5.On July 1, 2021 Jerome Corporation issued 2,000,000 of 7% bonds payable in 10 years.

The bonds
pay interest semiannually. Each 1,000 bond includes a detachable stock purchase right. Each
right gives the bondholder the option to purchase for P30, one share of P1 par value common
stock at any time during the next 10 years. The bonds were sold for 2,000,000. The value of the
stock purchase rights at the time of issuance was 100,000.

1. How many warrants were issued?

a. 2,000,000 b. 66,667 c. 20,000 d. 2,000

2. If the bondholder will exercise all his rights, the additional paid-in capital will be
a. 158,000 b. 150,000 c. 58,000 d. 0

6. Kaila Corporation is selling audio and video appliances. The company’s fiscal year ends on
March 31. The following information relates to the obligations of the company as of March 31,
2020:

Notes payable
Kaila has signed several long-term notes with financial institutions. The maturities of these
notes are given below. The total unpaid interest for all of these notes amounts to 340,000 on
March 31, 2020.

Due date Amount

April 31, 2020 P 600,000
July 31, 2020 900,000
September 1, 2020 450,000
February 1, 2021 450,000
April 1, 2021 – March 31, 2022 2,700,000
P 5,100,000

Estimated warranties
Kaila has a one-year product warranty on some selected items. The estimated warranty liability
on sales made during the 2018 – 2019 fiscal year and still outstanding as of March 31, 2019,
amounted to 252,000. The warranty costs on sales made from April 1, 2019 to March 31, 2020,
are estimated at 630,000. The actual warranty costs incurred during 2019 – 2020 fiscal year
are as follows:

Warranty claims honored on 2018 – 2019 sales P 252,000

Warranty claims honored on 2019 – 2020 sales 285,000
Total P 537,000

Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount to
560,000 as of March 31, 2020.

Dividends
On March 10, 2020, Kaila’ board of directors declared a cash dividend of 0.30 per common
share and a 10% common stock dividend. Both dividends were to be distributed on April 5,
2020 to common stockholders on record at the close of business on March 31, 2020. As of
March 31, 2020, Kaila has 5 million, 2 par value, common shares issued and outstanding.

Bonds payable
Kaila issued 5,000,000, 12% bonds, on October 1, 2014 at 96. The bonds will mature on
October 1, 2024. Interest is paid semi-annually on October 1 and April 1. Kaila uses the
straight line method to amortize bond discount.

QUESTIONS:

Based on the foregoing information, determine the adjusted balances of the following as of
March 31, 2020:

1. Estimated warranty payable

a. 252,000 b. 345,000 c. 630,000 d. 882,000

2. Unamortized bond discount

a. 110,000 b. 200,000 c. 100,000 d. 90,000

3. Bond interest payable

a. 0 b. 300,000 c. 150,000 d. 250,000

4. Total current liabilities

a. 6,445,000 b. 5,105,000 c. 5,445,000 d. 3,945,000

5. Total noncurrent liabilities

a. 7,700,000 b. 7,590,000 c. 7,500,000 d. 7,610,000