PROBLEM 3: EXERCISES

1. On January 1, 20x1, Sixty Hours Co. issued 1,000, P2,000, 10% bonds P1,903,927. Principal is due on
December 31, 20x3, while interest is due annually every year-end. The interest rate is 12%.

Requirement: Provide the journal entries over the life of the bonds.

2. On January 1, 20x1, Faith Co. issued 1,000, P2,000, 120% bonds for P2,206,168. Principal is due on
December 31, 20x3, while interest is due annually every year-end. Faith Co. incurred transaction costs of
P106,694 on the issuance. The effective interest rates are 8% before adjustment for transaction costs
and 10% after adjustment for transaction costs.

Requirement: Provide the journal entries over the life of the bonds.

3. On January 1, 20x1, Hope Co. issued 5-year, 12%, P2,000,000 bonds for P2,151,632. Principal is due at
maturity, while interest is due annually every year-end. The effective interest rate is 10%. On July 1,
20x3, Hope Co. retired all the bonds at 102. The retirement price includes payment for the accrued
interest.

Requirement: Provide the entries on July 1, 20x3.

4. On January 1, 20x1, Patience Co. issued 10%, 3-year, P2,000,000 convertible bonds at 105. Each
P1,000 bond is convertible into 8 shares with par value per share of P100. Principal is due on December
31, 20x3, while interest is due annually every year-end. On issuance date, the bonds were selling at a
yield to maturity market rate of 12% without the conversion option. All the bonds were converted into
equity on December 31, 20x2. Patience Co. incurred stock issuance costs of P20,000.

Requirement: Provide all the journal entries in 20x1 and 20x2.

5. On January 1, 20x1, Kindness Co. issued 3-year, 10%, P2,000,000 convertible bonds for P2,200,000.
Principal is due at maturity but interest is payable every year-end. The bonds are convertible into 6,000
ordinary shares with par value per share of P200. On issuance date, the prevailing market rate of
interest for similar debt without a conversion feature was 12%. On December 31, 20x2, Kindness Co.
retired all the bonds for P2,000,000. On retirement date, the current rate for similar debt instrument
without a conversion feature was 11%.

Requirement: Provide all the entries in 20x1 and 20x2.