BONDS PAYABLE

Problem No. 1
Given the following data, determine the issue price of the bonds on January 1, 2020:
CASE 1:
Face amount of the bonds P3,000,000
Date of issue of bonds January 1, 2020
Nominal Rate (annual) 8% - 4% semiannual
Effective Rate (annual) 6% - 3% semiannual
Semiannual Interest June 30 and December 31
Date of Maturity January 1, 2022

CASE 2:
Face amount of the bonds P3,000,000
Date of issue of bonds January 1, 2020
Nominal Rate 6%
Effective Rate 8%
Semiannual Interest June 30 and December 31
Date of MaturityJanuary 1, 2025

CASE 3
Face amount 6,000,000
Annual installment every Dec. 31 2,000,000
Date of issue January 1, 2020
NR payable annually every Dec. 31 12%
Effective interest rate 14%

CASE 4
Face amount of the bonds 3,000,000
Date of issue of bonds January 1, 2020
Date of sale of bonds April 1, 2020
Nominal Rate 6%
Effective Rate 8%
Semiannual interest January 1 and July 1
Date of Maturity January 1, 2025

Problem No. 2
On January 1, 2021, Pepper Company received P1,077,200 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, 2021, the fair value of the bonds is determined to be P1,064,600 due to market
and interest factors.
Required:
1. What is the carrying amount of the bonds payable on January 1, 2021?
2. What is the interest expense for 2021?
3. What is the gain or loss from change in fair value of the bonds for 2021?
4. What is the carrying amount of the bonds payable on December 31, 2021?

Problem No. 3
Pikachu Corp. issued P10,000,000 of 10% bonds on January 1, 2026. The prevailing market rate of
interest for similar type of securities was at 12% on the date of issue. The bonds will mature on
December 31,2028. Interests are being paid annually every December 31.

1. Compute for the total proceeds from the bond issuance

Problem No. 4
Pepper Company sells its P1,000,000 face value, five year, 12% bonds on January 1, 2028. The
bonds were sold at 110. Bond issue costs of 24,024, consisting of promotions, engraving, printing,
and underwriter’s commission, were incurred and paid by the company. Effective interest rate after
considering the bond issue costs is 10%.

Required:
1. How much is the initial carrying amount of the bonds?
2. How much is the interest expense for the year 2028?
3. How much is the unamortized premium (including bond issue cost) at the end
of 2028?
4. How much is the carrying amount of the bonds on December 31, 2028?

Problem No. 5
Pepper Company issued a P6,000,000, 12% bonds on January 1, 2028. The principal of the bonds is paid
in series of P2,000,000 annually, together with any accrued interest on the outstanding bonds, each
December 31, starting December 31, 2028. The effective interest rate on the date of issuance is 10%

1. Compute the initial carrying amount of the bonds payable.

2. Compute the bond premium
3. Compute the interest expense on the first year.
4. Compute the interest expense on the third year.
5. Compute the interest paid on the second year.