COMPILATION PROBLEMS

SOLUTION

PRELIMINARY EXAMINATION PERIOD

1 Face Value 100,000.00

Nominal Rate 12%
Initial Carrying Amount 100,000.00
Effective Rate 12%
Payment per bond year Twice

Amortization Table
Date Interest Paid Interest Expenses Carrying Amount
12% 12%
May 1, 2017 100,000.00
October 31, 2017 6,000.00 6,000.00 100,000.00
December 31, 2017 (100,000 x 12% x 2/12) 2,000.00 2,000.00 100,000.00
Total 8,000.00

Note that there is no amortization of discount or premium

since the bond was issued at face value. The interest expense for the
year will be good for eight months.

2 Face Value 100,000.00

Nominal Rate 10%
Initial Carrying Amount 98,000.00
Effective Rate NONE
Amortization is through Straight line method.
The semi-annual payment of interest is relevant in the amortization of discount

Face Value 100,000.00

Initial Carrying Amount 98,000.00
Discount 2,000.00
Number of Years 5.00
Amortization per year 400.00
 Amortization Table
Date Interest Paid Amortization Interest Expenses Carrying Amount
10%
January 1, 2007 98,000.00
December 31, 2007 10,000.00 400.00 10,400.00 98,400.00
December 31, 2008 10,000.00 400.00 10,400.00 98,800.00
December 31, 2009 10,000.00 400.00 10,400.00 99,200.00
December 31, 2010 10,000.00 400.00 10,400.00 99,600.00
December 31, 2011 10,000.00 400.00 10,400.00 100,000.00

3 Face Value 800,000.00 July 1, 2007 Interest Expense

Nominal Rate 6% Initial Carrying Amount 690,960.00
Initial Carrying Amount 690,960.00 Effective Rate x 6/12 0.04
Effective Rate 8% July 1, 2007 Interest Expense 27,638.40

4 Principal 400,000.00
Interest paid per Quarter
400,000*8%*3/12 8,000.00

Number of periods (Years x Frequency of Interest Payment per year) =10 YEARS x 4 =40

PV of Principal (PV of 1) = 400,000.00 x (1+.12/4)^-40

= 122,622.74

PV of Interest (PV of Ordinary Annuity) = 8,000.00 x PV Factor of Ordinary Annuity

= 184,918.18

PV of Principal (PV of 1) 122,622.74

PV of Interest (PV of Ordinary Annuity) 184,918.18
Initial Carrying Amount of the Bond 307,540.91

Face Value 400,000.00

Initial Carrying Amount of the Bond 307,540.91
Discount 92,459.09
5 Face Value 1,500,000.00
Nominal Rate 10%
Initial Carrying Amount 1,329,000.00
Effective Rate 12%

June 30, 2005 Interest Expense

Initial Carrying Amount 1,329,000.00
Effective Rate x 6/12 0.06
June 30, 2005 Interest Expense 79,740.00

6 Face value 2,000,000.00

Unamortized premium (given) 156,000.00
Carrying amount of bonds 2,156,000.00
Retirement price (2M*1.02) 2,040,000.00
Gain 116,000.00

7 Face Value 8,000,000.00

Initial Carrying Amt (8M*0.96) 7,680,000.00
Discount 320,000.00

Table 1. Distribution of Discount

Outstanding Maturing portion by Distribution of
Year Ratio
Balance of Bond year-end Discount
A B =A divided by 40M =320,000 x Ratio
2014 8,000,000.00 - 20.00% 64,000.00
2015 8,000,000.00 1,000,000.00 20.00% 64,000.00
2016 7,000,000.00 1,000,000.00 17.50% 56,000.00
2017 6,000,000.00 1,000,000.00 15.00% 48,000.00
2018 5,000,000.00 1,000,000.00 12.50% 40,000.00
2019 4,000,000.00 2,000,000.00 10.00% 32,000.00
2020 2,000,000.00 2,000,000.00 5.00% 16,000.00

TOTAL 40,000,000.00 100.00% 320,000.00

 Table 2. Annual Interest Expense
Outstanding Interest Paid (A x Discount
Year Interest Expense
Balance of Bond 12%) Amortization
A B C B+C
2014 8,000,000.00 960,000.00 64,000.00 1,024,000.00
2015 8,000,000.00 960,000.00 64,000.00 1,024,000.00
2016 7,000,000.00 840,000.00 56,000.00 896,000.00
2017 6,000,000.00 720,000.00 48,000.00 768,000.00
2018 5,000,000.00 600,000.00 40,000.00 640,000.00
2019 4,000,000.00 480,000.00 32,000.00 512,000.00
2020 2,000,000.00 240,000.00 16,000.00 256,000.00

TOTAL 40,000,000.00 4,800,000.00 320,000.00 5,120,000.00

Total Interest Expense, 2014 (Refer to Table 2) 1,024,000.00

8 Amortization, 2017 (Refer to Table 1) 48,000.00

Rates for Trial and Error (Must be

Principal Payment Interest Payment higher than Nominal Rate since Bond
Year Total Payment
9 was issued at Discount)
Table 1 Column B Table 2 Column B PV of 1 at 13% PV of 1 at 14%
2014 - 960,000.00 960,000.00 849,557.52 842,105.26
2015 1,000,000.00 960,000.00 1,960,000.00 1,534,967.50 1,508,156.36
2016 1,000,000.00 840,000.00 1,840,000.00 1,275,212.30 1,241,947.59
2017 1,000,000.00 720,000.00 1,720,000.00 1,054,908.21 1,018,378.08
2018 1,000,000.00 600,000.00 1,600,000.00 868,415.90 830,989.86
2019 2,000,000.00 480,000.00 2,480,000.00 1,191,189.95 1,129,854.64
2020 2,000,000.00 240,000.00 2,240,000.00 952,135.84 895,187.60

Total 8,000,000.00 4,800,000.00 7,726,387.22 7,466,619.39

7,726,387.22 7,466,619.39
 PV RATE
PV at 13% 7,726,387.22 13%

Proceeds of Bond 7,680,000.00 ?

PV at 14% 7,466,619.39 14%

Adjustment to Effective Rate =(7726387.22-7680000) * (0.13-0.14) 46,387.22

(7726387.22-7466619.39) 463.8721936 0.18%
##############
Adjustment to Effective Rate 0.18% ############### Effective rate 0.13+(0.0018)
0.18% 13.18%

Amortization Table
Date Principal Paid Interest Paid Interest Expenses Amortization Carrying Amount
Table 1 Column B Table 2 Column B
December 31, 2013 7,680,000.00
December 31, 2014 - 960,000.00 1,012,114.32 52,114.32 7,732,114.32
December 31, 2015 1,000,000.00 960,000.00 1,018,982.24 58,982.24 6,791,096.56
December 31, 2016 1,000,000.00 840,000.00 894,969.54 54,969.54 5,846,066.10
December 31, 2017 1,000,000.00 720,000.00 770,428.02 50,428.02 4,896,494.12
December 31, 2018 1,000,000.00 600,000.00 645,287.99 45,287.99 3,941,782.11
December 31, 2019 2,000,000.00 480,000.00 519,470.59 39,470.59 1,981,252.70
December 31, 2020 2,000,000.00 240,000.00 261,100.81 21,100.81 2,353.51

Interest Expense, 2019 (Refer to Amortization Table) 519,470.59

To be Expensed
Cost Deferred Charge
10 Outright
Printing and engraving 30,000.00 30,000.00
Legal fees 160,000.00 160,000.00
Fees paid to independent accountants for registration information 20,000.00 20,000.00
Commissions paid to underwriter 300,000.00 300,000.00

Total 510,000.00
11 CA of Bonds
Face Value Discount/Premium Bond Issue Cost Carrying Amount
Bonds payable -10%, maturing December 31, 2010 10,000,000.00 - 800,000.00 - 200,000.00 9,000,000.00
Bonds payable -12%, maturing December 31, 2015 8,000,000.00 500,000.00 8,500,000.00

10% Bonds 12% Bonds

Face Value 10,000,000.00 8,000,000.00
Nominal Rate 10.00% 12.00%
Interest Paid 1,000,000.00 960,000.00

Premium or Discount - 800,000.00 500,000.00

Bond issue cost - 200,000.00
Amounts for amortization - 800,000.00 300,000.00
Remaining years 5 10
Amortization per year - 160,000.00 30,000.00

Interest Paid 1,000,000.00 960,000.00

Amortization of premium - 30,000.00
Amortization of Discount 160,000.00
Total expense 1,160,000.00 930,000.00

TOTAL INTEREST EXPENSE 2,090,000.00

Because the bonds are amortized on a straightline basis, the annual amortization on the following years must be equal to previous years.

12 Initial fair value 107,720.00

FV by year-end 106,460.00

Decrease/Gain 1,260.00

13 Note Payable 6,000,000.00

Accrued Interest 600,000.00
Carrying Amount of Liability 6,600,000.00
Carrying Amount of Land 3,000,000.00
Gain on extinguishment of debt 3,600,000.00
14 Face amount of bonds 5,000,000.00
Premium 880,000.00
Cash proceeds 5,880,000.00
Attributable to Bonds payable (MV of bonds ex warrant)
5,000,000 x 110% 5,500,000.00
Attributable to Equity component 380,000.00

15 Journal Entry

Bonds payable 5,000,000.00

Discount on bonds payable 250,000.00 --> Half of 500,000
Share Capital 4,000,000.00 --> 5,000,000/1,000 x 40 shares x 50 par
Share Premium 750,000.00 --> Balancing figure

*No given balance of Share premium conversion privilege

16 Journal Entry

Bonds Payable 5,000,000.00 --> Face amount

Premium on Bonds Payable 1,000,000.00 --> 6,000,000 CA less 5,000,000 face amt.
Share premium - conversion privilege 1,500,000.00
Share Capital 2,500,000.00 --> 50,000 shares x 50 par
Cash 100,000.00
Share Premium 4,900,000.00 --> Balancing figure

17 Journal Entry
Cash 5,450,000.00 --> 5M face amount x 1.09%
Discount on Bonds payable 170,000.00 --> See computation
Bonds payable 5,000,000.00
Share premium - warrants 620,000.00 --> Balancing figure
 Initial Carrying amount of bonds

Principal 5,000,000.00
PV Factor 0.57
PV of Principal 2,850,000.00
Principal 5,000,000.00
Stated Rate 11%
Annual interest 550,000.00
PV Factor 3.60
PV of interest payments 1,980,000.00
Initial Carrying amount 4,830,000.00
Face amount 5,000,000.00
Discount on bonds payable 170,000.00

18 Initial Carrying amount of bonds (December 1, 2001) 10,600,000.00 --> 10,800,000 initial proceeds less 200,000 accrued interest
Carrying amount as of December 31, 2003 10,300,000.00
Discount amortized from Dec 1, 2011 to Dec 31, 2003 300,000.00
Divide by No. of months from Dec 1, 2001- Dec 31, 2003 25.00
Monthly amortization 12,000.00

Carrying amount as of December 31, 2003 10,300,000.00

Monthly amortization 12,000.00
Multiplied by Months from 1/1/04 - 9/1/04 8
Additional Amortization 96,000.00
Carrying amount as of September 1, 2004 10,204,000.00
Retirement price (at face amount) 10,000,000.00
Gain on extinguishment of debt 204,000.00

*The phrase "reacquire the bonds at face value" plus accrued interest
means separate amount was paid for the accrued interest in addition to
the payment for principal, thus it must not affect the computation of gain
19 Face amount 6,000,000.00
Bond issue cost 320,000.00
Carrying amount of bonds 5,680,000.00
Portion of bond retired 3,000,000/6,000,000 50%
Carrying amount of bond retired 2,840,000.00
Retirement price
Face amount 3,000,000.00
Call premium 70,000.00 3,070,000.00
Loss 230,000.00

20 Journal Entry
Cash 5,400,000.00 --> 5M Face amount x 108%
Discount on bonds payable 200,000.00 --> 4% of 5M Face amount since MV ex warrants is 96
Bonds Payable 5,000,000.00 --> Face amount
Share premium - stock warrants 600,000.00 --> Balancing figure

21 Face amount 10,000,000.00

Unamortized bond discount on conversion date 500,000.00
Carrying amount of bonds 9,500,000.00
Portion of bond converted 5M/10M 50%
Carrying amount of bond converted 4,750,000.00
or
Face amount 5,000,000.00
Discount on bonds payable 250,000.00

Share premium - conversion privilege 2,000,000.00

Portion of bond converted 5M/10M 50%
Share premium - conversion privilege to be debited 1,000,000.00

Face amount of bond converted 5,000,000.00

Divided by 1,000.00
Number of bonds retired 5,000.00
Number of shares per bond converted 40.00
Total shares 200,000.00
Par value of shares 20.00
Share capital to be credited 4,000,000.00
 Journal Entry

Bonds payable 5,000,000.00

Share premium - conversion privilege 1,000,000.00
Discount on bonds payable 250,000.00
Share capital 4,000,000.00
Share premium 1,750,000.00 --> Balancing figure

22 Face amount of loan 5,000,000.00

Direct loan origination cost 200,000.00 Added to liab because incurred by lender
Loan orgination fee paid (5% x 5,000,000) - 250,000.00 Deducted because already paid by the borrower
Carrying amount of borrower 4,950,000.00

23 Initial carrying amount, March 1, 2013 5,000,000.00

Multiplied by 1.12 (March 1, 2013 to March 1, 2014) 1.12
Balance as of March 1, 2014 5,600,000.00
Multiplied by 12% x 10/12 (March 1, 2014-December 31, 2014 0.10
Interest from March 1, 2014 to December 31, 2014 560,000.00

Balance as of March 1, 2014 5,600,000.00

Interest from March 1, 2014 to December 31, 2014 560,000.00
Carrying amount as of December 31, 2014 6,160,000.00
Initial carrying amount, March 1, 2013 5,000,000.00
Accrued Interest payable (December 31, 2014) 1,160,000.00

24 Interest bearing note

Face amount of note 250,000.00

Multiplied by 10% x 6/12 (July 1, 2005 to December 31, 2005) 0.05
Accrued interest payable, December 31, 2005 12,500.00
Currently maturing portion of principal (Due June 30, 2006) 50,000.00
Current liabilities 62,500.00
25 Amount of payable 20,000,000.00
Balance covered by the limit in collateral value (80% x 22.5M) 18,000,000.00 --> Still covered by the refinancing agreement so due in a long term
Current portion 2,000,000.00 --> Amount by which the liability exceeded 80% of collateral,
thus due immediately

Short term 2,000,000.00

Long term 18,000,000.00

26 First installment due January 2, 2004 (so still payable as of 12/31/2003) 1,000,000.00 Current portion
Present value of the annuity for the remianing 4M Balance 3,169,000.00 Non current portion
Note payable, December 31, 2003 4,169,000.00

27 Initial carrying amount, January 1, 2007 45,078.00

Multiplied by 1+10% 1.10
Carrying amount as of January 1, 2008 49,585.80
Multiplied by interest rate 10%
Interest income, 2008 4,958.58

28 Carrying amount of liability

Face amount 500,000.00
Accrued interest payable 50,000.00
Carrying amount of liability 550,000.00
PV of restructured cash flows (given) 428,000.00
Gain on debt restructuring 122,000.00

29 Carrying amount of liability

Face amount 600,000.00
Accrued interest payable 54,000.00
Carrying amount of liability 654,000.00
Carrying amount of asset swapped
Historical cost 840,000.00
Accumulated Depn 195,000.00 645,000.00
Gain on settlement of debt 9,000.00

No gain or loss on disposal of asset since under PFRS

30 Carrying amount of liability
Face amount 400,000.00
Accrued interest payable 48,000.00
Carrying amount of liability 448,000.00
Fair value of land 360,000.00
Gain on debt restructuring 88,000.00

Fair value of land 360,000.00

Acquisition cost of land 290,000.00
Gain on disposal 70,000.00