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Problem 1: Bonds payable issued with share warrants

On January 1, 2017, Monic Company decided to issue 5,000 10-year bonds of 8% P1,000 face value each with warrants to acquire
share capital at P30 per share. The interest on the bonds is payable annually every December 31.

Each bond contains one warrant which can be used to acquire 4 shares of P25 per value share capital. It is reliably determined that
without warrants, the bonds would sell at 114.7 with a 6% effective yield. The bond price with warrants is 120. All warrants are
exercised on December 31, 2017.

Problem 2: Convertible bonds

On January 1, 2017, Silay Company issued 2,000 convertible bonds. The bonds have a three-year term and are issued at 110 with a
face value of P1,000 per bond, giving total proceeds of P2,200,000. Interest is payable annually in arrears at a nominal annual
interest rate of 6%.

Each bond is convertible at any time up to maturity into 25 shares of capital with par value of P20. The bonds are converted on
December 31, 2017.

When the bonds are issued, the prevailing market rate of similar bonds without conversion privilege is 9%.

The present value of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for three periods is
2.53.

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Problem 3: Note payable

On January 1, 2017, West Company acquired a tract of land for P1,000,000. The entity paid P100,000 down and sign a two-year
promissory note for the balance plus 10% interest compounded annually. The note matures on January 1, 2019.

Problem 4: Non-interest bearing note payable

On January 1, 2017, North Company acquired a machinery with cash price of P750,000 for P1,000,000. The entity paid P200,000
and signed a non interest bearing promissory note for the balance which is payable un 4 equal instalments every December 31 of
each year.

Problem 5: Debt restructuring using asset swap

Youth Company is in financial trouble and could not meet maturing instalments and interest on its bank loan of P5,000,000. The
accrued interest on the loan to date is P1,000,000. The entity and the bank agreed on a “dacion en pago” arrangement. THus, the
mortgaged land and building were given by the entity as full payment for the loan including accrued interest.

The cost of the land is P1,500,000 and the building, P6,000,000 with accumulated depreciation of P1,800,000. The fair value of the
land and building is about P5,900,000.

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Problem 6: Debt restructuring using equity swap

Sunshine Company showed the following data with respect to a matured obligation:

Mortgage payable - 4,000,000

Accrued interest payable - 300,000

The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity entered into an agreement with
the creditor for the issuance of share capital in full settlement of the mortgage. The agreement provided for the issuance of 35,000
shares with par value of P100. The share is currently quoted at P130. The fair value of the liability is P4,500,000.

Problem 7: Modification of terms

Grey Company has an overdue 8% note payable to City Bank at P8,000,000 and recorded accrued interest of P640,000. As a result
of a settlement on January 1, 2017, City Bank agreed to the following restructuring agreement:

a. Reduced the principal obligation to P7,000,000

b. Forgave the P640,000 accrued interest

c. Extended maturity date to December 31, 2018

d. Annual interest of 10% is to be paid on December 31, 2017 and 2018

The present value of 1 at 8% for two periods is 0.8573, and the present value of an ordinary annuity of 1 at 8% for two periods is
1.7833.