CHAPTER 2

NON-CURRENT LIABILITIES
PROBLEMS
2-1.
(Ruby Corporation)
At 8%
Bond issue price
Nominal interest for 2013
Interest expense for 2013
Premium/discount amortization in 2013
Bond carrying value at December 31, 2012
Nominal interest for 2014
Interest expense for 2014
Premium/discount amortization in 2014
Bond carrying value at December 31, 2014
5,405,725
250,000
216,229
33,771
5,371,954
500,000
428,351
71,649
5,300,305
At 12%
4,632,025
250,000
277,922
27,922
4,659,947
500,000
560,970
60,970
4,720,917
Computations:
At 8%
Issue price = (5,000,000 x 0.6756) + (250,000 x 8.1109)
= 3,378,000 + 2,027,725 = 5,405,725
Date
A
Interest
Paid
B
Interest
Expense
C
Premium
Amortization
06/30/13
12/31/13
06/30/14

12/31/14
250,000
250,000
250,000
216,229
214,878
213,473
33,771
35,122
36,527
A
B
=
=
D
Bond
Carrying Value
5,405,725
5,371,954
5,336,832
5,300,305
Face value x 5%
Carrying value, beg of year x 4%
At 12%
Issue price = (5,000,000 x 0.5584) + (250,000 x 7.3601)
= 2,792,000 + 1,840,025 = 4,632,025
Date
A
Interest
Paid
B
Interest
Expense
C
Discount
Amortization
D
Bond
Carrying Value
06/30/13
12/31/13
06/30/14
12/31/14
250,000
250,000

250,000
277,922
279,597
281,373
27,922
29,597
31,373
4,632,025
4,659,947
4,689,544
4,720,917
A
B
2-2.
=
=
Face value x 5%
Carrying value, beg of year x 6%
(Fire Company)
(a)
Issue price
Present value of face value
(4,000,000 x 0.6756)
Present value of interest payments (200,000 x 8.1109)
Issue price
P2,702,400
1,622,180
P4,324,580

Chapter 2 - Non-Current Liabilities

(b)
Amortization Table
Date
3/01/13
8/31/13
2/28/14
8/31/14
2/28/15
(c)
03/01/13
08/31/13
12/31/13
02/28/14
2-3.
Interest
Expense
172,983
171,903
170,779
169,610
Premium
Amortization
27,017
28,097
29,221
30,390
Cash
Bonds Payable
Premium on Bonds Payable
Bond Carrying
Value
4,324,580
4,297,563
4,269,466
4,240,245
4,209,855
4,324,580
4,000,000
324,580
Interest Expense
Premium on Bonds Payable
Cash
172,983

27,017
Interest Expense (171,903 x 4/6)
Premium on Bonds Payable
Interest Payable (320,000 x 4/6)
114,602
18,731
Interest Expense (171,903 114,602)
Prem. on Bonds Payable(28,09718,731)
Interest Payable
Cash
57,301
9,366
133,333
200,000
133,333
200,000
(Metal Corporation)
Issue price of bonds and warrants 5,000,000 x 1.08
MV of bonds without warrants
5,000,000 x 1.02
Value assigned to warrants
(a)
(b)
2-4.
Interest
Paid
200,000
200,000
200,000
200,000
(Onyx)
(a)
Cash
Premium on Bonds Payable
Bonds Payable
Share Warrants Outstanding
5,400,000
Cash (5,000 x 2 x 140)
Share Warrants Outstanding
Ordinary Shares (5,000 x 2 x 100)
Share Premium
1,400,000
300,000

100,000
5,000,000
300,000
1,000,000
700,000
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)
5,400,000
5,100,000
P 300,000
322,000
565,020
Interest Expense for 2013 (887,020 x 12% x 10/12
12
1,030,000
887,020
142,980
88,702

Chapter 2 - Non-Current Liabilities

(c)
Bond carrying value, March 1, 2013
Amortization through December 31, 2013
887,020 x 12% x 10/12
1,000,000 x 12% x 10/12
Bond carrying value, December 31, 2013
(d)
2-5.
Cash (1,000 x 30 x 50)
Share Warrants Outstanding
Ordinary Share (30,000 x 25)
Share Premium
887,020
88,702
83,333
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
1,134,800
200,000 x 3.6048
720,960
Allocation to equity
(b)
5,369
892,389
2,000,000
1,855,760
144,240
Amortization Table
Interest
Interest
Date
Paid
Expense
07/01/13
06/30/14
200,000
222,691
06/30/15
200,000
225,414

06/30/15
06/30/15
06/30/16
80,000
91,386
06/30/17
80,000
92,572
06/30/18
80,000
94,316*
*Adjusted; difference is due to rounding off.
(c)
07/01/13
Premium
Amortization
22,691
25,414
Cash
Discount on Bonds Payable
Bonds Payable
11,386
12,752
14,316
2,000,000
144,240
2,000,000
144,240
PIC Arising from Bond Conversion Privilege
06/30/14
06/30/15
06/30/15
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

13
Bond Carrying
Value
1,855,760
1,878,451
1,903,865
(1,142,319)
761,546
772,932
785,684
800,000
22,691
200,000
25,414
200,000
1,200,000
86,544
57,681
960,000
268,863

Chapter 2 - Non-Current Liabilities

1,142,319
1,200,000
57,681
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)
06/30/16
06/30/17
06/30/18
06/30/18
960,000
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
11,386
80,000
12,752
80,000
14,316
80,000
Bonds Payable
800,000
57,696
PIC Arising from Bond Conversion Privilege
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)
Refer from the following table for the amounts included in the journal entries.
Date
01/02/13
12/31/13
12/31/14
12/31/15
12/31/15
12/31/15
12/31/16
12/31/16
12/31/16
12/31/17
*
Interest
Paid
Interest
Expense
Discount
Amortization
400,000
400,000
400,000
462,082
468,290
475,119
62,082
68,290
75,119

320,000
386,105
66,105
160,000
196,422*
36,422*
Adjusted due to rounding off
14
Bond
Carrying Value
4,620,820
4,682,902
4,751,192
4,826,311
(965,262)
3,861,049
3,927,154
(1,963,577)
1,963,578
2,000,000

Chapter 2 - Non-Current Liabilities

(a)
Cash
Discount on Bonds Payable
Bonds Payable
5,150,000
379,180
5,000,000
529,180
PIC Arising from Bond Conversion Privilege
(5M x .6209) + (400,000 x 3.7908) = 4,620,820
(5M x 1.03) 4,620,820 = 529,180
(b)
(c)
Interest Expense
Cash
Discount on Bonds payable
468,290
Interest Expense
Cash
Discount on Bonds payable
475,119
Bonds Payable
PIC Arising from Bond Conversion Privilege
400,000
68,290
400,000
75,119
1,000,000
105,836
Discount on Bonds Payable
Ordinary Share (200 x 40 x 100)
Share Premium
529,180 x 1/5 = 105,836
(d)
Interest Expense
Cash
Discount on Bonds payable
Bonds Payable
PIC Arising from Bond Conversion Privilege
34,738
800,000
271,098

386,105
320,000
66,105
2,000,000
211,672
Discount on Bonds Payable
Cash (2,000,000 x 1.01)
Gain on Retirement of Bonds
36,423
2,020,000
17,633
137,616
PIC from Unexercised Bond Conversion Privilege
Retirement price
2,020,000
Retirement price on account of liability
(2,000,000 + 160,000) x .9009
Retirement price on account of equity
Carrying value of bonds retired
Face value
Retirement price of bonds
Gain on retirement of bonds
Carrying value of equity cancelled
Retirement price on account of equity
Gain on cancellation taken to equity
(e)
Interest Expense
Cash
Discount on Bonds payable
Bonds Payable
Cash
1,945,944
74,056
1,963,577
1,945,944
17,633
211,672
74,056
137,616
196,422
160,000
36,422
2,000,000
2,000,000
15

Chapter 2 - Non-Current Liabilities

2-8.
(Emerald Corporation)
The following table may facilitate the computations required in this problem.
Date
12/01/13
06/01/14
12/01/14
06/01/15
12/01/15
06/01/16
12/01/16
06/01/17
12/01/17
06/01/18
12/01/18
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)
5,323,145
____5,640
5,317,505
Carrying value, December 1, 2014 (see, table)
Amortization for one month (33,843 x 1/6)
Carrying value, December 31, 2014
(b)
(c)
Interest Expense for year 2014
January 1-June 1, 2014 (269,304 x 5/6)
June 1-December 1, 2014
December 1-31, 2014 (266,157 x 1/6)
Total
224,420
267,769
_44,360
536,549
Carrying value of bonds retired on December 1, 2015
5,253,767 x 2/5
Amortization through April 1, 2016 (37,312 x 4/6 x 2/5)
Carrying value of bonds retired on April 1, 2016
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, 2016
Amortization through December 31, 2016 (24,682 x 1/6)
Carrying value of remaining bonds, December 31, 2016
3,106,367
4,114
3,102,253
(f)
On bonds redeemed:
January 1-April 1, 2016 (262,688 x 2/5 x 3/6)
2016
52,538
2017
On remaining bonds
January 1-June 1, 2016 (262,688 x 3/5 x 5/6)
June 1-December 1, 2016
December 1-31, 2016 (155,318 x 1/6)
January 1-June 1, 2017 (155,318 x 5/6)
June 1-December 1, 2017
December 1-31, 2017 (152,788 x 1/6)
Interest Expense
16
131,344
156,494
25,886
______
366,262
129,432
154,084
25,465
308,981

Chapter 2 - Non-Current Liabilities

2-9.
(Ohio Company)
Date
01/02/13
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Partial Amortization Table
Interest
Paid
1,200,000
1,200,000
1,200,000
1,200,000
600,000
600,000
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
Bond Carrying
Value
12,684,120
12,498,850
12,298,758
12,082,659
11,849,272
5,798,607
5,662,496
(a)
Effective interest (12,734,120 50,000) x 8%
Nominal interest (10,000,000 x 12%)
Amortization of premium for 2013

1,014,730
1,200,000
185,270
(b)
Carrying value of bonds on December 31, 2016 (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 2017 (see table)
(e)
Unamortized premium on bonds payable, Dec. 31, 2017
11,849,272
5,924,636
5,500,000
424,636
473,971
5,798,605 5,000,000
798,605
2-10. (Sim Company)
Partial Amortization Table
Date
03/01/13
09/01/13
03/01/14
09/01/14
03/01/15
09/01/15
03/01/16
09/01/16
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
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
3
(a)
Interest expense recorded on September 1, 2012
Discount amortization recorded on September 1, 2013
(b)
Carrying amount of the bonds, September 1, 2013
Carrying amount of the bonds, December 31, 2013
1,966,335
2,323
1,968,658
Retirement price (at face value)
Accrued interest (2,000,000 x 8.5% x 4/12)
Amount of cash paid on June 30, 2016
2,000,000
56,667
2,056,667
Amortization through December 31, 2013 (3,485 x 4/6)
(c)
88,335
3,335
6

(d)
Carrying value, March 1, 2015 (see table)
Amortization through June 30, 2016 (4,343 x 4/6)
Carrying value, June 30, 2016
Retirement price (at face value)
Loss on retirement of bonds
17
1,985,401
2,895
1,988,296
2,000,000
11,704

Chapter 2 - Non-Current Liabilities

2-11. (Kim Company)

(a)
Issue price of the bonds
Principal
Due Date
Due
12/31/14
2,000,000
12/31/15
2,000,000
12/31/16
2,000,000
12/31/17
2,000,000
12/31/18
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
12/31/13
12/31/14
2,000,000
800,000
1,088,392
12/31/15
2,000,000
640,000
882,999
12/31/16

2,000,000
480,000
672,159
12/31/17
2,000,000
320,000
455,218
12/31/18
2,000,000
160,000
231,296
*Adjusted; difference is due to rounding off.
PV Factor
0.8929
0.7972
0.7118
0.6355
0.5674
Present
Value
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
-0288,392
242,999
192,159
135,218
71,296*
(c)
12/31/14
12/31/15
Interest Expense
Discount on Bonds Payable
Cash
1,088,392
Bonds Payable

Cash
2,000,000
288,392
800,000
2,000,000
Interest Expense
Discount on Bonds Payable
Cash
882,999
242,999
640,000
Bonds Payable
Cash
2,000,000
2,000,000
2-12. (Blue Sapphire Corporation)
(a) Issue price of the bonds
Due Date
12/31/13
12/31/14
12/31/15
12/31/16
Selling price
Principal
Due
2,000,000
2,000,000
2,000,000
2,000,000
of bonds
(b)
Principal
Due
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
Effective

Due
Interest
Due Date
01/01/13
12/31/13
2,000,000
960,000
12/31/14
2,000,000
720,000
12/31/15
2,000,000
480,000
12/31/16
2,000,000
240,000
*Adjusted; difference is due to rounding off.
18
695,004
513,804
337,308
166,340*
PV Factor
0.9259
0.8573
0.7938
0.7355
Discount
Amortization
264,996
206,196
142,692
73,660
Present
Value
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
-0-

Chapter 2 - Non-Current Liabilities

(c)
01/01/13
12/31/13
Cash
Bonds Payable
Premium on Bonds Payable
Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable
Cash
12/31/14
8,687,544
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
513,804
206,196
720,000
2,000,000
2,000,000
2-13. (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 interest for this transaction is 9%.
(b)
Date
09/01/13
08/31/14
08/31/15
08/31/16
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 2013 (625,482 x 4/12)
208,494
Carrying value, September 1, 2013
Amortization through December 31, 2013
Carrying value, December 31, 2013
(d)
09/01/13
12/31/13
09/01/14
12/31/14
09/01/15
12/31/15
Land
Discount on Notes Payable
Notes Payable
6,949,800
208,494
7,158,294
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
19
208,494
416,988
227,258
454,517
247,648

Chapter 2 - Non-Current Liabilities

08/31/16
Interest Expense (742,943 247,648)
Discount on Notes Payable
Notes Payable
Cash
495,295
495,295
9,000,000
9,000,000
2-14. (JFC)
(a)
2013
6,949,800
625,482 x
625,482 x
6,949,800
7,575,282
681,775 x
681,775 x
7,575,282
8,257,057
743,135 x
Totals

x 9%= 625,482
4/12
8/12
x 1.09 = 7,575,282
x 9%= 681,775
4/12
8/12
x 1.09 = 8,257,057
x 9%= 743,135
4/12

2014
2015
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, 2014
6,949,800
852,740
7,802,540
(c)

Non-current Liabilities
Notes Payable
Accrued interest (208,494 + 644,246)
Total, December 31, 2014
6,949,800
852,740
7,802,540
Current Liabilities
Notes Payable
Accrued interest
Total, December 31, 2015
6,949,800
1,554,969
8,504,769
(d)
09/01/13
12/31/13
12/31/14
12/31/15
12/31/16
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
2-15. (Wendys Catering Service)
(a)
Present value of note (800,000 x 3.2397)

20
495,423
1,554,969
6,949,800
9,000,192
2,591,760

Chapter 2 - Non-Current Liabilities

(b)
Date
Principal Due
4/01/13
3/31/14
3/31/15
3/31/16
3/31/17
*Adjusted;
Amortization
Carrying Value of Note
2,591,760
2,025,018
1,407,270
733,924
-0800,000
233,258
800,000
182,252
800,000
126,654
800,000
66,076*
difference is due to rounding off.
(c)
04/01/13
12/31/13
03/31/14
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)
12/31/14
03/31/15
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)
12/31/15
03/31/16
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)
12/31/16
03/31/17
Interest Expense (66,076 x 9/12)
Discount on Notes Payable
49,557

49,557
Notes Payable
Interest Expense
Cash
800,000
16,519
Discount on Notes Payable (66,076-49,557)
800,000
16,519
2-16. (Burgees Food Corporation)
(a)
Date
04/01/13
03/31/14
03/31/15
03/31/16
03/31/17
Annual Payment
Interest
Principal
Payment
800,000
800,000
800,000
800,000
233,258
182,252
126,654
66,076*
566,742
617,748
673,346
733,924
*Adjusted
21
Carrying Value
2,591,760
2,025,018
1,407,270
733,924
-0-

Chapter 2 - Non-Current Liabilities

(b)
04/01/13
12/31/13
04/01/14
12/31/14
04/01/15
12/31/15
04/01/16
12/31/16
04/01/17
(c)
Equipment
Notes Payable
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
Cash
174,944
58,314
566,748
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 (66,076 x 9/12)

Interest Payable
Interest Payable
Interest Expense (66,076 49,557)
Notes Payable
Cash
174,944
800,000
136,689
800,000
94,991
94,991
94,991
31,663
673,346
800,000
49,557
49,557
49,557
16,519
733,924
800,000
Current portion at December 31, 2014
Notes Payable
Interest Payable
617,748
136,689
Noncurrent portion at December 31, 2014
Notes Payable
1,407,270
2-17.
(a)
(South Company)
Notes Payable
Interest Payable
Accumulated Depreciation
Equipment
Gain on Disposal of Equipment
Gain on Debt Restructuring
22
900,000
90,000
350,000
1,000,000
150,000
190,000

Chapter 2 - Non-Current Liabilities

(b)
(c)
(Joy Company)
Bonds Payable
Interest Payable
Ordinary Share
Share Premium 30,000 x (30-25)
Gain on Debt Restructuring
(Capshell Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Gain on Debt Restructuring
10,000,000
900,000
7,500,000
150,000
3,250,000
10,000,000
1,200,000
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:
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
Restructured Notes Payable
Gain on Debt Restructuring
23
8,000,000
3,867,616

Chapter 2 - Non-Current Liabilities

(d)
(Solid Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Deferred Gain on Debt Restructuring
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
Difference
218,976
218,976/3,330,000 < 10% of 3,330,000.
Thus, the debt restructuring does not
qualify for derecognition of the old
obligation. No gain shall be recognized
and a new effective interest rate shall be
computed.
Alternatively, the restructuring may
recorded as:
Notes Payable
Interest Payable
Premium on Restructured Notes Payable
Restructured Notes Payable
Deferred Gain on Debt Restructuring
24
be
3,000,000
330,000
111,024
3,000,000
218,976

Chapter 2 - Non-Current Liabilities

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
B
D
D
A
A
D
Problems
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29

MC30
B
D
B
A
B
B
C
A
B
D
MC31
MC32
MC33
MC34
MC35
D
C
A
A
B
MC36
MC37
C
A
MC38
MC39
C
D
MC40
MC41
B
D
MC42
MC43
MC44
MC45
B
A
D
D
MC46
MC47
C
B
MC48

B
(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 x 1.02) 50,000 = 970,000
1,000,000 - 30,000 + 50,000 = 1,020,000;
1,020,000 - (40,000 x 20) - 10,000 = 210,000
P0; No gain or loss is recognized upon conversion of bonds.
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
(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
(1) 49,737 X 10%= 4,974; 49,737 (20,000 4,974) = 34,711
5,500,000 3,000,000 = 2,500,000
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.
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
150,000 x 65 = 9,750,000; 11,000,000 9,750,000 = 1,250,000
25