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FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance (IABF)
Accountancy and Internal Auditing Department
Financial Accounting & Reporting, Part III
Quiz – Bonds Payable (Amortization Table)

Name: _____________________________________________Yr. and Section: __________________

Instructions: Provide the following required in the worksheet. Strictly no erasures in this test questionnaire
and in the worksheet. Show the computations in good form.

Problem 1 - Bond discount amortization.

On June 1, 2009, Everly Bottle Company sold P400,000 in long-term bonds for P351,040. The bonds will
mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest
annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method.

Instructions
(a) Construct a bond amortization table for this problem to indicate the amount of interest expense and
discount amortization at each May 31. Include only the first four years. Make sure all columns and
rows are properly labeled. (Round to the nearest peso.)
(b) Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting
entry to be made on December 31, 2011. (Round to the nearest peso.)

Problem 2 - Bond interest and discount amortization.

Grove Corporation issued P800,000 of 8% bonds on October 1, 2010, due on October 1, 2015. The
interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective
annual interest. Grove Corporation closes its books annually on December 31.

Instructions
(a) Complete the following amortization schedule for the dates indicated. (Round all answers to the
nearest peso.) Use the effective-interest method.
Cash Interest Discount Carrying Amount
Paid Expense Amortized of Bonds
October 1, 2010 P738,224
April 1, 2011
October 1, 2011

(b) Prepare the adjusting entry for December 31, 2011. Use the effective-interest method.

(c) Compute the interest expense to be reported in the income statement for the year ended December
31, 2011.

Problem 3 - Entries for bonds payable.

Its books ends on December 31.
Holden Co. sells P300,000 of 10% bonds on March 1, 2010. The bonds pay interest on September 1 and
March 1. The due date of the bonds is September 1, 2013. The bonds yield 12%, selling for P283,250.
Give entries through March 1, 2011.

Problem 4 - Comprehensive bond problem.

Titania Co. sells P600,000 of 12% bonds on June 1, 2010. The bonds pay interest on
December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%, selling for
P638,780. On October 1, 2011, Titania buys back P300,000 worth of bonds for P315,000 (include accrued
interest). Give entries through October 1, 2012.

Instructions
(Round to the nearest peso.)

Prepare all of the relevant journal entries from the time of sale until the date indicated. Amortize premium
or discount on interest dates and at year-end. (Assume that no reversing entries were made.)