PROBLEM 1:

Face Value of the Bonds: P5,000,000

Date of the Bonds: January 1, 2016
Issue date: March 31, 2016
Nominal Rate: 10%
Effective Rate: 12%
Interest Payments: 6/30 and 12/31
Maturity Date: January 1, 2021
Provide the following:
1.) Issue Price
2.) Amortization Schedule
3.) Journal Entries for 2016, 2017 and 2018
PROBLEM 2: On January 2, 2004, the Suns, Inc. issued P2,000,000 of 8% convertible bonds at
par. The bonds will mature on January 1, 2008 and interest is payable annually every January 1. The
bond contract entitles the bondholders to receive 6 shares of P100 par value common stock in
exchange for each P1,000 bond. On the date of issue, the prevailing market interest rate for similar
debt without the conversion option is 10%.
On December 31, 2005, the holders of the bonds with total face value of P1,000,000 exercised their
conversion privilege. In addition, the company reacquired at 110, bonds with a face value of
P500,000.
The balances in the capital accounts as of December 31, 2004 were:
Common stock, P100 par, authorized 50,000 shares, issued
and outstanding, 30,000 shares
Premium on common stock

P3,000,000
500,000

Market value of the common stock and bonds were as follows:

Date
December 31, 2004
December 31, 2005

Bonds
118
110

Common stock
40
42

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much of the proceeds from the issuance of convertible bonds should be allocated
to equity?
a. P634,000
b. P126,816
c. P221,664
d. P0
2. How much is the carrying value of the bonds payable as of December 31, 2004?
a. P2,000,000
b. P1,389,400
c. P1,796,170
d. P1,900,502
3. How much is the interest expense for the year 2005?
a. P160,000
b. P138,940
c. P179,617
d. P190,050
4. The entry to record the conversion on December 31, 2005 will include a credit to APIC of
a. P365,276
b. P400,000
c. P307,893
d. P0
5. How much is the loss on bond reacquisition on December 31, 2005?

a. P50,000

b. P96,053

c. P67,362

d. P0