PROBLEM 5-1

Requirement: Determine the liability component of the convertible debt

Present Value of Principal (4,000,000*0.77218) Php 3,088,720.00

Present Value of Interest Payments (4,000,000*0.06 *2.5313) 607,512.00
Total Present Value of Convertible Debt Php 3,696,232.00

Requirement: Determine the equity component of the convertible debt

Issue Price of Bonds (4,000*1,000) Php 4,000,000.00

Less: Total Pesent Value of Convertible Debt 3,696,232.00
Equity Components of Convertible Debt Php 303,768.00

Requirement: Prepare the amortization table and determine the interest expense to be reported on Blue Ocean’s Statement
of Comprehensive Income for the year ended December 31, 2021.

Date Interest Paid Interest Expense Discount Amortization Carrying Amount

01/01/2020 - - - 3,696,232.00
12/31/2020 240,000.00 332,661.00 92,661.00 3,788,893.00
12/31/2021 240,000.00 341,000.00 101,000.00 3,889,893.00
12/31/2022 240,000.00 350,107.00 110,107.00 4,000,000.00

Statement of Comprehensive Income

Interest Expense, 12/31/2021 3,788,893*0.09 Php 341,000.00

Requirement: Prepare the entry to record the bond conversion.

General Journal
Page Number 01
Date Description Pr
Debit Credit
12/31/2021 Bonds Paybale Php 4,000,000
Share Premium - Conversion Privilege 303,768
Ordinary Share Capital Php 1,600,000
Discount on Bonds Payable 110,107
Share Premium - Issuance 2,593,661
To record the bond conversion

Bonds Payable Php 4,000,000.00

Share Premium - Conversion Privilege 303,768.00
Less: Discount on Bonds Payable 110,107.00
Total Consideration Php 4,193,661.00
Less: Ordinary Share Issued at par value (4,000*200*2) 1,600,000.00
Share Premium - Issuance Php 2,593,661.00

PROBLEM 5-2
Requirement: Determine the bond premium/discount upon issuance

Present Value of Principal (5,000,000*0.52) Php 2,600,000.00

Present Value of Interest Payments (5,000,000*0.12*3.43) 2,058,000.00
Issue Price of Bonds Php 4,658,000.00
Face Value of Bonds Payable (5,000*1,000) 5,000,000.00
Discount on Bonds Payable Php 342,000.00

Requirement: Determine equity component of the bonds issued

Issue Price of Bonds (5,000,000*1,000) Php 5,150,000.00

Present Value of Bonds Payable 4,658,000.00
Equity Component of the Bonds Issued Php 492,000.00

Requirement: Compute the amount to be credited to Share Premium if all of the share warrants are exercise

Cash Received (5,000*30*50) Php 7,500,000.00

Share Warrants Outstanding 492,000.00
Total Considerations Php 7,992,000.00
Less: Issued share at par value (5,000*30 *25) 3,750,000.00
Share Premium Php 4,242,000.00