03 Non-current Liabilities – Bonds Payable

Bonds Payable Classification – Term vs. Serial

1) IT Corporation December 31, 2019 balance sheet contained the following items in the long-term liabilities section:

9.25% registered debentures, callable in 11 years, due in 16 years 700,000

9.25% collateral trust bonds, convertible into common stock beginning in 2028, due in 19 years 600,000
10% subordinated debentures (P30,000 maturing annually beginning in 2020) 300,000

What is the total amount of IT’s term bonds?

1,300,000

Bonds Payable Classification – Secured vs. Unsecured

2) IT Corporation December 31, 2018 balance sheet contained the following items in the long-term liabilities section:

10% registered bonds, callable in 2019, due in 2023, secured by machinery 3,000,000
11% bonds, convertible into common stock beginning in 2018, due in 2025, secured by realty 5,000,000
12% collateral trust bonds (P50,000 maturing annually) 7,000,000

What are the total amounts of IT’s secured bonds?

15,000,000

Initial Measurement – FV of Term Bonds, Annual Interest

3) Ava Company issued 10-year bonds payable with face amount of P4,000,000 on January 1, 2023. The interest is
payable annually on December 31 at the 6% stated interest rate. The bonds were issued to yield 9%.

The present value of 1 at 6% for 10 periods is 0.56 and the present value of an ordinary annuity of 1 at 6% for 10
periods is 7.36.

The present value of 1 at 9% for 10 periods is 0.42 and the present value of an ordinary annuity of 1 at 9% for 10
periods is 6.42.

What is the market price of the bonds on January 1, 2023?

3,220,800

Initial Measurement – FV of Term Bonds, Semi Annual Interest

4) Downing Company issues P5,000,000, 6%, 5-year bonds dated January 1, 2022 on January 1, 2022. The bonds
pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%.

Present value of PV of annuity of Present value of PV of annuity of

Periods 1 at 2.5% 1 at 2.5% 1 at 5% 1 at 5%
5 0.884 4.646 0.784 4.330
10 0.781 8.752 0.614 7.722

What are the proceeds from the bond issue?

5,217,800

Initial Measurement – FV of Serial Bonds, Annual Interest

5) Kim Chui Company issued bonds with face amount of P6,000,000 on January 1, 2021. The nominal rate of 6% is
payable annually on December 31. The bonds are issued with an 8% effective yield. The bonds mature on every
December 31 each year at the rate of P2,000,000 for the three years.

Present value of 1 at 8%:

One period 0.9259

Two periods 0.8573
Three periods 0.7938

Determine the market price or issue price of the bonds:

5,788,532

Intermediate Accounting 2 | Bernadette L. Baul Page 1 of 3

Initial Measurement – Bonds Sold with Accrued Interest
6) On May 1, 2019, Raiders Company issued P2,000,000, 10 years, 9% bonds at 105 including accrued interest. These
bonds are dated January 1, 2019. Interest is payable semi-annually on January 1 and July 1. Transaction costs of
P10,000 were paid by Raiders.

What is the carrying amount of bonds payable on May 1, 2019?

2,030,000

Total Cash Received From Issuance of Bonds

7) On March 1, 2019, Madine Corporation issued at 103 plus accrued interest, 1,000 of its 15%, P1,000 bonds. The
bonds are dated January 1, 2019 and mature on January 1, 2024. Interest is payable semi-annually on January 1
and July 1. Madine paid transaction costs of P60,000.
Based on the given information, how much would Madine realize as net cash receipts from the bond issuance?
995,000

Subsequent Measurement – Term Bonds, Annual Interest

8) On January 1, 2016, Quilladin Company issued 5 year bonds with face value of P5,000,000 at 110. The company
paid bond issued cost of P80,000 on same date. The stated interest rate on the bonds is 8% payable annually every
December 31.

After consideration of bond issue costs to be initially measured, the bonds were determined to yield 6% per annum.

On December 31, 2016, what should Quilladin report as carrying amount of the bonds payable?
5,345,200

Subsequent Measurement – Term Bonds, Semi Annual Interest

9) On January 1, 2021, Classroom Company issued 10% bonds in the face amount of P5,000,000 that mature on
January 1, 2026. The bonds were issued for P4,580,000 to yield 12%, resulting in bond discount of P420,000.

Classroom Company used the interest method. Interest is payable semiannually on January 1, and July 1.

What is the carrying amount of the bonds payable on December 31, 2021?
4,631,088

Subsequent Measurement – Serial Bonds

10) On January 1, 2017, Bontoc Company issued 5,000,000, 8% serial bonds to be repaid in the amount of P1,000,000
each year. Interest is payable annually on December 31.
The bonds were issued to yield 10% a year. The bond proceeds were P4,757,000 based on the present value at
January 1, 2017 of five annual payments. The entity amortized the bond discount by the interest method.
On December 31, 2017, what is the carrying amount of the bonds payable?
3,832,700

Interest Expense – Annual Interest Dates

11) On January 1, 2019, Rossana Company issued 10-year bonds with face value of P5,000,000 for P5,775,000. The
entity paid bond issue cost of P100,000 on same date. The stated interest rate on the bonds is 10% payable annually
every December 31.

The bonds have an 8% yield per annum after considering the bond issue cost. The entity used the effective interest
method of amortizing bond premium.
What is the interest expense for 2019?
454,000

Interest Expense – Semi Annual Interest Dates

12) On January 1, 2021, Mom Company received P1,032,880 for P1,000,000 face amount, 12% bonds, a price that
yields 10% interest is payable semi-annually every June 30 and December 31.
Interest expense for the year ended December 31, 2021 is
102,870

Intermediate Accounting 2 | Bernadette L. Baul Page 2 of 3

Computation of Total Retirement Price
13) On December 31, 2019, the liability section of Phillies Company’s statement of financial position included bonds
payable of P10 million and unamortized premium on bonds payable of P180,000. Further verification revealed that
these bonds were issued on December 31, 2017 and will become due on December 31, 2027.
Interest at 12% is payable every June 30 and December 31. On April 1, 2020, Phillies retired P4,000,000 of these
bonds at 97 plus accrued interest.
How much was the total amount of cash paid for the retirement of bonds on April 1, 2020?
4,000,000

Gain or Loss on Retirement – Complete Retirement

14) The 12% bonds payable of Nyman Company had a carrying amount of P832,000 on December 31, 2021. The bonds,
which had a face value of P800,000, were issued at a premium to yield 10%. Nyman uses the effective-interest
method of amortization. I

Interest is paid on June 30 and December 31. On June 30, 2022, several years before their maturity, Nyman retired
the bonds at 104 plus accrued interest.

The loss on retirement is:

6,400

Gain or Loss on Retirement – Partial Retirement

15) On December 31, 2015, Affenpinscher Corporation issued 20-year, noncovertible bonds of P5,000,000 for
P5,851,160 to yield 10%. Interest is payable annually on December 31 at 12%. On June 1, 2018, Affenpinscher
retires 3,000 of its own P1,000 bonds. Total cash paid by Affenpinscher is P3,120,000. The accounting period of
Affenpinscher is the calendar year.

What is the amount of gain or loss on early retirement of bond that will be reported in 2018 income statement?
517,440

Straight Line Amortization – Interest Expense & Carrying Amount

16) On January 1, 2022, Marimar Company issued 10,000 of its 12%, P1,000 face value 5-year bonds at 105. Interest
on the bonds is payable annually every December 31. In connection with the sale of these bonds, Marimar paid the
following expenses:
Promotion costs 100,000
Engraving and printing 400,000
Underwriter’s commissions 500,000

Using the straight line method, what amount should Marimar report as bond interest expense for the year 2022?
1,300,000

Straight Line Amortization – Retirement

17) Sanji, Inc. issued P100,000 of its 8%, five year bonds on January 1, 2015, at 98.
Interest is paid on January 1 and July 1. The bonds are callable at 103 and straight line amortization is used. The
bonds are recallable on April 1, 2017.
The journal entry to record the reacquisition of the bonds will include a:
A. Debit Loss on Retirement P5,500
B. Credit Gain on Retirement P5,000
C. Credit Discount on Bonds Payable P1,100
D. Debit Loss on Retirement P4,200

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Intermediate Accounting 2 | Bernadette L. Baul Page 3 of 3