Problem 4-1

Requirement 1: Journal entries for 2020 and 2021 including adjustments at the end of each year in
memorandum approach.
GENERAL JOURNAL
Date Page Number 01
Decriptions
2020 PR Debit Credit
Apr-01 Cash (7,000,000 x 106%) 7,420,000.00
Bonds payable 7,000,000.00
Premium on bonds payable 420,000.00
To record the sale of the bonds at a premium

Oct-01 Interest expense (7,000,000 x 12% x (6/12)) 420,000.00

Interest payable 420,000.00
To record the semiannual interest payment

Dec-31 Interest expense (7,000,000 x 12% x (3/12)) 210,000.00

Accrued interest payable 210,000.00
To record the interest accrued for 3 months from
October 1 to December 31, 2020

Dec-31 Premium on bonds payable 31,500.00

Interest expense ((420,000/10) x (9/12)) 31,500.00
To record the amortization of the bond premium

2021
Jan-01 Accrued interest payable 210,000.00
Interest expense 210,000.00
To record the reversing entry for accrued interest

Apr-01 Interest expense 420,000.00

Cash 420,000.00
To record the semiannual interest payment

Oct-01 Interest expense 420,000.00

Cash 420,000.00
To record the semiannual interest payment

Dec-31 Interest expense 210,000.00

Accrued interest payable 210,000.00
To record the interest accrued for 3 months from
October 1 to December 31, 2020

Dec-31 Premium on bonds payable 42,000.00

Interest expense (420,000/10) 42,000.00
To record the amortization of the bond premium

Requirement 2: Present the bonds payable in the statement of financial position on Dec. 31, 2021
Noncurrent liabilities:
Bonds payable ₱ 7,000,000.00
Premium on bonds payable 346,500.00
Carrying amount ₱ 7,346,500.00

Problem 4-2
Requirement 1: Journal entries relating to the bonds payable in 2020 and 2021.
GENERAL JOURNAL
Date Page Number 01
Decriptions
2020 PR Debit Credit
Jan-01 Unissued bonds payable 8,000,000.00
Authorized bonds payable 8,000,000.00
 To record the autorization of bonds

Jan-01 Cash (5,000,000 x 95%) 4,750,000.00

Discount on bonds payable 250,000.00
Unissued bonds payable 5,000,000.00
To record the subsequent sale of bonds at a discount

Jun-30 Interest expense (5,000,000 x 12% x (6/12)) 300,000.00

Cash 300,000.00
To record the semiannual interest payment

Dec-31 Interest expense 300,000.00

Cash 300,000.00
To record the semiannual interest payment

Dec-31 Interest expense (250,000/10) 25,000.00

Discount on bonds payable 25,000.00
To record the amortization of bond discount

2021
Jun-30 Interest expense 300,000.00
Cash 300,000.00
To record the semiannual interest payment

Sep-01 Cash 2,100,000.00

Unissued bonds payable 2,000,000.00
Premium on bonds payable 60,000.00
Interest expense (2,000,000 x 12% x (2/12)) 40,000.00
To record the sale of bonds at a premium plus accrued interest

Dec-31 Interest expense 420,000.00

Cash (7,000,000 x 12% x (6/12)) 420,000.00
To record the semiannual interest payment

Dec-31 Interest expense 25,000.00

Discount on bonds payable 25,000.00
To record the amortization of bond discount

Dec-31 Premium on bonds payable 2,400.00

Interest expense 2,400.00
To record the amortization of the bond premium

120 months -20 months = 100 months remaining

60,000 / 100 = 600 monthly
600 x 4 = 2,400

Requirement 2: Show how information relative to the bond issue will be reported in the statement of
financial position prepared on December 31, 2021.
Noncurrent liabilities:
Authorized bonds payable ₱ 8,000,000.00
Less: Unissued bonds payable 1,000,000.00
Issued bonds payable 7,000,000.00
Premium on Bonds payable 57,600.00
Total 7,057,600.00
Discount on bonds payable - 200,000.00
Carrying amount ₱ 6,857,600.00

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 payable issued ₱ 6,000,000.00

Less: Face value bonds payable retired 3,000,000.00
Bonds payable - December 31. 2020 ₱ 3,000,000.00

Discount on bonds ₱ 300,000.00

Less: Amortization from 2013 to 2019 ((300,000/10) x 7) 210,000.00
Balance - January 1, 2020 90,000.00
Less: Discount applicable to bonds retired (1/2 x 90,000) 45,000.00
Adjusted balance 45,000.00
Less: Amortization for 2020 (45,000/3) 15,000.00
Discount on bonds payable - December 31, 2020 ₱ 30,000.00

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 (3,000,000 x 12%) 360,000.00

Amortization of discount for 2020 15,000.00
Interest expense for 2020 375,000.00

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

GENERAL JOURNAL
Date Page Number 01
Decriptions
2020 PR Debit Credit
Retained earnings 210,000.00
Discount on bonds payable 210,000.00
To record the amortization of bond discount
from 2013 to 2019

Bonds payable 300,000.00

Discount on bonds payable 45,000.00
Gain on early retirement of bonds 255,000.00
To record the gain on early retirement and
amortization on bond discount for retired bonds

Bonds payable retired ₱ 3,000,000.00

Less: Applicable discount 45,000.00
Carrying amount 2,955,000.00
Less: Retiremet price 2,700,000.00
Gain on early retirement ₱ 255,000.00

Interest expense 15,000.00

Discount on bonds payable 15,000.00
To record the amortization of bond discount for 2020

Interest expense 180,000.00

Accrued interest payable (3,000,000 x 12% x (1/2)) 180,000.00
To record the interest accrued