Problem 1: P Company issued a three-year bond dated March

1, 2021 with a face value of 2,000,000. These bonds have a

coupon rate of 12% payable semiannually every March 1 and
September 1. The prevailing interest on the date of the bonds
were issued was at 10%.
The entries per books were:
March 1
Cash
Bonds Payable
The amount is for the proceeds.

September 1:
Interest Expense 120,000
Cash 120,000
No amortization nor accrual was made at year-end. Compute
the following:
a. Proceeds from the bond issuance on March 1, 2021.
b. Interest expense to be reported for the year ended
December 31, 2021.
c. Carrying value of the bonds payable to be reported as
of December 31, 2021.
d. Assuming all the bonds were reacquired on April 30,
2022, for 2,100,000, what is the gain or loss on the
early retirement of the bonds?

Problem 2: On January 1, 2021, L Company issued 1,000 of its

January 1, 2016, 12%, 10 year, 1,000 face value bonds with
detachable stock warrants at 1,220,000. Each bond, which
pays interest every January 1 carried 5 detachable warrants
which entitle the holder to acquire one share of L’s 50 par
value ordinary shares for every warrant at a specified option
price of 55 per share. Immediately after the issuance, the
prevailing market rate of interest was at 10% and the market
value of a warrant was 30.
1. What is the equity component of the compound
instrument?
2. What is the balance of the bonds payable as of
December 31, 2022?
3. How much is the interest expense in 2022?
4. What is the credit to share premium assuming that
80% of the warrants issued with bonds were exercised
in 2023?