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Empleo Intermediate Accounting 2019 Vol 1 Ch 5 Answers

BS Accountancy (Pontifical and Royal University of Santo Tomas, The Catholic

University of the Philippines)

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Chapt
er5 - Fi
nanci
alLi
abi
lit
ies

5-
1. (
Jeffer
sonCor
por
ati
on)

(
a)(
1) Gr
ossme
thod

Dec.16 Purchases 66,000

Frei
ghtin 1,400
Account
sPayabl
e–I
ntel 67,
400

19 Pur
chases 72,
000
Account
sPayabl
e–Cel
eron 72,
000

26 Account
sPayable–I
ntel 67,
400
PurchaseDi
scount
s 1,
320
Cash 66,
080

31 Account
sPayable–Cel
eron 72,
000
PurchaseDi
scounts 1,
440
Cash 70,
560

(
a)(
2) Netme
thod

Dec.16 Purchases 64,680

Frei
ghtin 1,400
Account
sPayabl
e–I
ntel 66,
080

19 Pur
chases 69,
840
Account
sPayabl
e–Cel
eron 69,
840

26 Account
sPayabl
e–I
ntel 66,
080
Cash 66,
080

31 AccountsPayable–Celer
on 69,
840
PurchaseDiscountsLost 720
Cash 70,
560

(
b) Adj
ust
ingent
ryatDecember31undert
henetmet
hod

Dec.31 Pur
chaseDiscountsLost 720
AccountsPayabl
e–Cel
eron 720

5-
2 (
Washi
ngt
onCompany)

Reportedamountofaccount spayabl eatDecember31,2018 P1,

000,
000
Adjustments:
Unrecordedcheckwr i
ttenandi ssuedonDecember27 (
350,000)
Unrecordedpur chasesr eceiv
edonDecember28,net 147,000
Goodspur chasedFOB shi ppingpoints
til
lint
ransi
tandnot
yetrecordedatyearend 120,
000
Debitbalanceinasuppl ier’
saccountnett
edinthebal
ance 80,
000
Correctamountofaccount spayabl eatDecember31,2018 P 997,
000

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

5-
3. (
AdamsCompany)

ReportedamountofaccountspayableatDecember31,2018 P1,
500,000
Adjustments:
GoodspurchasedFOB shippingpointl
ostintr
ansit 240,000
Credi
tmemof orgoodsreturnedtosuppli
ernotrecor
dedatyear
end (80,
000)
CorrectamountofaccountspayableatDecember31,2018 P1,
660,000

5-
4. (
Madi
sonCompany)

(
a)
2019
May1 Automobil
e 3,600,000
DiscountonNotesPayabl
e 324,000
Not
esPayable 3,
924,
000
3,924,
000/1.
09=3,
600,
000

Dec.31I
nterestExpense 216,000
DiscountonNotesPayable 216,
000
324,
000x8/12=216, 000
2020
Apr.1 I
nterestExpense 108,000
NotesPayable 3,
924,000
DiscountonNotesPayable 108,
000
Cash 3,
924,
000
324,
000–216, 000=108,
000

(
b) NotesPayable P3,
924,
000
LessDiscountonNotesPayabl
e 108,
000
Netamount ,December31,2019 P3,
816,
000

5-
5. (
Monr
oeCor
por
ati
on)

(a)
2019
June1 Cash 2,
700,
000
DiscountonNotesPayabl
e 300,
000
Not
esPayable 3,
000,
000
3M x10% =300,000
3M –300,000=2,700,
000

Dec.31I
nter
estExpense 175,
000
DiscountonNotesPayabl
e 175,
000
300,
000x7/12

2020
May31I
nterestExpense 125,
000
NotesPayable 3,
000,
000
DiscountonNotesPayable 125,
000
Cash 3,
000,
000
300,
000–175, 000=125,
000

(
b) NotesPayable P3,
000,
000
LessDiscountonNotesPayabl
e 125,
000
Netamount ,December31,2019 P2,
875,
000

59

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

5-
6. (
Uni
sonCompany)

(
a) Mar ketr ateofint er
estis5%
Principal P8,
000,000
Statedi nterest(
8M x9%) 720,000
Mat urityvalue P8,
720,000
PVf actorat5% f or1per i
od 0.
9524
Presentval ueofnot eatMay1,2019 P8,
304,928
Faceval ueofnot e 8,
000,000
Premi um onnot espayable P 304,928

2019
May1 Equi
pment 8,
304,
928
Premium onNot
esPayabl
e 304,
928
NotesPayabl
e 8,
000,
000

Dec.31Inter
estExpense 276,
715
Premium onNot esPayable 203,
285
I
nterestPayable 480,
000
304,928x8/12 =203,
285
8M x9% x8/12=480,000

2020
Apr.30InterestExpense 138,
357*
Premi um onNot esPayable 101,
643
InterestPayable 480,
000
Not esPayable 8,000,
000
Cash 8,
720,
000
304,928–203,285=101,
643
*di
ffer
enceisduetor
oundi
ngoff.

Not esPayable P8,

000,
000
Premi um onNot esPayabl
e 101,
643
InterestPayable 480,
000
Car ryingamountatDecember31,2019 P8,
581,
643

(
b) Mar ketr ateofinteresti
s12%
Principal P8,
000, 000
Statedi nterest(
8M x9%) 720,000
Mat urityvalue P8,
720, 000
PVf actorat12% f or1period 0.8929
Presentval ueofnot eatMay1,2019 P7,
786, 088
Faceval ueofnot e 8,
000, 000
Discountonnot espayable P 213, 912

2019
May1 Equipment 7,
786,
088
DiscountonNotesPayabl
e 213,
912
Not
esPayable 8,
000,
000

Dec.31I
nter
estExpense 622,
608
DiscountonNot esPayabl
e 142,
608
I
nt er
estPayable 480,
000
213,912x8/12 =142,
608
8M x9% x8/12=480,000

60

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

2020
Apr.30I
nterestExpense 311,
304
I
nterestPayable 480,
000
NotesPayable 8,000,
000
DiscountonNot esPayable 71,
304
Cash 8,
720,
000
213,912–142, 608=71,304
*di
ffer
enceisduet or
oundingoff.

Not espayable P8,

000,000
Discountonnot espayabl
e (71,
304)
I
nt erestpayable 480,000
Car ryingamountatDecember31,2019 P8,
408,696

5-
7. (
KFC Del
iver
ySer
vice)

(
a) Effect
iveinter
estmet
hod
6,
949, 800/9,000,
000=0.7722
UsingTabl eII–PVofP1,under3per
iods,0.
7722i
sunder9% i
nter
estr
ate

(
b)
Tabl
eofAmor t
ization
Date Amor t
izati
onofDi scount Carryi
ngValue
4/1/18 6,949,800
3/31/19 625,482 7,575,282
3/31/20 681,775 8,257,057
3/31/21 742,943* 9,000,000
*Rounded;di
ffer
enceisduet oroundingoff.

(
c) I
nter
estexpenseforyearendedDecember31,2019:
January1–Apr il1 625,
482x3/12 P156,
371
April1–December31 681, 775x9/12 511,
331
Totali
nterestexpense P667,
702

Carr
yingamount ,Apri
l1,2018 P6,
949,
800
Addamorti
zationofdiscount
625,482x9/12 469,
112
Carr
yingamount ,December31,2018 P7,
418,
912

(
d)

2018
Apr
il1 Land 6,
949,
800
DiscountonNotesPayabl
e 2,
050,
200
Not
esPayable 9,
000,
000

Dec31 I
nter
estExpense 469,
112
DiscountonNot
esPayabl
e 469,
112

2019
Jan1. Di
scountonNot
esPayabl
e 469,
112

61

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

I
nter
estExpense 469,
112

Apr
il1 I
nter
estExpense 625,
482
DiscountonNot
esPayabl
e 625,
482

Dec.31I
nter
estExpense 511,
331
DiscountonNot
esPayabl
e 511,
331

2020
Jan1. Di
scountonNotesPayabl
e 511,
331
I
nter
estExpense 511,
331

Mar
.31 I
nter
estExpense 681,
775
DiscountonNot
esPayabl
e 681,
775

Dec.31I
nter
estExpense 511,
331
DiscountonNot
esPayabl
e 511,
331

2021
Jan1. Di
scountonNotesPayabl
e 511,
331
I
nter
estExpense 511,
331

Mar
.31 I
nter
estExpense 742,
943
DiscountonNot
esPayabl
e 625,
482

31 Cash 9,
000,
000
Not
esPayabl
e 9,
000,
000

5-
8. (
JFC Company)

(
a) Int
erestExpense
2018=6, 949,800x9% x8/12 P416,
988
2019=6, 949,800x9% x4/12= 208,
494
6,
949,800x1.
09=7, 575,
282
7,
575,282x9% x8/12= 454,
517 P663,
011
2020=7, 575,282x9% x4/12= 227,
258
7,
575,282x1.
09=8, 257,
057
8,
257,057x9% x8/12 495,
423 P722,
681

(
b) NotesPayable P6,
949,
800
Int
erestPayable(416,
988+663,011) 1,
079,
999
TotalNotesPayable,i
ncl
udi
ngaccruedi
nter
est P8,
029,
799

(
c) On December31,2019,t
henot espayableincludi
ngaccr
ued i
nterestshal
lber
epor
ted
among the non-
cur
rentl
iabi
li
ti
es,since t
his amountwillbe due af
termoret
han 12
months.

On December31,2020,thenotespayabl
eincl
udi
ngaccrued i
nter
estshal
lbereport
ed
amongt hecur
rentli
abi
li
ti
es,si
ncethi
samountwillbedueon Apri
l1,2021,aperi
odof
lesst
han12mont hs.

(
d)
2018
May1 Land 6,
949,
800
Not
esPayabl
e 6,
949,
800

Dec.
31 I
nter
estExpense 416,
988
I
nterestPayabl
e 416,
988

62

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

2019
Dec.31I
nter
estExpense 663,
011
I
nterestPayabl
e 663,
011

2020
Dec.31I
nter
estExpense 722,
681
I
nterestPayabl
e 722,
681

2021
Apr30 I
nter
estExpense 247,
520
I
nterestPayabl
e 247,
520
6,949,
800+416,
988+663,011
+722,681=8,
752,480
9,000,
000–8,
752,480=247,
520

30 NotesPayable 6,
949,
800
I
nterestPayable 2,
050,
200
Cash 9,
000,
000

5-
9. (
Wendy’
sCat
eri
ngSer
vice)

(
a) Pr
esentval
ueofthenot
e
800,000x3.
2397 P2,
591,
760

(
b) Tabl
eofAmor tizati
on
Peri
odic Amor ti
zation
Dat
e Payment ofDiscount Carr
yingValue
4/1/18 2,
591,760
3/31/19 800,000 233,258 2,
025,018
3/31/20 800,000 182,252 1,
407,270
3/31/21 800,000 126,654 733,924
3/31/22 800,000 66,
076* -0-
*Roundedoff.

(
c)
2018
Apr
.1 Equipment 2,
591,
760
DiscountonNotesPayabl
e 608,
240
Not
esPayable 3,
200,
000

Dec.
31 I
nter
estExpense 174,
944
DiscountonNotesPayabl
e 174,
944
233,
258x9/12

2019
Jan.1 Di
scountonNotesPayabl
e 174,
944
I
nter
estExpense 174,
944

Mar
31 NotesPayable 800,
000
I
nterestExpense 233,
258
Cash 800,
000
DiscountonNot
esPayabl
e 233,
258

Dec.
31 I
nter
estExpense 136,
689
DiscountonNotesPayabl
e 136,
689
182,
252x9/12

63

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

2020
Jan.1 Di
scountonNotesPayabl
e 136,
689
I
nter
estExpense 136,
689

Mar
31 NotesPayable 800,
000
I
nterestExpense 182,
252
Cash 800,
000
DiscountonNot
esPayabl
e 182,
252

Dec.
31 I
nter
estExpense 94,
990
DiscountonNot
esPayable 94,
990
126,
654 x9/12

2021
Jan.1 Di
scountonNotesPayabl
e 94,
990
I
nter
estExpense 94,
990

Mar
31 NotesPayable 800,
000
I
nterestExpense 126,
654
Cash 800,
000
DiscountonNot
esPayabl
e 126,
654

Dec.
31 I
nter
estExpense 94,
990
DiscountonNot
esPayable 94,
990
126,
654 x9/12

2022
Jan.1 Di
scountonNotesPayabl
e 94,
990
I
nter
estExpense 94,
990

Mar
31 NotesPayable 800,
000
I
nterestExpense 66,
076
Cash 800,
000
DiscountonNot
esPayabl
e 66,
076

10 (
5- Bur
gee’
sFoodCor
por
ati
on)

(
a) Tabl
eofAmor ti
zat
ion
Peri
odi
c I
nterest Reducti
on
Dat
e Payment Expense ofPrinci
pal Car
r yi
ngValue
10/1/18 2,591,760
9/30/19 800,
000 233,
258 566,
742 2,025,018
9/30/20 800,
000 182,
252 617,
748 1,407,270
9/30/21 800,
000 126,
654 673.
345 733,924
9/30/22 800,
000 66,
076* 733,
924 -
0-
*Roundedoff.

(
b) (
Notethatt
heaut
horoptednottopreparerever
singentr
ies. Rever
singent
riesmay
al
sobemadeandresul
ti
ngaccountbalanceswillbet
hesame.

2018
Oct
.1 Equi
pment 2,
591,
760
NotesPayabl
e 2,
591,
760

Dec.31I
nter
estExpense 58,
315
I
nterestPayable 58,
315
233,258x3/12

64

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

2019
Oct
.1 NotesPayable 566,
742
I
nterestPayable 58,
315
I
nterestExpense 174,
943
Cash 800,
000
233,
258x9/12=174,
943

Dec.
31 I
nter
estExpense 45,
563
I
nterestPayable 45,
563
182,252x3/12

2020
Oct
.1 NotesPayable 617,
748
I
nterestPayable 45,
563
I
nterestExpense 136,
689
Cash 800,
000
182,
252x9/12=136,
689

Dec.
31 I
nter
estExpense 31,
664
I
nterestPayable 31,
664
126,654x3/12
2021
Oct
.1 NotesPayable 673,
345
I
nterestPayable 31,
664
I
nterestExpense 94,
991
Cash 800,
000
126,
654x9/12=94,
991

Dec.
31 I
nter
estExpense 16,
519
I
nterestPayabl
e 16,
519
66,076x3/12
2022
Oct
.1 NotesPayable 733,
924
I
nterestPayable 16,
591
I
nterestExpense 49,
485*
Cash 800,
000
66,076x9/12=49,
557*
*Rounded
(
c)
Curr
ent Non-cur
rent Total
NotesPayable P617,
748 P1,
407,270 P2,
025,018
Int
erestPayable 45,
563 -0- 45,
563
Total
s,December31,2019 P663,
311 P1,
407,270 P2,
070,581

11. (
5- RubyCor
por
ati
on)

At8% At12%
Bondi ssuepr i
ce 5,
405,725 4,632,
025
Nomi nalint
erestfor2018 250,000 250,
000
Inter
estexpense( Effect
iveint
erest
)for2018 216,229 277,
922
Premium/di scountamor t
izat
ionin2018 33,771 27,
922
Bondcar ryi
ngval ueatDecember31,2019 5,
371,954 4,659,
947
Nomi nalint
erestfor2019 500,000 500,
000
Inter
estexpensef or2019 428,351 560,
970
Premium/di scountamor t
izat
ionin2019 71,649 60,
970
Bondcar ryi
ngval ueatDecember31,2019 5,
300,305 4,720,
917

Computat
ions:
At8%: I
ssuepr
ice=(
5,000,
000x0.
6756)+(
250,
000x8.
1109)

65

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

=3,
378,
000+2,
027,
725=5,
405,
725

I
nter
est Int
erest Premium Bond
Dat
e Pai
d Expense Amorti
zat
ion Car
ryingVal
ue
06/30/18 5,405,
725
12/31/18 250,
000 216,
229 33,
771 5,371,
954
06/30/19 250,
000 214,
878 35,
122 5,336,
832
12/31/19 250,
000 213,
473 36,
527 5,300,
305

At12%: I
ssuepr
ice=(
5,000,
000x0.
5584)+(250,
000x7.3601)
=2,792,
000+1,
840,025=4,632,
025

I
nter
est I
nter
est Discount Bond
Dat
e Pai
d Expense Amorti
zati
on Carr
yingValue
06/30/18 4,
632,025
12/31/18 250,
000 277,
922 27,
922 4,
659,947
06/30/19 250,
000 279,
597 29,
597 4,
689,544
12/31/19 250,
000 281,
373 31,
373 4,
720,917

12. (
5- Fir
eCompany)
(
a) I
ssuepr i
ce
Presentvalueoff
aceval
ue (
4,000,000x0.6756) P2,
702,
400
Presentvalueofi
nter
estpayment
s( 200,000x8.1109) 1,
622,
180
Issueprice P4,
324,
580

(
b) Amor t i
zati
onTable
Interest Int
er est Premium BondCar ryi
ng
Dat
e Paid Expense Amortiz
ati
on Val
ue
3/01/18 - - - 4,
324,580
8/31/18 200,000 172,983 27,017 4,
297,563
2/28/19 200,000 171,903 28,097 4,
269,466
8/31/19 200,000 170,779 29,221 4,
240,245

(
c)
2018
Mar
.1 Cash 4,
324,
580
BondsPayabl
e 4,
000,
000
Premi
um onBondsPayabl
e 324,
580

Aug.31 Inter
estExpense 172,
983
Premium onBondsPayabl
e 27,
017
Cash 200,
000

Dec.31 InterestExpense(171,903x4/6) 114,

602
Premi um onBondsPayabl e 18,
731
InterestPayabl
e(200,000x4/6) 133,
333

2019
Feb.28 Inter
estExpense(
171,
903x2/6) 57,
301
Premium onBondsPayabl
e(28,
097x2/6) 9,
366
Inter
estpayabl
e 133,
333
Cash 200,
000

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

13. (
5- Mer
cur
yCor
por
ati
on)
(
a)
2018
Aug.1 Cash 4,458,
429
DiscountonBondsPayable 708,
238
Inter
estPayable 166,
667
BondsPayable 5,
000,
000
5M x8% x5/12=166, 667
4,458,429–166,667=4, 291,
762
5,000,000–4,291,762=708,238

Dec.31 I
nterestExpense 178,
823
Inter
estPayable 166,
666
DiscountonBondsPayable 12,
157
5M x8% x5/12=166, 666
4,291,762x10% x5/12=178,
823
178,823–166,666=12,157
2019
Mar
.1 I
nter
estExpense 71,
529
I
nter
estPayable 333,
333
DiscountonBondsPayabl
e 4,
862
Cash 400,
000
4,291,
762x10% x2/12=71,
529
5M x8% x2/12=66, 667
71,529–66,
667=4, 862
5M x8% =400,000

Dec.31 I
nterestExpense 359,065
DiscountonBondsPayable 25,
732
Inter
estPayable 333,
333
4,291,762+12,157+4,862=4,308,
781
4,308,781x10% x10/12=359,065
5M x8% x10/12=333, 333
359,065–333,333=25,732
(
Amount
scanbeconvenientl
ycomputedbyusingapar
tialamorti
zat
iont
ableasf
oll
ows)

Effect
ive Nomi
nal Amor
tiz
ati
on Carr
yingval
ue
August1,2018 4,291,
762
Febr
uary28,2019 250,
353 233,
333 17,
020 4,308,
782
Febr
uary28,2020 430,
878 400,
000 30,
878 4,339,
659

I
nter
estexpensef
or2018: 250,
353x5/7=178,824
I
nter
estexpensef
or2019: (
250,353x2/7)+(
430,
878x10/12)=430,
594

Car
ryi
ngamount
,December31,2018: 4,
291,
762+(
17,
020x5/7)=4,303,919
Car
ryi
ngamount
,December31,2019: 4,
308,
782+(
30,
878x10/12)=4,334,514

(
b)
2018 2019
August1–December31,2018
4, 291,
761x10% x5/12 178,
823
Januar y1–Mar ch1,2019
4,291,761x10% x2/12 71,
529
Mar ch1–December31,2019
4,308,780x10% x10/12 359,
065
InterestExpensefort
heyear 178,
823 430,
594

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

(
c) December31,2018 December31,2019
BondsPayable P5,000,
000 P5,000,000
LessDiscountonBondsPayabl
e 696,
081 665,487
Carryi
ngamount P4,
303,
919 P4,334,513

14. (
5- Met
alCor
por
ati
on)

Issuepri
ceofbondsandwarrants(5,
000,000x1.08) P5,
400,
000
MVofbondswi thoutwarr
ant
s( 5,
000,000x1.02) 5,
100,
000
Valueassi
gnedtowarrant
s P 300,
000

(
a) Cash 5,
400,
000
Premium onBondsPayabl
e 100,
000
BondsPayable 5,
000,
000
ShareWar r
antsOut
standi
ng 300,
000

(
b) Cash(5,000x2x140) 1,
400,
000
ShareWar r
antsOutst
anding 300,
000
Ordi
naryShareCapital(
5,000x2x100) 1,
000,
000
Shar
ePr emi
um -Or di
nary 700,
000

15. (
5- Onyx)
(
a) Issuepriceofbondswi thwarr
ant
s(1,
000,
000x1.
04) P1,
040,
000
Bondpr icewithoutwarrant
s
1,000,000x0. 4523 452,
300
100,000x4. 5638 456,
380 908,
680
Valueofsharewar r
ants P131,
320

(
b) I
nter
estExpensef
or2018(
908,
680x12% x10/12) P90,
868

(
c) Bondcarryingvalue,March1,2018 P908,
680
Amorti
zationthroughDecember31,2018
908,680x12% x10/12 90,
868
1,000,000x10% x10/12 83,
333 7,
535
Bondcarryingvalue,December31,2018 901,
145

(
d) Cash(1,000x30x40) 1,
200,
000
ShareWar r
antsOutst
anding 131,
320
Ordi
naryShareCapital(
30,000x25) 750,
000
Shar
ePr emi
um -Or di
nary 581,
320

16. (
5- Cel
eronCompany)

(
a) Issuepr i
ceofconverti
blebonds(2M x1.01) P2,
020,
000
Issuepr i
ceofbondswi thoutconver
sionpri
vil
ege
2,000,000x0. 5674 1,
134,
800
200,000x3. 6048 720,
960 1,
855,
760
Allocationtoequity 164,
240

(
b) Amor
tizat
ionTabl
e

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

Interest Int
er est Premium BondCar ryi
ng
Date Paid Expense Amortiz
ati
on Val
ue
07/01/18 - - - 1,
855,760
06/30/19 200,000 222,691 22,691 1,
878,451
06/30/20 200,000 225,414 25,414 1,
903,865
06/30/20 (1,
142,319)
06/30/20 761,546
06/30/21 80,000 91,386 11,386 772,932
06/30/22 80,000 92,752 12,752 785,684
06/30/23 80,000 94,316 14,
316* 800,000
*
Adj
ust
ed;differ
encei
sduet oroundi
ngoff.

(
c)
2018
Jul
y1 Cash 2,
020,
000
DiscountonBondsPayabl
e 144,
240
BondsPayable 2,
000,
000
PIC Ar
isi
ngfr
om BondConver
sionPr
ivi
lege 164,
240
2019
June30 I
nter
estExpense 222,
691
DiscountonBondsPayabl
e 22,
691
Cash 200,
000

2020
June30 I
nter
estExpense 225,
414
DiscountonBondsPayabl
e 25,
414
Cash 200,
000

30 BondsPayabl
e 1,
200,
000
PI
C Ari
singfr
om BondConversi
onPr
ivi
lege 86,
544
DiscountonBondsPayabl
e 57,
681
OrdinaryShar
eCapital 960,
000
SharePremium -Or
dinary 268,
863

Carryingval
ueofbondsconver t
ed(1,
903,
865x120/200) 1,
142,
319
Facevalueofbondsconvert
ed 1,
200,
000
Discountonbondspayablecancell
ed 57,
681
Valueofequit
yconvert
ed(144,240x120/200) 86,
544
Parvalueofordi
narysharesissued(120x80x100) 960,
000

2021
June30 I
nter
estExpense 91,
386
DiscountonBondsPayabl
e 11,
386
Cash 80,
000

17. (
5- Lim Cor
por
ati
on)

(
a) Cash 5,
200,
000
DiscountonBondsPayabl e 379,
180
BondsPayabl e 5,
000,
000
PIC Ar i
singfrom BondConver si
onPri
vilege 579,
180
Issuepr ice(5M x1. 04) 5,200,000
Presentval ueoft hebonds
5M x. 6209 3,104,
500
400,000x3. 7908 1, 516,320 4,
620, 820
Amountal locat
edt othe
conversionpr i
vil
ege 579,180

69

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

Di
scountonbondspayabl
e
5,
000,000–4,620,
820 379,
180

Refertothefol
lowi
ngtablefortheamountsi ncl
udedi
nthej ournalent
ries.
I
nterest I
nterest Discount Bond
Date Pai
d Expense Amor tiz
ati
on CarryingValue
01/02/18 4,620,820
12/31/18 400,000 462,082 62,082 4,682,902
12/31/19 400,000 468,290 68,290 4,751,192
12/31/20 400,000 475,119 75,119 4,826,311
12/31/20 (
965,262)
12/31/20 3,861,049
12/31/21 320,000 386,105 66,105 3,927,154
12/31/22 (1,963,577)
12/31/22 1,963,578
12/31/22 160,000 196,422* 36,422* 2,000,000
*Adjust
edduet oroundi
ngoff

(
b) I
nter
estExpense 468,
290
Cash 400,
000
DiscountonBondsPayabl
e 68,
290

(
c) I
nterestExpense 475,
119
Cash 400,
000
DiscountonBondsPayabl
e 75,
119

BondsPayable 1,
000,
000
PI
C Arisi
ngfrom BondConversi
onPr
ivi
lege 115,
836
DiscountonBondsPayable 34,
738
OrdinaryShareCapi
tal(200x40x100) 800,
000
SharePremium –Ordinary 281,
098

Carryingamountofbondsconver ted
4,826,311x1/5 965,
262
Carryingamountofconver si
on
pri
vilegecancel
led(579,180x1/5)115,836
Tot
al 1,081,
098
Parval ueofsharesissued
200x40x100 800,
000
SharePr emium 281,
098

(
d) I
nterestExpense 386,
105
Cash 320,
000
DiscountonBondsPayabl
e 66,
105

BondsPayable 2,
000,
000
PI
C Ari
singfrom BondConver
sionPri
vil
ege 231,
672
DiscountonBondsPayable 36,
423
Cash( 2,
000,000x1.01) 2,
020,
000
GainonRet ir
ementofBonds 17,
633
PICfrom Unexerci
sedBondConversi
onPri
vil
ege 157,
616

Re
tirementpri
ce 2,
020,
000
Re
tirementpri
ceonaccountofli
abi
li
ty
(2,000,
000+160,000)x.9009 1,
945,
944

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

Re
tir
ementpr
iceonaccountofequi
ty 74,
056

Carryingval
ueofbondsr et
ired
3, 927,
154x1/2 1,
963,
577
Ret
irementpr i
ceofbonds 1,
945,
944
Gai
nonr eti
rementofbonds 17,
633

Carryi
ngvalueofequi
tycancel
led 231,
672
Ret
irementpri
ceonaccountofequity 74,
056
Gai
noncancel l
ati
ontakentoequity 157,
616

(
e) I
nterestExpense 196,
422
Cash 160,
000
DiscountonBondsPayabl
e 36,
422

BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

18. (
5- Emer
aldCor
por
ati
on)

(
a) Car
ryi
ngvalue,December1,2019(see,t
abl
e) 5,
323,
145
Amort
izat
ionforonemonth(33,
843x1/6) 5,
640
Car
ryi
ngvalue,December31,2019 5,
317,
505

Thef
ollowingtabl
esmayf
acil
itatethecomput at
ionsr
equiredint hi
spr
obl
em.
I
nterest I
nterest Premi um Bond
Dat
e Paid Expense Amor t
izat
ion Carr
yingValue
12/01/18 - - - 5,
386,072
06/01/19 300,000 269,304 30,696 5,
355,376
12/01/19 300,000 267,769 32,231 5,
323,145
06/01/20 300,000 266,157 33,843 5,
289,302
12/01/20 300,000 264,465 35,535 5,
253,767
06/01/21 300,000 262,688 37,312 5,
216,455
12/01/21 300,000 260,823 39,177 5,
177,278

Car
ryi
ngamountofr
emai
ningbondsonJune1,2021
5,
216,
455x2/5=2,086,
582

06/01/21 2,
086,
582
12/01/21 120,
000 104,329 15,
671 2,
070,
911
06/01/22 120,
000 103,546 16,
454 2,
054,
456
12/01/22 120,
000 102,723 17,
277 2,
037,
179
06/01/23 120,
000 101,859 18,
141 2,
019,
038
12/01/23 120,
000 100,962* 19,
038 2,
000,
000
*Adj
usted;di
ffer
enceisduet
or oundingoff.

(
b) Int
erestExpenseforyear2019
January1-June1,2019( 269,
304x5/6) 224,
420
June1-December1,2019 267,
769
December1-31,2016( 266,
157x1/6) 44,
360
Total 536,
549

(
c) Car
ryingval
ueofbondsreti
redonJune1,2021
5,216,
455x3/5 3,
129,
873
Amorti
zat
ionJune1-August1,2018(
39,
177x2/6x3/5) 7,
835

71

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

Car
ryi
ngval
ueofbondsr
eti
redonAugust1,2021 3,
122,
038

(
d) Carryi
ngvalueofbondsreti
red 3,
122,
038
Redempti
onpr i
ce(3,
000,000x1.05) 3,
150,
000
Lossonredemptionofbonds 27,
962

(
e) Car
ryi
ngval ueofremainingbonds,June1,2021 2,
086,
582
Amort
izat
ion,June1–December1 15,
671
Dec.1-31,2021(16,454x1/6) 2,
742 (18,
413)
Car
ryi
ngval ueofremainingbonds,December31,2021 2,
068,169

(
f) Onbondsr edeemed: 2021 2022
January1- June1,2021(262,
688x3/5x5/6) 131,
344
June1- August1,2021
(260,823x3/5x2/6) 52,
164
Onr emainingbonds
January1- June1,2021(262,
688x2/5x5/6) 87,
563
June1- December1,2021 104,
329
December1- 31,2021(103,
546x1/6) 17,
258
January1- June1,2022(103,
546x5/6) 86,
288
June1- December1,2022 102,
723
December1- 31,2022(101,
859x1/6) 16,
977
Int
erestExpense 392,
658 205,
988
19. (
5- Ohi
oCompany)

(
a)
Amor
tiz
ati
onofpr
emi
um f
or2018(
seet
abl
e)

185,
270

(
b)
Car
ryi
ngval
ueofbondsonDecember31,2018(
seet
abl
e)

11,
849,
272

Dat e
I
nterestPaid
I
nterestExpense
Premi um
Amor tizati
on
BondCar ryi
ngValue

01/02/18
-
-
-
12,684,120

12/31/18

72

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

1,200,000
1,014,730
185,270
12,498,850

12/31/19
1,200,000
999,908
200,092
12,298,758

12/31/20
1,200,000
983,901
216,099
12,082,659

12/31/21
1,200,000
966,613
233,387
11,849,272

12/31/21

7,
109,
563

12/31/22
720,000
568,765
151,235
6,958,328

(
c)
Car
ryi
ngval
ueofbondscal
led(
11,
849,
272x4/10)

4,
739,
709

Cal
lpr
ice/r
eti
rementpr
ice(
4,000,
000x110%)

4,
400,
000

Gai
nonr
eti
rementofbonds

339,
709

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

(
d)
I
nter
estexpensef
oryear2022(
seet
abl
e)

568,
765

(
e)
Car
ryi
ngval
ueoft
hebonds,December31,2022

6,
958,
328

20. (
5- Jim Company)

Nominal Effecti
ve Discount Bond
Date I
nter
est Interest Amorti
zati
on Carr
yingval
ue
03/01/18 3,926,
000
09/01/18 170,
000 176,
670 6,
670 3,932,
670
03/01/19 170,
000 176,
970 6,
970 3,939,
640
09/01/19 170,
000 177,
284 7,
284 3,
946,924
03/01/20 170,
000 177,
612 7,
612 3,954,
536
09/01/20 170,
000 177,
954 7,
954 3,962,
490
03/01/21 170,
000 178,
312 8,
312 3,970,
802
09/01/21 170,
000 178,
686 8,
686 3,979,
488
03/01/22 170,
000 179,
077 9,
077 3,988,
565

(
a) I
nt er
estexpenserecor
dedonSeptember1,2018 P176,
670
Discountamor t
izat
ionrecor
dedonSeptember1,2018 P 6,670

(
b) Car
ryi
ngamountofthebonds,September1,2019 P3,
946,
924
Amort
izat
iont
hroughDecember31,2019(7,612x4/6) 5,
075
Car
ryi
ngamountofthebonds,December31,2019 P3,
951,
999

(
c) Reti
rementpri
ce(
4M x1.01) P4,
040,
000
Accruedi
nter
est(
4,000,
000x8.5% x1/12) 28,
333
AmountofcashpaidonSeptember30,2021 P4,
068,
333

(
d) Carryi
ngval ue,September1,2021(seetabl
e) P3,
979,
488
Amor t
izati
ont hroughSeptember30,2021(9,077x1/6) 1,
513
Carryi
ngval ue,September30,2021 P3,
981,
001
Reti
rementpr ice(at101) 4,
040,
000
Lossonr eti
rementofbonds P 58,999

21. (
5- Kim Company)

(
a) Issuepr
iceoft
hebonds
Pri
nci
pal Inter
est Amount
DueDate Due Due Due PVFact
or Pr
esentValue
12/31/18 2,000,
000 800,000 2,800,
000 0.
8929 2,
500,120
12/31/19 2,000,
000 640,000 2,640,
000 0.
7972 2,
104,608

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

12/31/20 2,000,
000 480,
000 2,
480,
000 0.
7118 1,
765,
264
12/31/21 2,000,
000 320,
000 2,
320,
000 0.
6355 1,
474,
360
12/31/22 2,000,
000 160,
000 2,
160,
000 0.
5674 1,
225,
584
Sel
li
ngpriceofbonds P9,
069,
936

(
b) Amorti
zat
ionTabl e
Pr
inci
pal I
nter
est Effect
ive Discount Carrying
DueDat e Due Due Interest Amorti
zati
on Value,end
12/31/15 P9,069,936
12/31/16 2,
000,
000 800,
000 1,
088,
392 288,
392 7,358,328
12/31/17 2,
000,
000 640,
000 882,
999 242,
999 5,601,327
12/31/18 2,
000,
000 480,
000 672,
159 192,
159 3,793,486
12/31/19 2,
000,
000 320,
000 455,
218 135,
218 1,928,704
12/31/20 2,
000,
000 160,
000 231,
296 71,
296* -
0-
*
Adj
usted;di
ffer
enceisduetor
oundingoff.

(
c)
2019
Dec.31 I
nterestExpense 1,
088,
392
DiscountonBondsPayabl
e 288,
392
Cash 800,
000

31 BondsPayabl
e 2,
000,
000
Cash 2,
000,
000
2020
Dec.31 I
nterestExpense 882,
999
DiscountonBondsPayabl
e 242,
999
Cash 640,
000

31 BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

22. (
5- BlueSapphi
reCor
por
ati
on)

(
a) Issuepri
ceofthebonds
Pri
ncipal Inter
est Amount
DueDate Due Due Due PVFact
or Pr
esentVal
ue
12/31/18 2,000,000 960,000 2,960,
000 0.
9259 2,740,
664
12/31/19 2,000,000 720,000 2,720,
000 0.
8573 2,331,
856
12/31/20 2,000,000 480,000 2,480,
000 0.
7938 1,979,
784
12/31/21 2,000,000 240,000 2,240,
000 0.
7350 1,646,
400
Selli
ngpri
ceofbonds 8,698,
704

(
b) Amort
izat
ionTabl e
Pr
inci
pal I
nter
est Effect
ive Premium Carrying
DueDate Due Due Interest Amorti
zat
ion Value,end
01/01/18 8,698,704
12/31/18 2,
000,
000 960,
000 695,
896 264,
104 6,434,600
12/31/19 2,
000,
000 720,
000 514,
768 205,
232 4,229,368

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

12/31/20 2,000,
000 480,
000 338,
349 141,651 2,
087,717
12/31/21 2,000,
000 240,
000 152,
283 87,
717* -
0-
*
Adj
usted;di
ffer
enceisduetoroundi
ngoff.

(
c)
2018
Jan.1 Cash 8,
698,
704
BondsPayabl
e 8,
000,
000
Premi
um onBondsPayabl
e 698,
704

Dec.31 Inter
estExpense 695,
896
Premium onBondsPayabl
e 264,
104
Cash 960,
000

BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

2019
Dec.31 Inter
estExpense 514,
768
Premium onBondsPayabl
e 205,
232
Cash 720,
000

BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

2020
Dec.31 Inter
estExpense 338,
349
Premium onBondsPayabl
e 141,
651
Cash 480,
000

BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

2021
Dec.31 Inter
estExpense 152,
283
Premium onBondsPayabl
e 87,
717
Cash 240,
000

BondsPayabl
e 2,
000,
000
Cash 2,
000,
000

5-
23. (
a) (
Sout
hCompany)

NotesPayabl e 900,
000
Int
er estPayable 90,
000
Accumul atedDepr eciat
ion 400,
000
Equipment 1,
000,
000
GainonDi sposalofEquipment 200,
000
GainonDebtRest r
uctur
ing 190,
000

(
b) (
JoyCompany)

BondsPayable 10,
000,
000
I
nterestPayabl
e 900,
000

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

Ordi
naryShar
eCapital 7,
500,
000
SharePr
emium –Ordinar
y 900,
000
GainonDebtRest
ructuri
ng 2,
500,
000

(
c) (
Capshel
l)

NotesPayabl e 10,
000,
000
I
nter estPayable 1,
000,
000
RestructuredNot
esPayable 7,
459,
264
GainonDebtRest ruct
uring 3,
540,
736

Presentval ueoff
uturepayment
s:
8, 000,000x0.7972 6,
377,600
8, 000,000x8% x1.6901 1,081,
664
Tot al 7,
459,264
Car ryingvalueofli
abi
li
ty 11,000,
000
Difference 3,
540,736

3,740,736/11,000,000=32%,thustherest
r ucturi
ngqualifies
as a derecogni
tion oft
he ol
dli
abi
li
ty and creati
on ofa new
li
abil
ity.

The ol
dliabil
ity shal
lbe cancel l
ed;t henew l iabil
it
y shallbe
measured based on t he discounted cash flow oft he f
uture
payments di
scount ed at the entity’
si ncr
ement alborrowing
rat
econsideri
ngi tscredi
tr ati
ng:

(
d) (
Sol
idCompany)

NotesPayable 3,
000,
000
I
nterestPayable 330,
000
Rest r
ucturedNot
esPayabl
e 3,
111,
024
Pr emium onRest
ruct
uredNot
esPayabl
e 218,
976

Presentval ueoff
uturepayment
s
3, 000,000x0.5935 =1,780,
500
3, 000,000x12% x3.6959 =1,330,
524
Tot al 3,
111,024
Car ryingvalueofli
abi
li
ty 3,
330,000
Difference 218,976

218, 976/3,330,000=6. 6% whichis<10% of3, 330,000.

Thus,t hedebtr estruct
uringdoesnotqual ifyforder ecogni
ti
on
oft heol d obli
gation. Nogain shallber ecognized and a new
effecti
veinterestrateshallbecomput ed.

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

MULTI
PLE CHOI
CE QUESTI
ONS

Theor
y

MC1 D MC6 A MC11 D MC16 B MC21 B

MC2 B MC7 A MC12 D MC17 B MC22 A
MC3 B MC8 C MC13 C MC18 B
MC4 C MC9 C MC14 C MC19 D
MC5 D MC10 D MC15 C MC20 A

Pr
obl
ems

MC23 D Reportedamountofaccountspayable P540,

000
Goodsi ntransi
tpurchasedFOB shippingpoint 40,
000
Goodsl osti
nt r
ansi
tbutshippedFOB shi ppi
ngpoi
nt 15,
000
Correctamountofaccount spayable,December31,2019 P585,
000

MC24 A Netproceeds(100%-10%) 90%

Effect
iveinterestr
ate(10%/90%) 11.
11%

MC25 A Int
er estexpense( 59,737–10, 000)x10% P4,
974
Carryingamountofnot e,January1,2019 P49,
737
Reduct ioninprinci
palatDecember31,2019
Annualpayment P20,
000
Inter
estexpense 4,
974 15,
026
Carryi ngamountofnot e,December31,2019 P34,
711

MC26 B I
nter
estexpensef
or2019(
2,400,
000x12%) P288,
000

MC27 D Car
ryingval
ue,December31,2019( 2,400,
000- 1,
000,000+288,
000) P1,
688,
000
AmountdueonDecember31,2020( current
)
Annualpayment P1,
000,000
Amorti
zati
onofdiscount(
1,688,000x12% 202,560 P797,
440

MC28 B Di
scountonnotespayable,Januar
y1,2019(3,
000,000–2, 400,
000) P600,
000
Amorti
zat
ionofdiscountonDecember31,2019(seeabove) 288,
000
Di
scountonnot espayable,December31,2019 P312,
000

MC29 B Debentur
ebonds P1,
000,
000
Seri
albonds P2,
000,
000

MC30 D Presentval
ueofmaturityval
ue(1,000,
000x.38554) P385,
540
Presentval
ueofi
nterestpayments(1M x8% x6.
14457) 491,
566
Totalissuepr
ice P877,
106

MC31 B Presentval
ueofmaturityval
ue(1,
000x0.31) P310.
00
Presentval
ueofint
erestpayment(
1,000x4% x11.
47) 458.
80
IssuepriceperP1,000bond P768.
80

MC32 A I
ssueprice(2,000,000x0.97) P1,
940,
000
Accr
uedi nt
erest(2,000,
000x10% x3/12) 50,
000
Cashreceivedf r
om bondi ssuance P1,990,
000

MC33 B Bondpricewi
thoutwar
rants(
2,000x1,
040) P2,
080,
000
Faceval
ueofbonds 2,
000,
000
Premium onbondspayabl
e P 80,000

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

MC34 B Reti
rementprice(
4,000,000x0.97) P3,
880,
000
Accruedint
erest(
4,000,000x12% x3/12) 120,
000
Totalcashpaidforr et
irementofbonds P4,000,
000

MC35 C Carryi
ngamountofbondsr et
ired(1,
000,
000+70,
000) P1,
070,
000
Ret
irementprice(
1,000,
000x. 96) 960,
000
Gainonr et
irementofbonds P 110,
000

MC36 A Accr
uedi
nter
est(
1,000,
000x12% x1/12) P10,
000

MC37 B Issuepri
ce(1,
000,000x1.
02) P1,
020,000
Transact
ioncost
s (50,
000)
Initi
alcarr
yingamount,Febr
uar
y1,2019 P 970,000

MC38 D Carryi
ngvalueofbondsconverted(1,
000,000-30,000+50,
000) P1,020,000
Parvalueofsharesi
ssueduponconver si
on(40,000shx20) (
800,000)
Expensesincurr
edinconnecti
onwi ththeconversi
on (10,
000)
Sharepremi um uponconversion P 210, 000

MC39 D Nogai
norl
ossi
srecogni
zeduponconver
sionofbonds.

MC40 C I
nter
estexpense(
1,032,
880x10% x6/12) P51,
644

MC41 A Car
ryingamount ,Jul y1,2019 P1,
032,
880
Amorti
z ati
onofpremi um
Effecti
vei
nterest( 1,032,880x5%) 51,
644
Nomi nali
nterest(1,000,000x6%) 60,
000 8,
356
Car
ryingamount ,December31,2019 P1,
024,
524

MC42 A Car
ryingamount ,Januar y1,2019 P1,
878,
000
Effect
ivei
nterest(1,878,000x10%) 187,
800
Nomi nali
nterest(
2,000,000x9%) 180,
000 7,
800
Car
ryingamount ,December31,2019 P1,
885,
800

MC43 B Car ryi

ngamount,January1,2019(
10M –1,145,
000)=P8,855,
000
Effecti
vei
nter
est( 8,
855,
0000x6%) P531,
300
Nomi nali
nter
est(10M x5%) 500,
000
Increaseincarryingamount(amortofdi
scount),Jan.1-Jun30 P 31,
300

MC44 C Effect
ivei
nter
est(
5M x1.
136=5,
680,
000;5,
680,
000x4%) P 227,
200

MC45 A Unamor tizedbondpremium,June30,2018(

2,100,000–2,000,
000) P100,
000
Effect
iveinter
est(
2,100,
000x6%) P126,000
Nomi nalinter
est(
2,000,
000x7%) 140,000 14,
000
Unamor t
izedbondpr emium,June30,2019 P86,
000

MC46 D Int
erestexpense,January1-June30(1,032,880x5%) P51,
644
Int
erestexpense,July1-December31
(
6% x1, 000,000)–51,644=8,356;(1,
032,880–8,
356)x5% 51,
226
Totalinterestexpensefor2019 P102,
870

MC47 D Carryi
ngval ue,December31,2019 P1,902,
800
Pri
ncipalpai d (
400,000)
Amor t
izationofdiscount
Effect
iveinter
est(1,
902,
800x10%) 190,
280
Nomi nalint
erest(2,
000,
000x8%) 160,
000 30,
280
Carryingval ue,December31,2020 P1,
533,080

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Chapt
er5–Fi
nanci
alLi
abi
lit
ies

MC48 D Carryingvalueoft hedebt( 5,

000,000+500,000) P5,
500,
000
Carryingvalueofl andt ransferr
ed 3,
000,
000
Amountt akent opr ofitorl oss P2,500,
000
MC49 D Carryingvalueoft hedebt( 6,
000,000+600,000) P6,
600,
000
Presentvalueofr estr
uctur eddebt
6,
000,000x0. 621 3,
726,000
6M x12% x3. 791 2,
729,520 6,455,
520
Gainonr estructuring P 144,
480
144,480/6,600,000=2%;t hisi
slesst
han10%;
Hence,nogai ni srecogni zed P0

MC50 C Carryingval
ueoft hedebt( 6,
000,
000+600,000) P6,
600,
000
Presentval
ueofr estr
uctureddebt
5,
000,000x0. 6209 3,104,500
5M x12% x3. 7908 2,274,480 5,378,
980
Gainondebtr estructuri
ng P1,
221,020

MC51 B Carryingval
ueoft hedebt( 8,
000,
000+640,000) P8,
640,
000
Presentval
ueofr estr
uctureddebt
6,
000,000x0. 8573 5,143,800
6M x10% x1. 7833 1,069,980 6,213,
780
Gainondebtr estructuri
ng P2,
426,220

MC52 B Car
r yi
ngvalueoft
hedebt(10,000,
000+1,000,
000) P11,
000,
000
Marketval
ueofsharesi
ssued(150,000x65) 9,
750,
000
Amountr eport
edin pr
ofitorloss P1,250,
000

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