HOMEWORK ON BONDS PAYABLE

1. During 2020, DeGeneres Company incurred the following costs in connection with the issuance of
bonds:
Printing and engraving P 85,000
Legal expenses 425,000
Fees paid to independent accountants for registration information 65,000
Commissions paid to underwriters 320,000

How much should be recorded as bond issue cost to be amortized over the term of the bonds?

2. On February 1, 2020, Gates Company issued a P3,000,000 of 12% bonds at 104 which are due on
January 31, 2023. In addition, each P1,000 bond was issued 15 warrants, each of which entitles the
bondholder to purchase for P50 one ordinary share (P25 par value) of the company. On February 1,
2020, the fair market value of the ordinary share was P40 per share; the fair market value of the warrant
was P4; and the fair market value of the bond ex-warrant was 101.

(a) How much should the company record on February 1, 2020 as carrying value of the bonds?
(b) How much of the amount received on the date of issuance is attributable to the equity
component?
(c) How much is the premium on bonds payable at the date of issuance?

3. The records of Xiu Company show the following information on December 31, 2020:

Bonds Payable P 3,000,000

Discount on Bonds Payable 150,000
Ordinary Share Capital – 100,000 shares authorized ; 40,000 shares issued,
P120 par 4,000,000
Accumulated Profits 1,000,000
Share Premium – Bond Conversion Privilege 500,000

The bonds are convertible into 7 ordinary shares for every P1,000 bond. On December 31, 2020, the
entire bond issue was converted and on this date, the market value of the share is P120 and the bonds
P102.

(a) How much is the gain or loss on conversion?

(b) How much is the increase in total shareholders’ equity as a result of the conversion?

4. On January 1, 2020, Sanberg Company sold 12% bonds with a face value of P500,000. The bonds
mature in 5 years and interest is paid semi-annually on June 30 and December 31. The bonds were sold
for P538,600 to yield 10%.

(a) How much is interest expense for 2020?

(b) How much is the unamortized premium as of December 31, 2021?

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5. On July 1, 2020, Geisha Company issued for P938,514 its 9% P1,000,000 face value bonds to mature
on July 1, 2029. The bonds were issued to yield 10%. The company uses the effective interest method
of amortizing bond discount. Interest is payable annually on June 30.

(a) How much is the company’s adjusted unamortized bond discount at June 30, 2022?
(b) How much is the interest expense for the year 2022?

6. On June 1, 2020, Welch Company issued 2,000 of its 10% P1,000 bonds at a price that will yield a 12%
effective interest plus accrued interest. The bonds are dated April 1, 2020 and mature on April 1, 2028.
Interest is payable semi-annually on April 1 and October 1.

(a) How much did the company receive from the bond issuance?
(b) How much is the interest expense for 2020?
(c) How much is the total discount amortization for 2020?
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