324,580
Bonds Payable
4,000,000
Premium on Bonds Payable

324,580
08/31/12
Interest Expense
172,983

27,017
Cash
200,000
12/31/12 Interest Expense (171,903 x 4/6)
114,602

18,731
Interest Payable (320,000 x 4/6)

133,333
02/28/13 Interest Expense (171,903 114,602)
57,301
Premium on Bonds Payable (28,097
18,731)
9,366
Interest Payable
133,333
Cash
200,000
2-3.
(Metal Corporation)
Issue price of bonds and warrants

5,000,000 x 1.08
5,400,000
MV of bonds without warrants
5,000,000 x 1.02
5,100,000
Value assigned to warrants
P 300,000
(a)
Cash
5,400,000

100,000
Bonds Payable
5,000,000
Share Warrants Outstanding

300,000
(b)
Cash (5,000 x 2 x 140)
1,400,000

300,000
Ordinary Shares (5,000 x 2 x 100)

1,000,000
Share Premium
700,000
2-4.
(Onyx)
(a)
Issue price of bonds with warrants (1,000,000 x 1.03)
1,030,000
Bond price without warrants
1,000,000 x 0.3220
322,000
100,000 x 5.6502
565,020
887,020
Value of share warrants
142,980
12
(b)
Interest Expense for 2012 (887,020 x 12% x 10/12
88,702
(c)
Bond carrying value, March 1, 2012
887,020
Amortization through December 31, 2012
887,020 x 12% x 10/12

88,702
1,000,000 x 12% x 10/12

83,333
5,369
Bond carrying value, December 31, 2012
892,389
(d)
Cash (1,000 x 30 x 50)
1,500,000

142,980
Ordinary Share (30,000 x 25)

750,000
Share Premium
892,980
2-5. (Celeron Company)
(a)
Issue price of convertible bonds
2,000,000
Issue price of bonds without conversion privilege
2,000,000 x 0.5674
1,134,800
200,000 x 3.6048
720,960
1,855,760
Allocation to equity
144,240
Amortization Table
Interest
Interest
Premium
Bond Carrying
Date
Paid
Expense
Amortization
Value
07/01/12
1,855,760
06/30/13
200,000
222,691
22,691
1,878,451
06/30/14
200,000
225,414
25,414
1,903,865
06/30/14
(1,142,319)
06/30/14
761,546
06/30/15
80,000
91,386
11,386
772,932
06/30/16
80,000
92,572
12,752
785,684
06/30/17
80,000
94,316*
14,316
800,000
*Adjusted; difference is due to rounding off.
(c)
07/01/12
Cash
2,000,000
Discount on Bonds Payable
144,240
Bonds Payable
2,000,000
PIC Arising from Bond Conversion Privilege
144,240
06/30/13
Interest Expense
222,691
22,691
Cash
200,000
06/30/14
Interest Expense
225,414
25,414
Cash
200,000
06/30/14
Bonds Payable
1,200,000
PIC Arising from Conversion Privilege
86,544
57,681
Ordinary Share
960,000
Share Premium
268,863
13
Carrying value,bonds converted (1,903,865 x 120/200
1,142,319
Face value of bonds converted

1,200,000
Discount on bonds payable cancelled

57,681
Value of equity converted (144,240 x 120/200)

86,544
Par value of ordinary shares issued (120 x 80 x 100)
960,000
06/30/15
Interest Expense
91,386

11,386
Cash
80,000
06/30/16
Interest Expense
92,752

12,752
Cash
80,000
06/30/17
Interest Expense
94,316

14,316
Cash
80,000
06/30/17
Bonds Payable
800,000
57,696
Cash
800,000
PIC from Unexercised Bond Conversion Privilege
57,696
(144,240 86,544)
2-6.
(Iron Company)
Bonds Payable
2,000,000
Premium on Bonds Payable (450,000 x 2/20)

45,000
PIC Arising from Bond Conversion Privilege(320,000 x 2/20)
32,000
Ordinary Shares (1,000 x 60 x 20)

1,200,000
Share Premium
877,000
2-7.
(Lim Corporation)
(a)
Cash
5,500,000
Bonds Payable
5,000,000

200,000
300,000
(b)
Bonds Payable
1,000,000

10,000
60,000
Ordinary Share (200 x 40 x 100)

800,000
Share Premium
270,000
300,000 x 1/5 = 60,000
(c)
Bonds Payable
2,000,000

20,000
120,000
Cash (2,000,000 x 1.04)

2,080,000
Gain on Retirement of Bonds

10,000
PIC from Unexercised Bond Conversion Privilege
50,000
14
Retirement price
2,080,000
Retirement price on account of liability
2,000,000 x 1.005
2,010,000
Retirement price on account of equity
70,000
Carrying value of bonds retired
Face value
2,000,000
Unamortized premium (50,000 x 2/5)
___20,000
2,020,000
Retirement price of bonds (2M x 1.005)
2,010,000
Gain on retirement of bonds
10,000
Carrying value of equity cancelled
120,000
Retirement price on account of equity
70,000
Gain on cancellation taken to equity
50,000
2-8.
(Emerald Corporation)
The following table may facilitate the computations required in this problem.
Interest
Interest
Premium
Bond
Date
Paid
Expense
Amortization
Carrying Value
12/01/12
5,386,072
06/01/13
300,000
269,304
30,696
5,355,376
12/01/13
300,000
267,769
32,231
5,323,145
06/01/14
300,000
266,157
33,843
5,289,302
12/01/14
300,000
264,465
35,535
5,253,767
06/01/15
300,000
262,688
37,312
5,216,455
12/01/15
180,000
156,494
23,506
3,106,367
06/01/16
180,000
155,318
24,682
3,081,685
12/01/16
180,000
154,084
25,916
3,055,769
06/01/17
180,000
152,788
27,212
3,028,557
12/01/17
180,000
151,443*
28,557
3,000,000

(a)
Carrying value, December 1, 2013 (see, table)
5,323,145
Amortization for one month (33,843 x 1/6)
____5,640
Carrying value, December 31, 2013
5,317,505
(b)
Interest Expense for year 2013
January 1-June 1, 2013 (269,304 x 5/6)

224,420
June 1-December 1, 2013
267,769
December 1-31, 2013 (266,157 x 1/6)
_44,360
Total
536,549
Carrying value of bonds retired on December 1, 2014
5,253,767 x 2/5
2,101,507
Amortization through April 1, 2015 (37,312 x 4/6 x 2/5)
____9,950
Carrying value of bonds retired on April 1, 2015
2,091,557
(d)
Carrying value of bonds retired
2,091,557
Redemption price (2,000,000 x 1.04)
2,080,000
Gain on redemption of bonds
11,557
15
(e)
Carrying value of remaining bonds, December 1, 2015
3,106,367
Amortization through December 31, 2015 (24,682 x 1/6)
4,114
Carrying value of remaining bonds, December 31, 2015
3,102,253
(f)
On bonds redeemed:
2015
2016
January 1-April 1, 2013 (262,688 x 2/5 x 3/6)
52,538
On remaining bonds
131,344
January 1-June 1, 2013 (262,688 x 3/5 x 5/6)

156,494
December 1-31, 2015 (155,318 x 1/6)

25,886
January 1-June 1, 2016 (155,318 x 5/6)

129,432

154,084
December 1-31, 2016 (152,788 x 1/6)
______
25,465
Interest Expense
366,262
308,981
2-9. (Ohio Company)

Partial Amortization Table
Interest
Interest
Premium
Bond Carrying
Date
Paid
Expense
Amortization
Value
01/02/12
12,684,120
12/31/12
1,200,000
1,014,730
185,270
12,498,850
12/31/13
1,200,000
999,908
200,092
12,298,758
12/31/14
1,200,000
983,901
216,099
12,082,659
12/31/15
1,200,000
966,613
233,387
11,849,272
12/31/16
600,000
473,971
126,029
5,798,607
12/31/17
600,000
463,889
136,111
5,662,496
(a)
Effective interest (12,734,120 50,000) x 8%
1,014,730
Nominal interest (10,000,000 x 12%)
1,200,000
Amortization of premium for 2012
185,270
(b)
Carrying value of bonds on December 31, 2015 (see table)
11,849,272
(c)
Carrying value of bonds called (11,849,272 x 5/10)
5,924,636
Call price/retirement price (5,000,000 x 110%)
5,500,000
Gain on retirement of bonds
424,636
(d)
Interest Expense for year 2016 (see table)
473,971
(e)
Unamortized premium on bonds payable, Dec. 31, 2016
5,798,605 5,000,000
798,605
2-10. (Sim Company)

Partial Amortization Table
Nominal
Effective
Premium
Bond
Date
Interest
Interest
Amortization
Carrying value
03/01/12
P1,963,000
09/01/12
85,000
88,335
3,335
1,966,335
03/01/13
85,000
88,485
3,485
1,969,820
09/01/13
85,000
88,642
3,642
1,973,462
03/01/14
85,000
88,806
3,806
1,977,268
09/01/14
85,000
88,977
3,977
1,981,245
03/01/15
85,000
89,156
4,156
1,985,401
09/01/15
85,000
89,343
4,343
1,989,744
16
(a)
Interest expense recorded on September 1, 2012
88,335
Discount amortization recorded on September 1, 2012

3,335
(b)
Carrying amount of the bonds, September 1, 2012
1,966,335
Amortization through December 31, 2010 (3,485 x 4/6)
2,323
Carrying amount of the bonds, December 31, 2012

1,968,658
(c)
Retirement price (at face value)
2,000,000
Accrued interest (2,000,000 x 8.5% x 4/12)

56,667
Amount of cash paid on June 30, 2015
2,056,667
(d)
Carrying value, March 1, 2015 (see table)
1,985,401
Amortization through June 30, 2015 (4,343 x 4/6)

2,895
Carrying value, June 30, 2015
1,988,296
Retirement price (at face value)
2,000,000
Loss on retirement of bonds
11,704
2-11. (Kim Company)
(a)
Issue price of the bonds
Principal
Interest
Amount
Present
Due Date
Due
Due
Due
PV Factor
Value
12/31/13
2,000,000
800,000
2,800,000
0.8929
2,500,120
12/31/14
2,000,000
640,000
2,640,000
0.7972
2,104,608
12/31/15
2,000,000
480,000
2,480,000
0.7118
1,765,264
12/31/16
2,000,000
320,000
2,320,000
0.6355
1,474,360
12/31/17
2,000,000
160,000
2,160,000
0.5674
1,225,584
Selling price
of bonds
P9,069,936
(b)
Amortization Table
Principal
Interest
Effective
Discount
Carrying
Due Date
Due
Due
Interest
Amortization
Value, end
12/31/12
P9,069,936
12/31/13
2,000,000
800,000
1,088,392
288,392
7,358,328
12/31/14
2,000,000
640,000
882,999
242,999
5,601,327
12/31/15
2,000,000
480,000
672,159
192,159
3,793,486
12/31/16
2,000,000
320,000
455,218
135,218
1,928,704
12/31/17
2,000,000
160,000
231,296
71,296*
-0-

(c)
12/31/12
Cash
9,069,936
930,064
Bonds Payable
10,000,000
12/31/13
Interest Expense
1,088,392
288,392
Cash
800,000
Bonds Payable
2,000,000
Cash
2,000,000
12/31/14
Interest Expense
882,999
242,999
Cash
640,000
Bonds Payable
2,000,000
Cash
2,000,000
17
2-12. (Blue Sapphire Corporation)

(a)
Issue price of the bonds
Principal
Interest
Amount
Present
Due Date
Due
Due
Due
PV Factor
Value
12/31/12
2,000,000
960,000
2,960,000
0.9259
2,740,664
12/31/13
2,000,000
720,000
2,720,000
0.8573
2,331,856
12/31/14
2,000,000
480,000
2,480,000
0.7938
1,968,624
12/31/15
2,000,000
240,000
2,240,000
0.7355
1,646,400
Selling price
of bonds
P8,687,544
(b)
Amortization Table
Principal
Interest
Effective
Discount
Carrying
Due Date
Due
Due
Interest
Amortization
Value, end
01/01/12
8,687,544
12/31/12
2,000,000
960,000
695,004
264,996
6,422,548
12/31/13
2,000,000
720,000
513,804
206,196
4,216,352
12/31/14
2,000,000
480,000
337,308
142,692
2,073,660
12/31/15
2,000,000
240,000
166,340*
73,660
-0-
(c)
01/01/12
Cash
8,687,544
Bonds Payable
8,000,000
687,544
12/31/12
Interest Expense
695,004

264,996
Cash
960,000
Bonds Payable
2,000,000
Cash
2,000,000
12/31/13
Interest Expense
513,804

206,196
Cash
720,000
Bonds Payable
2,000,000
Cash
2,000,000
2-13. (KFC Delivery Service)

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 interest for this transaction is 9%.
(b)
Date
Amortization
Carrying Value of Note
09/01/12
6,949,800
08/31/13
9% x 6,949,800 = 625,482
7,575,282
08/31/14
9% x 7,575,282 = 681,775
8,257,057
08/31/15
9% x 8,257,057 = 742,943*
9,000,000
18
(c)
Interest expense for 2012 (625,482 x 4/12)
208,494
Carrying value, September 1, 2012
6,949,800
Amortization through December 31, 2012

208,494
Carrying value, December 31, 2012
7,158,294
(d)
09/01/12
Land
6,949,800
Discount on Notes Payable

2,050,200
Notes Payable
9,000,000
12/31/12
Interest Expense
208,494
208,494
09/01/13
Interest Expense (625,482 -208,494)
416,988
416,988
227,258
227,258
454,517
454,517
247,648
247,648

495,295
495,295
Notes Payable
9,000,000
Cash
9,000,000
2-14. (JFC)
(a)
6,949,800 x 9%= 625,482
2012
2013
2014
625,482 x 4/12
208,494
625,482 x 8/12
416,988
6,949,800 x 1.09 = 7,575,282
7,575,282 x 9%= 681,775
681,775 x 4/12
227,258
681,775 x 8/12
454,517
7,575,282 x 1.09 = 8,257,057
8,257,057 x 9%= 743,135
743,135 x 4/12
_______
_______
247,712
Totals
208,494
644,246
702,229
(b)
Notes Payable
6,949,800
Accrued interest (208,494 + 644,246)

852,740
Total, December 31, 2013
7,802,540
(c)
Non-current Liabilities
Notes Payable
6,949,800
Accrued interest (208,494 + 644,246)

852,740
December 31, 2013
7,802,540
19
Current Liabilities
Notes Payable
6,949,800
Accrued interest
1,554,969
Total, December 31, 2014

8,504,769
(d)
09/01/12
Land
6,949,800
Notes Payable
6,949,800
12/31/12
Interest Expense
208,494
Interest Payable
208,494
12/31/13
Interest Expense
644,246
Interest Payable
644,246
12/31/14
Interest Expense
702,229
Interest Payable
702,229
12/31/15
Interest Expense (adjusted)
495,423
Interest Payable
1,554,969
Notes Payable
6,949,800
Cash
9,000,192
2-15. (Wendys Catering Service)
(a)
Present value of note (800,000 x 3.2397)
2,591,760
(b)
Date
Principal Due
Amortization
Carrying Value of Note
4/01/12
2,591,760
3/31/13
800,000
233,258
2,025,018
3/31/14
800,000
182,252
1,407,270
3/31/15
800,000
126,654
733,924
3/31/16
800,000
66,076*
-0*Adjusted; difference is due to rounding off.
(c)
04/01/12
Equipment
2,591,760

608,240
Notes Payable
3,200,000
174,944

174,944
03/31/13
Notes Payable
800,000
Interest Expense
58,314
Cash
800,000
Discount on Notes Payable (233,258-174,944)
58,314
136,689

136,689
03/31/14
Notes Payable
800,000
Interest Expense
45,463
Cash
800,000
45,563
20

94,991

94,991
03/31/15
Notes Payable
800,000
Interest Expense
31,663
Cash
800,000
31,663
49,557

49,557
03/31/16
Notes Payable
800,000
Interest Expense
16,519
Cash
800,000
16,519
2-16. (Burgees Food Corporation)
(a)
Principal
Date
Annual Payment
Interest
Payment
Carrying Value
04/01/12
2,591,760
03/31/13
800,000
233,258
566,742
2,025,018
03/31/14
800,000
182,252
617,748
1,407,270
03/31/15
800,000
126,654
673,346
733,924
03/31/16
800,000
66,076*
733,924
-0-
*Adjusted
(b)
04/01/12
Equipment
2,591,760
Notes Payable
2,591,760
174,944
Interest Payable
174,944
04/01/13
Interest Payable
174,944
Interest Expense (233,258 174,944)

58,314
Notes Payable
566,748
Cash
800,000

136,689
Interest Payable
136,689
04/01/14
Interest Payable
136,689

45,563
Notes Payable
617,748
Cash
800,000
94,991
Interest Payable
94,991
04/01/15
Interest Payable
94,991
31,663
Notes Payable
673,346
Cash
800,000
49,557
Interest Payable
49,557
21
04/01/14
Interest Payable
49,557
16,519
Notes Payable
733,924
Cash
800,000
(c)
Current portion at December 31, 2013
Notes Payable
617,748
Interest Payable
136,689
Noncurrent portion at December 31, 2013
Notes Payable
1,407,270
2-17.
(South Company)
Notes Payable
900,000
Interest Payable
90,000
Cost of Sales
650,000
Inventory of Machine Parts
650,000
Sales
800,000
Gain on Debt Restructuring
190,000
(b)
(Joy Company)
Bonds Payable
10,000,000
Interest Payable
900,000
Ordinary Share
7,500,000
Share Premium 30,000 x (30-25)
150,000
3,250,000
(c)
(Capshell Company)
Notes Payable
10,000,000
Interest Payable
1,200,000
Restructured Notes Payable
7,332,384
3,867,616
(see computations and explanation belowJ)
Present value of future payments at historical
rate:
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
Difference
3,740,736
3,740,736/11,200,000 = 33%, thus the restructuring qualifies as a

derecognition of the old liability and creation of a new liability.
The old liability shall be cancelled; the new liability shall be measured based
on the discounted cash flow of the future payments based on the entitys
incremental borrowing rate considering its credit rating:
22
Present value of future payments at

incremental borrowing rate, considering its
credit rating:
8,000,000 x 0.7831
= 6,264,800
8,000,000 x 8% x 1.6681
= 1,067,584
Total
7,332,384
Carrying value of the old
11,200,000
Gain on debt restructuring
3,867,616
Alternatively, the entry may be recorded as:
Notes Payable
10,000,000
Interest Payable
1,200,000
Discount on Restructured Notes Payable
667,616
8,000,000
3,867,616
(d)
(Solid Company)
Notes Payable
3,000,000
Interest Payable
330,000
3,111,024
Deferred Gain on Debt Restructuring
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
Difference
218,976
218,976/3,330,000 < 10% of 3,330,000.
Thus, the debt restructuring does not
qualify
for
obligation.
derecognition
of
the
old
No gain shall be recognized
and a new effective interest rate shall be
computed.
Alternatively,
the
restructuring
may
recorded as:
Notes Payable
3,000,000
Interest Payable
330,000
Premium on Restructured Notes Payable
111,024
be
3,000,000
Deferred Gain on Debt Restructuring
218,976
23
MULTIPLE CHOICE QUESTIONS

Theory
MC1
D
MC11
C
MC2
D
MC12
B
MC3
D
MC13
B
MC4
C
MC14
D
MC5
D
MC15
B
MC6
D
MC16
D
MC7
D
MC17
D
MC8
C
MC18
B plus the PV of all..at
effective rate
(supposedly A)
MC9
D
MC19
A
MC10
C
MC20
D
Problems
MC21
B
MC22
D
(1,000,000 x 0.38554) + (80,000 x 6.14457) = 877,106
MC23
B
(1,000 x 0.31) + (40 x 11.47) =
768.80
MC24
A
(2,000,000 x 97%) + (2,000,000
x 10%
x 3/12) = 1,990,000
MC25
B
(2,000 X 1,040) - 2,000,000 = 80,000
MC26
B
(4,000,000 x 97%) + (4,000,000 x 12% x 3/12) = 4,000,000
MC27
C
1,070,000
- (96% x 1,000,000) = 110,000
MC28
A
1,000,000 x 12% x 1/12 = 10,000
MC29
B
(1,000,000 x 1.02) 50,000 = 970,000

MC30
D
1,000,000
- 30,000 + 50,000 = 1,020,000;
1,020,000
- (40,000 x 20) - 10,000 = 210,000
MC31
D
Use the book value method; no gain or loss is recorded upon conversion; the
conversion is in accordance with the original terms of the bond; thus, IFRIC 19 does
not apply.
MC32
C
1,032,880 x 10% x 6/12 = 51,644
MC33
A
1,032,880
- {(1,000,000 x 6%) - 51,644}= 1,024,524
MC34
A
1,878,000
- {(10% x 1,878,000) -(2,000,000 x 9%) = 1,885,800
MC35
B
10,000,000 1,145,000 = 8,855,000;
(8,855,000 x 6%) - (10,000,000 x 5%) = 31,300

MC36
C
5,680,000 x 8% x 6/12 = 227,200
MC37
A
(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

MC38
C
1,032,880 x 10% = 103,288
MC39
D
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

MC40
B
2,400,000 X 12% = 288,000
MC41
D
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

MC42
B
3,000,000
2,400,000 = 600,000; 600,000 288,000 = 312,000
MC43
A
(1) 49,737 X 10%= 4,974; 49,737 (20,000 4,974) = 34,711
MC44
D
5,500,000
3,000,000 = 2,500,000
MC45
D
6,000,000
+ 600,000 = 6,600,000
(6000,000 x 0.621) +(6000,000 x 12% x 3.791) = 6,455,520
6,600,000
6455,520= 144,480, which is less than 10% of 6,600,000; no gain is
recognized.
MC46
C
6,600,000
[(5,000,000 x .6209) +(5,000,000 x .12 x 3.7908)] =1,221,020
MC47
B
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
MC48
B
150,000 x 65 = 9,750,000; 11,000,000 9,750,000 = 1,250,000
24
Chapter 2 - Non-Current
Liabilities
25

Financial Accounting 2 Chapter 2 Solman

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Financial Accounting 2 Chapter 2 Solman

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CHAPTER 2

Bond issue price

Correction to the text:

Present value of face value (4,000,000 x 0.6756)

Chapter 2 - Non-Current Liabilities

Premium on Bonds Payable

Premium on Bonds Payable

Premium on Bonds Payable

Interest Payable (320,000 x 4/6)

Premium on Bonds Payable (28,097

Issue price of bonds and warrants

Premium on Bonds Payable

Share Warrants Outstanding

Share Warrants Outstanding

Ordinary Shares (5,000 x 2 x 100)

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

Bond price without warrants

Value of share warrants

Chapter 2 - Non-Current Liabilities

887,020 x 12% x 10/12

1,000,000 x 12% x 10/12

Share Warrants Outstanding

Ordinary Share (30,000 x 25)

Chapter 2 - Non-Current Liabilities

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)

Discount on Bonds Payable

Discount on Bonds Payable

Discount on Bonds Payable

PIC Arising from Bond Conversion Privilege

PIC from Unexercised Bond Conversion Privilege

Premium on Bonds Payable (450,000 x 2/20)

PIC Arising from Bond Conversion Privilege(320,000 x 2/20)

Ordinary Shares (1,000 x 60 x 20)

Premium on Bonds Payable

PIC Arising from Bond Conversion Privilege

Premium on Bonds Payable (5,000 x 1/5)

PIC Arising from Bond Conversion Privilege

Ordinary Share (200 x 40 x 100)

300,000 x 1/5 = 60,000

Premium on Bonds Payable (5,000 x 2/5)

PIC Arising from Bond Conversion Privilege

Cash (2,000,000 x 1.04)

Gain on Retirement of Bonds

PIC from Unexercised Bond Conversion Privilege

Chapter 2 - Non-Current Liabilities

Retirement price on account of liability

Retirement price on account of equity

Unamortized premium (50,000 x 2/5)

Retirement price of bonds (2M x 1.005)

Retirement price on account of equity

*Adjusted; difference is due to rounding off.

Carrying value, December 1, 2013 (see, table)

January 1-June 1, 2013 (269,304 x 5/6)

Chapter 2 - Non-Current Liabilities

Carrying value of remaining bonds, December 1, 2015

Amortization through December 31, 2015 (24,682 x 1/6)

Carrying value of remaining bonds, December 31, 2015

January 1-April 1, 2013 (262,688 x 2/5 x 3/6)

January 1-June 1, 2013 (262,688 x 3/5 x 5/6)

June 1-December 1, 2015