SITUATION A: PAGUDPUD COMPANY

On January 1, 2022, Pagudpud Company received P1,064,600 for P1,000,000 face

amount 12% bonds. The bonds were sold to yield 10%. Interest is payable
semiannually every January 1 and July 1. The entity has elected the fair value option
for measuring the financial liability. On December 31, 2022, the fair value of the bonds
is determined to be P1,077,000 due to market and interest factors.

1) What amount should be reported as interest expense for 2022?

1M face amount x 12% nominal rate = 120,000

2) What amount of gain or loss should be recognized for 2022?

Carrying amount, 01/01/22 1,064,600
Carrying amount, 12/31/22 1,077,000
Increase in fair value (12,400) loss

3) What is the carrying amount of the bonds payable on Dec. 31, 2022?
Fair value, 12/31/22 1,077,000
SITUATION B: BANGUI COMPANY
Bangui Company was authorized to issue 12% bonds with face amount of
P5,000,000 on April 1, 2022. Interest on the bonds is payable semiannually
on April 1 and October 1. Bonds mature on April 1, 2027. The entire issue
was sold on April 30, 2022 at 97 less bond issue cost of P50,000.

4) What is the carrying amount of the bonds payable on April 30, 2022?
Face amount of bonds 5,000,000
Quoted price of bonds 97%
Issue price of bonds 4,850,000
Bond issue cost (50,000)
Carrying amount 4,800,000

5) What is the net cash received from the bond issuance?

Face amount of bonds 5,000,000
Nominal interest rate 12%
Annual nominal interest 600,000
No. of month/s accrued 1
Accrued interest 50,000

Carrying amount 4,800,000

Accrued interest 50,000
Net cash received 4,850,000
SITUATION C: BURGOS INC.
On January 31, 2022, Burgos Inc. issued P3,000,000 maturity value,
12% bonds payable for P3,000,000 cash. The bonds are dated
December 31, 2021, and mature on December 31, 2031. Interest will be
paid semi-annually on June 30 and December 31.

6) What amount of accrued interest payable should be reported on Sept. 1, 2022?

Face amount of bonds 3,000,000
Nominal interest rate 12%
Annual nominal interest 360,000
No. of month/s accrued 2 (July 1 to Aug 31)
Accrued interest 60,000
SITUATION D: PASUQUIN COMPANY
On December 31, 2022, the liability section of Pasuquin Company’s statement of financial position included
bonds payable of P10,000,000 and unamortized premium on bonds payable of P180,000. Further verification
revealed that these bonds were issued on December 31, 2021 and will become due on December 31, 2030.
Interest of 12% is payable on June 30 and December 31 of each year. On April 1, 2023, Sweetie retired
P4,000,000 of these bonds at 97 plus accrued interest.

7) What is the total amount of cash paid for the retirement of bonds on April 1, 2023?
8) What amount of gain or loss should be recognized on the retirement of the bonds payable?

Date of issuance December 31, 2021

Maturity date December 31, 2030
Type of bond Term bond, 9 years, 18 periods
Interest payments 12% every June 30 and December 31
Date of retirement April 1, 2023
Bonds retired 4,000,000 (40% of P10,000,000)

As of December 31, 2022

Bonds payable 10,000,000
Unamortized premium 180,000
Carrying amount of bonds 10,180,000

Remaining periods 16 periods or 96 months

Straight-line Amortization 11,250 per period or 1,875 per month

As of April 1, 2023
Bonds payable 10,000,000
Unamortized premium 174,375 [ 180,000 - (1,875 x 3 months) ]
Carrying amount of bonds 10,174,375

Retirement price (4M x .97) 3,880,000

Accrued interest 3mos@12% 120,000
Total payment 4,000,000

Retirement price 3,880,000

Carrying amount of bonds as of April 1 4,069,750 (prorated because only 4M bonds is retired)
Gain on early retirement of bonds 189,750
 statement of financial position included
payable of P180,000. Further verification
will become due on December 31, 2030.
year. On April 1, 2023, Sweetie retired

s on April 1, 2023?
ment of the bonds payable?

75 x 3 months) ]

rorated because only 4M bonds is retired)

SITUATION E: BACARRA COMPANY
On January 1, 2022, Bacarra Company issued 10% bonds in the face amount of
P6,000,000 that mature on January 1, 2027. The bonds were issued to yield 12%.
The entity used the interest method. Interest is payable semiannually on January
1 and July 1.

9) What is the market price of the bond upon issuance on January 1, 2022?
PV of principal 6,000,000 0.56 3,360,000
PV of interests 300,000 7.36 2,208,000
Market price of bonds, 01/01/2022 5,568,000

10) What is the carrying amount of the bonds on December 31, 2022?

Interest pmt Interest exp Amortization Carrying amt

1/1/2022 5,568,000
7/1/2022 300,000 334,080 34,080 5,602,080
12/31/2022 300,000 336,125 36,125 5,638,205
SITUATION F: LAOAG INC.
On January 1, 2022, Laoag Inc. issued 10% bonds with face amount of P5,000,000
which mature on December 31, 2031. The bonds were issued for P4,430,000 to
yield 12%. The entity used the interest method. Interest is payable semiannually on
June 30 and December 31.

11) What amount should be reported as interest expense for 2022?

10) What is the carrying amount of the bonds on December 31, 2022?

Interest pmt Interest exp Amortization Carrying amt

1/1/2022 4,430,000
6/30/2022 250,000 265,800 15,800 4,445,800
12/31/2022 250,000 266,748 16,748 4,462,548
532,548
SITUATION G: ILOX COMPANY
On December 31, 2022, Ilox Company issued P5,000,000 face value, 5-year bonds at 109. Each
P1,000 bond was issued with 50 detachable share warrants, each of which entitled the bondholder
to purchase on ordinary share of P5 par value at P25. Immediately after issuance, the market value
of each share warrant was P5.

The stated interest rate on the bonds is 11% payable annually every December 31. However, the
prevailing market rate of interest for similar bonds without warrants is 12%. The present value of 1
at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is
3.60.

13) Upon issuance, what amount should be recorded as discount or premium on bonds?
14) What is the equity component arising from the issuance of bonds payable?
15) Assuming only 50,000 share warrants are exercised, what amount is credited to share
premium on the date of exercise?

Total issue price (P5,000,000 fa x 1.09) 5,450,000

Bonds payable without warrants
PV of principal (P5,000,000 fa x 0.57) 2,850,000
PV of interests (P5,000,000 x 11% nr x 3.60) 1,980,000 4,830,000
Share warrants outstanding 620,000

Cash 5,450,000
1) Discount on bonds payable 170,000
Bonds payable 5,000,000
2) Share warrants outstanding 620,000

Total warrants issued (P5,000,000 fa ÷ P1,000) x 50 warrants 250,000

Number of warrants exercised 50,000
Issue price of one share P25 and one warrant
Number of shares issued 50,000

Cash 1,250,000
Share warrants outstanding 124,000
Ordinary share capital 250,000
3) Share premium 1,124,000
bonds at 109. Each
itled the bondholder
ce, the market value

er 31. However, the

e present value of 1
12% for 5 periods is

ium on bonds?

s credited to share

total issue price

FA less CA of bonds
FA of bonds
excess

50,000 shares x P25 per share

620,000 balance x 50,000/250,000 warrants
50,000 shares x P5 par value
excess