NOTES PAYABLE

Journalize the following:

1. Interest bearing: principal - lump sum, interest - semi-annual
On January 1, 2020, AAA Company, a service-oriented firm, borrowed P1,000,000 cash
from Moderate Bank and issued a three-year 12% promissory note. Interest is payable
semi-annually every June 30 and December 31.

2. Interest bearing: principal - installment, interest - annual

On January 1, 2020, BBB Company acquired an equipment for P700,000 payable in two
equal annual installments every December 31 of each year. The company signed an
interest-bearing note for P700,000. Interest of 12% is payable annually on the unpaid
balance.
3. Interest bearing: principal - lump sum, interest - annual; effective rate higher than
the nominal rate
On January 1, 2020, CCC Company purchased a package-labeling machine from DDD
Company by issuing a 12% P1,000,000 three-year note that requires interest to be paid
annually every January 1, Prevailing market rate Is 14%, (use effective interest method)

4. Non-interest bearing: principal - installment

On January 1, 2020, EEE Company acquired a building for P5M. It paid P800,000 down
and signed a non-interest bearing note for the balance which is payable in 3 equal
annual installments every December 31 of each year. Assume prevailing interest rate is
12%.
5. Non-interest bearing: principal - lump sum
On January 1, 2020, FFF Company acquired a tract of land for P5,500,000. It paid
P1,200,000 down and signed a non-interest bearing note for the balance which is due on
January 1, 2023. The prevailing interest rate for this type of note was 12%.
 BONDS PAYABLE

Problem 1 - Issuance of bonds - discount (on and between interest payment dates)
On January 1, 2020, Colson Company issues a three-year 8% P1,500,000 face value bonds at
a price that will yield a 10% effective interest rate. Interest is payable semi-annually on June 30
and December 31.

Required:
(a) Prepare all pertinent entries.
(b) How much is the current portion of the bonds payable on December 31, 2020?

Assuming that the bonds were issued on February 1, 2020, prepare the entries on February 1
and June 30, 2020 and compute for the total interest expense for the year 2020.
Problem 2- Issuance of bonds - premium (on and between interest payment dates)
On January 1, 2020, Colson Company issues a three-year 12% P1,500,000 face value bonds at
a price that will yield a 10% effective interest rate. The annual interest is payable every
December 31.

Required:
(a) Prepare all pertinent entries.
(b) Assuming that the bonds were issued on March 1, 2020, prepare the entries on March 1 and
December 31, 2020 and compute for the total interest expense for the year 2020.
Problem 3 - Bond Retirement Prior to Maturity Date - full

Required:
(a) Assume the bonds in No. 1 were retired on June 30, 2021 at 110. Prepare the journal entries
on the date of early retirement. (retirement coincides with the interest payment date)

(b) Assume the bonds in No. 1 were retired on October 31, 2021 at 1,575,000 plus accrued
interest. Prepare the journal entries on the date of early retirement. (retirement is between
interest payment dates)
Problem 4 - Bond Retirement Prior to Maturity Date - partial
Assume that half of the bonds in No. 2 were retired on October 1, 2021. The redemption price
and interest to date on the retired bonds amounted to 750,000. (retirement is between interest
payment dates)

Required:
(a) Prepare the journal entries on October 1, 2021.
(b) How much is the interest expense for the year 2021?
(c) How much is the carrying amount of the bonds payable on December 31, 2021?
Problem 5 - Serial Bonds
New Brand Company issued 5,000 of its 10% P1,000 bonds on January 1, 2020. These bonds
will mature at an amount equivalent to P1,000,000 annually at the end of each year.
Annual interest payments are made together with the principal. The effective interest rate was
determined to be at 12%.

Required:
(a) How much was the amount received by the entity as a result of the issuance?
(b) Prepare all the pertinent journal entries.
(c) How much is the current portion of the bonds payable on December 31, 2020?