Stephen Jay C.

Rio Bachelor of Science in Accountancy Intermediate Accounting 2

BONDS PAYABLE (Sample Problems)

1. On January 01, 2021, ABC Co. issued 1,000, 1000, 10%, 3-year bonds for 951,963. Principal is
due at maturity but interest is due annually every year-end. The effective interest rate is 12%.

2. On January 01, 2021, ABC Co. issued 1,000, 1000, 12%, 3-year bonds for 1,049,737. Principal is
due at maturity but interest is due annually every year-end. The effective interest rate is 10%.

3. On January 01, 2021, ABC Co. issued 10%, 1,000,000 bonds at face amount. Principal is due on
December 31, 2023 but interest is due annually every year-end.
a. With transaction cost of 48,037.

b. Without transaction cost.

4. On January 01, 2021, ABC Co. issued 1,000, 1,000, 10%, 3-year bonds for 951,963. Principal is
due on December 31, 2023 but interest is due annually every year-end. In addition, ABC incurred
bond issue costs of 44,829. The effective interest rate is 12% before adjustment for bond issue
costs and 14% after adjustment for bond issue costs.

5. On January 01, 2021, ABC Co. issued 1,000, 1,000, 10%, 3 year bonds for 951,963. Principal is
due on December 31, 2023 but interest is due annually every year-end. The effective interest rate
is 12%. ABC Co. incorrectly used the straight-line method instead of the effective interest method
to amortize the discount.
a. Carrying amount of the bonds on Dec. 31, 2021.

b. Profit for 2021.

6. On April 01, 2021, ABC Co. issued 12%, 1,000,000 bonds dated January 01, 2021. The bonds
were issued at 97 including accrued interest.

7. On April 01, 2021, ABC Co. issued 12%, 1,000,000 bonds dated January 01, 2021. The bonds
were issued at 97 excluding accrued interest.
8. ABC Co. plans to issue 12%, 3-year, 1,000,000 bonds, dated January 01, 2021. Principal is due at
maturity but interest is due annually. The current market rate is 10%. ABC plans to issue the
bonds on January 01, 2021. How much is the estimated issue price?
Stephen Jay C. Rio Bachelor of Science in Accountancy Intermediate Accounting 2

9. ABC Co. plans to issue 12%, 3-year, 1,000,000 bonds, dated January 01, 2021. Principal is due at
maturity but interest is due annually. The current market rate is 10%. ABC plans to issue the
bonds on April 01, 2021. How much is the estimated total proceeds from the issuance?

10. On January 01, 2021, ABC Co. issued new bonds with face amount of 10,000,000 for 10,800,000
and used the proceeds to retire outstanding bonds with face amount of 8,000,000 and unamortized
discount of 340,000. ABC Co. paid a call premium of 400,000 and incurred 50,000 direct costs on
the retirement. ABC Co.’s income tax rate is 30%.
Requirement: Compute for the gain or loss on the retirement.

11. On January 01, 2021, ABC Co. issued 5-year, 12%, 1,000,000 bonds for 1,075,816. Principal is
due at maturity but interest is due annually. The effective interest rate is 10%. On July 01, 2023,
ABC retired the bonds at 102, including payments for accrued interest.
Requirement: Compute for the gain or loss on retirement.

12. On January 01, 2021, ABC Co. issued 10%, 3,000,000 bonds for 2,900,305. The principal
matures in three equal annual installments, payable at each year-end, plus interest on the
outstanding principal balance. The effective interest rate is 12%.

13. On January 01, 2021, ABC Co. issued 10%, 3,000,000 bonds at a yield to maturity interest of
18%. Principal and interest are due on December 31, 2023.