Professional Documents
Culture Documents
I. Theories
1. If bonds are issued between interest dates, the entry on the books of the issuing
corporation could include a
A. debit to Interest Payable C. credit to Interest Expense
B. credit to Interest Receivable D. credit to Unearned Interest
2. If a company chooses the fair value option, a decrease in the fair value of the liability
is recorded by crediting
A. Bonds Payable
B. Gain on Restructuring of Debt
C. Unrealized Holding Gain/Loss-Income
D. None of these
3. Prive Co. issued Php 100,000 of ten-year, 10% bonds that pay interest semiannually.
The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is
to multiply the principal by the table value for
A. 10 periods and 10% from the present value of 1 table
B. 20 periods and 5% from the present value of 1 table
C. 10 periods and 8% from the present value of 1 table
D. 20 periods and 4% from the present value of 1 table
4. Identify if the statements are true or false:
I. Bond issues that mature in installments are called serial bonds.
II. A mortgage bond is referred to as a debenture bond.
A. Both statements are true.
B. Statement I is true while statement II is false.
C. Both statements are false.
D. Statement I is false while statement II is true.
5. Identify if the statements are true or false:
I. Bond issue costs are capitalized as a deferred charge and amortized to expense
over the life of the bond issue.
II. The replacement of an existing bond issue with a new one is called refunding.
A. Both statements are true.
B. Statement I is true while statement II is false.
C. Both statements are false.
D. Statement I is false while statement II is true.
4. On December 31, 2019, Prive Co. had Php 500,000 convertible 10% outstanding bonds
payable. Each Php 1,000 bonds are convertible into 10 ordinary shares of Php 50 par
value. On January 1,2020, the interest was paid to bondholders, and the bonds were
converted into ordinary shares, which had a fair value of Php 100. The unamortized
premium on bonds payable was Php 10,000 at the date of conversion and no equity
component was recognized when the bonds were originally issued. What amount
should be recorded as the increase in share premium as a result of bond conversion?
A. Php B. Php C. Php D. Php
240,000 250,000 260,000 270,000
5. MongRyeong Corp. provided the following information in relation to the issuance of
bonds at the beginning of the current year:
Face Amount Php 7,500,000
Term 8 years
Nominal Interest Rate 10 %
Interest payment date Annually, December 31
Yield 12 %
What is the issue price of the bonds payable? (Use 3 decimals for the computation)
A. Php B. Php C. Php D. Php
5,582,250 6,070,200 6,756,000 8,304,00
Problems: Answer Key
1. A.
Issue Price (Php 1,000 x 4,000 x 97%) Php
3,880,000
Less: Issue Costs
Promotion Cost Php
337,000
Printing and engraving 87,500
Legal fees 262,500
Commissions paid to underwriter 425,000 (1,112,000)
Carrying amount of bond payable Php
2,768,000
2. B.
Issue Price (4,000,000 x104%) Php
4,160,000
Accrued Interest, January 1 to June 1, 2019 (4,000,000 x 12% x
7/12) 280,000
Total Php
4,440,000
Less: Bond Issue Cost 61,000
Net cash received from issuance of bonds Php
4,379,000
3. C.
Interest Paid (Php 4,000,000 x 10%) Php
400,000
Interest Expense (Php 4,750,000 x 8%) 380,000
Premium amortization 2019 Php
20,000