On January 1, 2021, an entity issues bonds with face amount P5,000,000 for 4,800,000.

The bonds
mature on December 31, 2023 and pay annual interest of 10% every December 31. The entity
incurs bond issue costs of P473,767. The effective interest rate adjusted for bond issue costs is 16%

Required:
a. Compute the initial carrying amount of the bonds
b. Compute for the net discount or a net premium (including the effect of the bond issue cost)
from the issuance on initial recognition
c. Prepare all the journal entries during the term of the bonds

a. Issue price 4,800,000

Transaction costs (473,767)
Carrying amount, Jan. 1, 2021 4,326,233

b. Face amount 5,000,000

Carrying amount (4,326,233)
Net discount on bonds payable 673,767

c. Interest Interest Present

Date payment expense Amortization Value
1/1/21 4,326,233
12/31/21 500,000 692,197 192,197 4,518,430
12/31/22 500,000 722,949 222,949 4,741,379
12/31/23 500,000 758,621 258,621 5,000,000

Jan. 1. 2021 Cash 4,800,000

Discount on bonds payable 200,000
Bonds payable 5,000,000

Bonds issue cost 473,767

Cash 473,767

Dec. 31.2021 Interest expense 692,197

Cash 500,000
Discount on bonds payable 192,197

Dec. 31.2022 Interest expense 722,949

Cash 500,000
Discount on bonds payable 222,949

Dec. 31.2023 Interest expense 758,621

Cash 500,000
Discount on bonds payable 258,621

Bonds payable 5,000,000

Cash 5,000,000
On April 1, 2021, an entity issues bonds with fact amount of P5,000,000 for P5,415,183, including
accrued interest. The bonds are dated January 1, 2021 and pay annua interest of 14% every
December 31. The effective rate is 12%.

Required:
a. Compute for the initial carrying amount of the bonds.
b. Provide the entry on April 1, 2021 to record the issuance of the bonds.
c. Compute for the interest expense in 2021

a. Cash proceeds including accrued interest 5,415,183

Less: Accrued interest sold (189,531)
Carrying amount, Jan. 1, 2021 5,225,652

b. April 1, 2021 Cash 5,415,183

Bonds payable 5,000,000
Premium on bonds payable 225,652
Interest expense or interest payable 189,531

c. Principal 5,000,000
Interest 14%
Interest expense in 2021 525,000
On January 1, 2021, an entity issues 14%, 3 year , P5,000,000 bonds at a price that reflects a yield
rate of 8%

Required:
Compute for the issue price of the bonds

Future Cash Flows PV factors Present value

Present Value 5,000,000 0.793832 3,969,160
Interest 700,000 2.577097 1,803,968
5,773,128 Issue price on Jan 1, 2021

Jan 1,2021 Cash 5,773,128

Bonds payable 5,000,000
Premium on bonds payable 773,128
ice on Jan 1, 2021