Problem 1

1. True
2. False
3. False
4. False
5. True
6. False
7. False
8. False
9. False
10. True

Problem 2

1. C
2. A
3. D
4. C
5. C
6. D
7. C
8. C
9. B
10. C

Problem 3

1.
Jan Cash 1,903,927

1 Discount on bonds 96,073

payable

2021 Bonds payable 2,000,000

Dec Interest expense 228,471

31 Cash 200,000

20x1 Discount on 28,471

bonds payable
 Dec Interest expense 231,888

31 Cash 200,000

20x2 Discount on 31,888

bonds payable

Dec Interest expense 235,714

31 Cash 200,000

20x3 Discount on 35,714

bonds payable

Bonds payable 2,000,000

Cash 2,000,000

2.

Jan Cash (2,206,168 - 2,099,474

106,694)

1 Bonds payable 2,000,000

20x1 Premium on 99,474

B/P (squeeze)

Dec Interest expense 209,947

31 Premium on bonds 30,053

payable

20x1 Cash 240,000

Dec Interest expense 206,942

31 Premium on bonds 33,058

payable

20x2 Cash 240,000

Dec Interest expense 203,634

 31 Premium on bonds 36,364
payable

20x3 Cash 240,000

3.

July Interest expense 104,974

31 Premium on bonds 15,026

payable

20x3 Interest payable 120,000

July Bonds payable 2,000,000

31 Premium on bonds 84,449

payable

20x3 Interest payable 120,000

Cash (2m * 2,040,000

102%)

Gains on 164,4494.
retirement of bonds

4.

Jan Cash (2M*105%) 2,100,000

1 Discount on bonds 96,074

payable
(2M-1,903,926)

20x1 Bonds 2,000,000

payable

Share 196,074
premium
 Dec Interest expense 228,471

31 Discount on 28,471
bonds payable

20x1 Cash 200,000

Dec Interest expense 231,888

31 Discount on 31,888
bonds payable

20x2 Cash 200,000

Dec Bonds payable 2,000,000

31 Discount on 35,715
bonds payable

20x2 Share capital 1,600,000

Share premium 374,285

5.

Jan Cash 2,200,000

1 Discount on bonds 96,074

payable

20x1 Bonds payable 2,000,000

Share 296,074
premium-
conversion feature

Dec Interest expense 228,471

31 Discount on 28,471
bonds payable

20x1 Cash 200,000

Dec Interest expense 231,888

31 Discount on 31,888
bonds payable

20x2 Cash 200,000

Dec Bonds payable 2,000,000

31 Loss on extinguish 17,697

of bonds

20x2 Discount on 35,715

B/P

Cash 1,918,982

Dec Share premium- 18,018

conversion feature

31 Cash 18,018

20x2 To record
the allocation of
retirement prie to
the equity
component

Dec Share premium- 278,056

conversion feature

31 Share 278,056
premium

20x2 To record
forfeiture of the
conversion of
retired convertible
bonds

Problem 4
1. D
 2. B
3. B
4. D
5. D
6. A
7. B
8. D
9. A
10. C
11. B
12. C
13. D
14. B
15. D

Problem 5

First trial : 10% per annum (5% semi-annual)

= 922,782 = ( 1M*PVof 1@ 5%, n=10) + (40,000*PV ordinary annuity@5%, n=10)

= 922,782 = 613,913 + 308,869

= 922,782 = 922,782

=EIR is 10% per annum.

Journal entries

July Cash 922,782

1 Discount on bonds 77,218

payable

20x1 Bonds payable

1M

Dec Interest expense 46,139

31 Interest payable 40,000

20x1 Discount on 6,139

bonds payable