Problem 4-1

Requirement 1: Prepare journal entries for 2020 and 2021 including adjustments at the end of each year. Use memorandum approach.

GENERAL JOURNAL
Date Descriptions PR Page Number 01

2020 Debit Credit

Apr-01 Cash (7,000,000x 106%) 7,420,000
Bonds Payable 7,000,000
Premium on Bonds Payable 420,000
To record issuance of bonds

Oct-01 Interest Expense (7,000,000 x 12% x 6/12) 420,000

Cash 420,000
To record payment of interest

Dec-31 Interest Expense (7,000,000 x 12% x 3/12) 210,000

Interest Payable 210,000
To record the interest as at year-end

Premium on Bonds Payable 31,500

Interest expense (420,000/10 x 9/12) 31,500
To record the premium amortization on bonds payable for 2020

2021
Jan-01 Interest Payable 210,000
Interest Expense 210,000
Reversal entry

Apr-01 Interest Expense 420,000

Cash 420,000
To record the payment of interest

Oct-01 Interest Expense 420,000

Cash 420,000
To record the payment of interest

Dec-31 Interest Expense 210,000

Interest Payable 210,000
To record th interest as at year-end

Premium on Bonds Payable 42,000

Interest Expense 42,000
To record the premium amortization on bonds payable for 2021

Requirement 2: Present the bonds payable in the statement of financial position on December 31,2021.

Non current Liabilities

Bonds Payable 7,000,000

Premium on Bonds Payable 346,500
Carrying amount (December 31, 2021) Php 7,346,500

Problem 4-2
Requirement 1: Prepare journal entries relating to the bonds payable in 2020 and 2021.
Straight line amortization is used, and unissued bonds payable account is set-up.

GENERAL JOURNAL
Date Descriptions PR Page Number 01

2020 Debit Credit

Jan-01 Unissued Bonds Payable 8,000,000
Authorized Bonds Payable 8,000,000
To record the authorization of bonds

Cash 4,750,000
Discount on Bonds Payable 250,000
Unissued Bonds Payable 5,000,000
To record issuance of bonds

Jun-30 Interest Expense 300,000

Cash 300,000
To record the payment of interest

Dec-31 Interest Expense 300,000

Cash 300,000
To record the payment of interest

Interest Expense 25,000

Discount on Bonds Payable 25,000
To record the discount amortization on bonds payable for 2020

2021
 Jun-30 Interest Expense 300,000
Cash 300,000
To record the payment of interest

Sep-01 Cash 2,100,000

Unissued Bonds Payable 2,000,000
Premium on Bonds Payable 60,000
Interest Expense 40,000
To record the issuance of bonds

Dec-31 Interest Expense 420,000

Cash 420,000
To record the payment of interest

Interest Expense 25,000

Discount on Bonds Payable 25,000
To record the discount amortization on bonds payable for 2021

Premium on Bonds Payable 2,400

Interest Expense 2,400
To record the premium amortization on bonds payable for 2021

Requirement 2: Show how information relative to the bond issue will be reported in the statement of financial position
prepared on December 31, 2021.

Non current Liabilities

Authorized Bonds Payable 8,000,000

Less: Unissued Bonds Payable 1,000,000
Issued Bonds Payable 7,000,000
Add: Premium on Bonds Payabe 57,600
Total: 7,057,600
Less: Discount on Bonds Payable 200,000
Carrying amount (December 31, 2021) Php 6,857,600

Problem 4-3
Requirement 1: Compute the balance of bonds payable and discount on bonds payable on December 31, 2020. The straight-
line method of amortization is used.

Total bonds issued 6,000,000

Less: Bonds payable retired 3,000,000
Bonds payable (December 31,2020) Php 3,000,000

Discount on bonds payable 300,000

Less: Amortization from 2013 to 2019 210,000
Balance (January 1, 2020) 90,000
Less: Discount applicable to retired bonds 45,000
Adjusted balance 45,000
Less: Amortization for 2020 15,000
Discount on bonds payable (December 31, 2020) Php 30,000

Requirement 2: Compute bond interest expense for the year ended December 31, 2020. Interest is payable semi-annually
on January 1 and July 1.

Interest expense 360,000

Amortization of discount for 2020 15,000
Interest expense for 2020 Php 375,000

Requirement 3: Prepare adjusting entries on December 31, 2020.

GENERAL JOURNAL
Date Descriptions PR Page Number 01

2020 Debit Credit

Dec-31 Retained Earnings 210,000
Discount on Bonds Payable 210,000
To record the amortization incurred from 2013 to 2019

Bonds Payable 300,000

Discount on Bonds Payable 45,000
Gain on early retirement of bonds 255,000
To record the retirement of bonds and related gain

Interest Expense 15,000

Discount on Bonds Payable 15,000
To record the discount amortization on bonds payable for 2020

Interest Expense 180,000

Accrued Interest Payable 180,000
To record the accrued interest

*Computation
Bonds payable retired 3,000,000
Less: Discount applicable to retired bonds 45,000
Carrying amount 2,955,000
Less: Retirement price 2,700,000
Gain on early retirement Php 255,000