CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

BONDS PAYABLE
1. On March 1, 2021, an entity issued at 103 plus accrued interest 4,000 bonds of 9%, P1,000 face
amount. The bonds are dated January 1, 2021 and mature on January 1, 2031. Interest is payable
semiannually on June 30 and December 31. The entity paid bond issue cost of P200,000. What is the
net cash received from the bond issuance?
a. 4,320,000
b. 4,180,000
c. 4,120,000
d. 3,980,000

2. On March 1, 2021, an entity issued 6,000 of P1,000 face value bonds at 110 plus accrued interest.
The entity paid bond issue cost of P400,000. The bonds were dated November 1, 2020, mature on
November 1, 2030, and bear interest at 12% payable semiannually on May 1 and November 1. What
is the bond liability on March 1, 2021?
a. 6,600,000
b. 6,200,000
c. 6,440,000
d. 6,840,000

3. On January 1, 2021, an entity issued 9% bonds in the face amount of P5,000,000 which mature on
January 1, 2031. The bonds were issued for P4,695,000 to yield 10%. Interest is payable annually
on December 31. The entity used the interest method of amortizing bond discount.

1. What is the interest expense for 2021?

a. 469,500
b. 500,000
c. 450,000
d. 422,500

2. What is the carrying amount of the bonds payable on December 31, 2021?
a. 4,695,000
b. 4,704,750
c. 4,714,500
d. 5,000,000

4. On January 1, 2021, an entity issued 10-year bonds with face amount of P5,000,000 for P5,775,000.
The entity paid bond issue cost of P100,000 on same date. The stated interest rate on the bonds is
10% payable annually every December 31. The bonds have an an 8% yield per annum after
considering the bond issue cost. The entity used the effective interest method of amortizing bond
premium.

1. What is the interest expense for 2022?

a. 454,000
b. 458,960
c. 500,000
d. 450,320

2. What is the carrying amount of the bonds payable on December 31, 2022?
a. 5,695,960
b. 5,737,000
c. 5,629,000
d. 5,579,320

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5. An entity issued 5,000 of 8% 10-year P1,000 face amount bonds with detachable warrants at 110.
Each bond carried a detachable warrant for 10 ordinary shares of P100 par value at a specified
option price of P120. Immediately after issuance, the market value of the bonds without warrants
was P4,800,000 and the market value of the warrants was P1,200,000.

1. What is the initial carrying amount of bonds payable?

a. 5,500,000
b. 4,800,000
c. 4,400,000
d. 5,000,000

2. What is the increase in equity as a result of the bond issuance?

a. 1,200,000
b. 1,100,000
c. 500,000
d. 700,000

3. What is the share premium from the subsequent exercise of all share warrants?
a. 1,700,000
b. 1,000,000
c. 2,100,000
d. 0

6. An entity issued P5,000,000 face amount 5-year bonds at 120. Each P1,000 bond was issued with 20
nondetachable share warrants. Each warrant entitled the bondholder to purchase one share of P20
par value for P25. Immediately after issuance, the market value of each warrant was P5. The interest
rate is 10% payable annually every December 31. The prevailing market rate of interest for similar
bonds without warrants is 12%. The PV of 1 at 12% for 5 periods is 0.57 and the PV of an ordinary
annuity of 1 at 12% for 5 periods is 3.60. What amount should be recorded as increase in equity as
a result of the bond issuance?
a. 1,350,000
b. 1,000,000
c. 2,000,000
d. 0

7. An entity issued 5,000 convertible bonds with P1,000 face amount per bond. The bonds mature in
three years and are issued at 120. Interest is payable annually every December 31 at a nominal 6%
interest rate. Each bond is convertible at anytime up to maturity into 100 shares with par value of P5.
It is reliably determined that the bonds would sell only at P4,500,000 without the conversion
privilege. What is the equity component of the original issuance of the convertible bonds?
a. 1,000,000
b. 1,500,000
c. 1,250,000
d. 0

8. After recording interest and amortization, an entity converted P5,000,000 of 12% convertible bonds
into 50,000 shares of P50 par value. On the conversion date, the carrying amount of the bonds
payable was P6,000,000, the market value of the bonds was P6,500,000, and the share was publicly
trading at P150. The entity incurred P200,000 in connection with the conversion. When the bonds
were originally issued, the equity component was recorded at P1,500,000. What amount of share
premium should be recorded as a result of the conversion?
a. 5,000,000
b. 3,500,000
c. 4,800,000
d. 3,300,000
END
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