IFRS 9

Classification & Measurement – Financial assets

Business Held to Collect and

Held to Collect Other Any (1-3)
Model Sell

Cash Flows SPPI (Solely Payments of Principal and Interest) Not SPPI

Classification Amortized Cost FVTOCI FVTPL FVTPL

with recycling

Equity instrument

Fair Value Option FVTOCI

FVTPL without recycling
Classification & Measurement - Financial Liabilities

Non-substantial
modifications
Amortized Cost
accounted for
differently

Financial FVTPL
Liabilities Held for trading

Measure
FVTPL
at FVTPL
Fair Value Option
(specific criteria)
Financial Liabilities like Bonds
• Amortized Cost
• Fair Value through Profit and Loss
Bonds Payable
• Non-Current Liabilities

• - Due more than one year from balance sheet date

• Currently maturing bonds payable need to be transferred to current liability status

• When issued two obligations occur

• - Payment of periodic interest (Annuity

• - Payment of principal when due (1 payment)

• Issue Price of Bonds

• Depends on the difference between the interest rate stated on the bonds and
the issue date market rate of interest

• If the same, issue price is the same as maturity value (payback amount)

• If stated rate is greater than market rate, issue price is a premium

• If market rate is greater than stated rate, issue price is a discount

• Issue Price of Bonds

• Depends on the difference between the interest rate stated on the bonds and
the issue date market rate of interest

• If the same, issue price is the same as maturity value (payback amount)

• If stated rate is greater than market rate, issue price is a premium

• If market rate is greater than stated rate, issue price is a discount

• Issue Price of Bonds

• Depends on the difference between the interest rate stated on the bonds and
the issue date market rate of interest

• If the same, issue price is the same as maturity value (payback amount)
• 12% Nominal Rate > Market Rate 10%
• If stated rate is greater than market rate, issue price is a premium
• 10% Nominal Rate > Market Rate 12%
• If market rate is greater than stated rate, issue price is a discount
• Issue Price of Bonds

• Depends on the difference between the interest rate stated on the bonds and
the issue date market rate of interest

• If the same, issue price is the same as maturity value (payback amount)
• 12% Nominal Rate > Market Rate 10%
• If stated rate is greater than market rate, issue price is a premium
• 10% Nominal Rate < Market Rate 12%
• If market rate is greater than stated rate, issue price is a discount
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Face Amount
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Fair Value of the Bonds
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Nominal Rate
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Market Rate
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Premium or Discount?
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
NR < MR so Discount
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
Face Amount x .90 Fair value Par
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit. The
bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which included
underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December 31, 2018 was
10%.

• Question 1: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the policy to measure
the bond at fair value to profit or loss?

• a. P34,000,000

• b. P36.000.000

• c. P38,000,000

• d. P40.000.000

•I
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

• a. P34,000,000

• b. P36,000,000

• c. P38,000,000

• d. P40.000.000
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

• a. P34,000,000

• b. P36,000,000

• c. P38,000,000

• d. P40.000.000
Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

• a. P34,000,000

• b. P36,000,000

• c. P38,000,000

• d. P40.000.000
Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

To check:
• a. P34,000,000
Principal 40,000,000
• b. P36,000,000 Period 5 years
Nominal Rate 6%
• c. P38,000,000 Market Rate 10%
Interest 40,000,000(.06) = 2,400,000
• d. P40.000.000
Present Value of Ordinary Annuity for the Interest (1 - ((1 + .10 )^-3))/.10

Present Value of 1 for the principal (1 + .10 )^-3

Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

To check:
• a. P34,000,000
Principal 40,000,000
• b. P36,000,000 Period 5 years
Nominal Rate 6%
• c. P38,000,000 Market Rate 10%
Interest 40,000,000(.06) = 2,400,000
• d. P40.000.000
Present Value of Ordinary Annuity for the Interest (1 - ((1 + .10 )^-5))/.10

Present Value of 1 for the principal (1 + .10 )^-5

Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

To check:
• a. P34,000,000
Principal 40,000,000
• b. P36,000,000 Period 5 years
Nominal Rate 6%
• c. P38,000,000 Market Rate 10%
Interest 40,000,000(.06) = 2,400,000
• d. P40.000.000
Present Value of Ordinary Annuity for the Interest 3.79

Present Value of 1 for the principal .62

Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

To check:
• a. P34,000,000
Principal 40,000,000 X .62
• b. P36,000,000 Period 5 years
Nominal Rate 6%
• c. P38,000,000 Market Rate 10%
Interest 40,000,000(.06) = 2,400,000 X 3.79
• d. P40.000.000
Present Value of Ordinary Annuity for the Interest

Present Value of 1 for the principal

Faire Value Less Transaction Cost
• On December 31, 2018. Extract Company issued a P40,000,000 5-year of P1 par value each at an issue price of P0.90 per unit.
The bond carries a coupon interest rate of 6% and interest is payable on December 31 each year. Costs of issuing the bond, which
included underwriting fees, totaled P2,000,000. The prevailing market rate of interest for similar risk class bonds on December
31, 2018 was 10%.

• Question 2: What is the initial carrying value of the bond on December 31, 2018 assuming Extract Company has the

• policy to measure the bond at amortized cost model?

To check:
• a. P34,000,000
Principal 40,000,000 X .62 = 24,800,000
• b. P36,000,000 Period 5 years
Nominal Rate 6%
• c. P38,000,000 Market Rate 10%
Interest 40,000,000(.06) = 2,400,000 X 3.79 = 9.096,000
• d. P40.000.000
Present Value of Ordinary Annuity for the Interest = 33,896,000

Present Value of 1 for the principal

• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Fair Value Model Or Amortized Cost?
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Fair Value Model Or Amortized Cost?
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Principal
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Nominal Rate
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Market Rate
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Premium Or discount
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
Premium Or discount
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
NR > MR so Premium
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
• b. P5.216,494
• c. P5.218,809
• d. P5,217,308
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.06) = 300,000

Present Value of Ordinary Annuity for the Interest (1 - ((1 + .10 )^-3))/.10

Present Value of 1 for the principal (1 + .10 )^-3

• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.06) = 300,000

Present Value of Ordinary Annuity for the Interest (1 - ((1 + .05 )^-?))/.05 (1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal (1 + .05 )^-?
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.06) = 300,000

Present Value of Ordinary Annuity for the Interest (1 - ((1 + .05 )^-?))/.05(1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal (1 + .05 )^-?
 Divide 2
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000

Present Value of Ordinary Annuity for the Interest (1 - ((1 + .025 )^-?))/.025(1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal (1 + .025 )^-?
 Multiply 2
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000

Present Value of Ordinary Annuity for the Interest (1 - ((1 + .025 )^-10))/.025
(1 - ((1 + .10 )^-3))/.10
Present Value of 1 for the principal (1 + .025 )^-10
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000

Present Value of Ordinary Annuity for the Interest 8.75206(1 - ((1 + .10
)^-3))/.10
Present Value of 1 for the principal .78120 (1
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000 X .78120
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000 X 8.75206

Present Value of Ordinary Annuity for the Interest 1 - ((1 + .10 )^-
3))/.10
Present Value of 1 for the principal (1 + .10 )^-3
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000 X .78120 = 3,906,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000 X 8.75206 = 1,312,809

Present Value of Ordinary Annuity for the Interest 1 - ((1 + .10 )^-
3))/.10
Present Value of 1 for the principal (1 + .10 )^-3
• Downing Company issues P5,000,000,6%, 5-year bonds dated January
1, 2016 on January 1, 2016. The bonds pay interest semiannually on
June 30 and December 31. The bonds are issued to yield 5%. What
are the proceeds from the bond issue?
• a. P5,000,000
To check:
• b. P5.216,494
Principal 5,000,000 X .78120 = 3,906,000
• c. P5.218,809 Period 5 years
Nominal Rate 6%
• d. P5,217,308 Market Rate 5%
Interest 5,000,000(.03) = 150,000 X 8.75206 = 1,312,809

Present Value of Ordinary Annuity for the Interest = 5,218,809+ .10

)^-3))/.10
Present Value of 1 for the principal (1 + .10 )^-3
Bond Issue Price Determination

• Use market interest rate and number of payments to determine factors

from present value tables

• • Issue price is the sum of:

• - Present value of periodic interest payments (factor * interest payment)

• - Present value of the one payment at maturity (factor * maturity value)

Bond Issue Price Determination

• Use market interest rate and number of payments to determine factors

from present value tables

• • Issue price is the sum of:

• - Present value of periodic interest payments (factor * interest payment)

• - Present value of the one payment at maturity (factor * maturity value)

Bond Issue Price Determination

• Use market interest rate and number of payments to determine factors

from present value tables

• • Issue price is the sum of:

• 1 minus (1 + market rate) raised to negative period / market rate
• - Present value of periodic interest payments (factor * interest payment)
• (1 + market rate) raised to negative period
• - Present value of the one payment at maturity (factor * maturity value)
Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually
Issue date-January 1, 2003 (3 Years)

• PV of Interest (2.4437 * $90 = 219.93)

• PV of Payment (.7312 * $1,000=731.20)

• Proceeds = $219.93731.20 = $951.13

Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually
Issue date-January 1, 2003 (3 Years)
• (1 - ((1 + .11 )^-3))/.11
• PV of Interest (2.4437 * $90 = 219.93)

• PV of Payment (.7312 * $1,000=731.20)

• Proceeds = $219.93731.20 = $951.13

Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually
Issue date-January 1, 2003 (3 Years)
• (1 - ((1 + .11 )^-3))/.11
• PV of Interest (2.4437 * $90 = 219.93)
• (1 + .11 ) ^-3
• PV of Payment (.7312 * $1,000=731.20)

• Proceeds = $219.93731.20 = $951.13

Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually
Issue date-January 1, 2003 (3 Years)
• (1 - ((1 + .11 )^-3))/.11
• PV of Interest (2.4437 * $90 = 219.93)
• (1 + .11 ) ^-3
• PV of Payment (.7312 * $1,000=731.20)
•
• Proceeds = $219.93 + 731.20 = $951.13
Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually
Issue date-January 1, 2003 (3 Years)
• (1 - ((1 + .11 )^-3))/.11
• PV of Interest (2.4437 * $90 = 219.93)
• (1 + .11 ) ^-3
• PV of Payment (.7312 * $1,000=731.20) Discount 48.87
• Cash $951.13
• Proceeds = $219.93 + 731.20 = $951.13 Bonds Payable 1,000
Example
Principal and maturity value -$1,000
Stated interest rate-9%; Market-11%
Interest payable annually This is the Unamortized Bond Discount and
on the balance sheet, It is Deducted from
Issue date-January 1, 2003 (3 Years) the face amount of the bonds
• (1 - ((1 + .11 )^-3))/.11
• PV of Interest (2.4437 * $90 = 219.93)
• (1 + .11 ) ^-3
• PV of Payment (.7312 * $1,000=731.20) Discount 48.87
• Cash $951.13
• Proceeds = $219.93 + 731.20 = $951.13 Bonds Payable 1,000
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
Principal amount
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
Nominal Rate
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
Market Rate
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
Discount or Premium?
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?

• a. P2,043,640

• b. P2,051,086

• c. P2.064.930

• d. P2,058.176
NR > MR so Premium
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest (1 - ((1 + .10 )^-3))/.10

Present Value of 1 for the principal (1 + .10 )^-3

• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest (1 - ((1 + .05 )^-8))/.05 (1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal (1 + .05 )^-8
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest 6.463(1 - ((1
+ .10 )^-3))/.10
Present Value of 1 for the principal .677
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463(
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest 1 - ((1 + .10 )^-
3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest 1 - ((1 + .10 )^-
3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
Amortized Using Effective Interest method
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10 Effective Interest rate .05
Present Value of 1 for the principal 103,264.5
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

2,000,000 * .055
• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

2,000,000 * .055
• What is the carrying value of the debt instruments as of December 31, 2016?
2,064,930 * .05
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

2,000,000 * .055
• What is the carrying value of the debt instruments as of December 31, 2016?
2,064,930 * .05
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10 (6,753.5)
Present Value of 1 for the principal
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10 (6,753.5)
Present Value of 1 for the principal = 2,058,176.5
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To check:
Short Cut
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity for the Interest = 2,064,930 1 -
((1 + .10 )^-3))/.10 (6,753.5)
Present Value of 1 for the principal = 2,058,176.5
• On July 1, 2016. Glamorous Corporation issued 11% bonds in the face amount of P2,000,000 that mature on June 30,
2020. The bonds were issued 10 yield 10%. and interest is payable every January 1 and July 1: Glamorous Corporation
uses the effective interest Arethod of amortizing bond premium or discount. The following are the present value factors:

• PV of 5% for an ordinary annuity of P1 after 8 periods PV of 5% after 8 interest periods

• What is the carrying value of the debt instruments as of December 31, 2016?
To Cut
Short check:
• a. P2,043,640
Principal 2,000,000 X .677 = 1,354,000
• b. P2,051,086 Period 4 years
Nominal Rate 11%
• c. P2.064.930 Market Rate 10%
Interest 2,000,000(.055) = 110,000 X 6.463( = 710,930
• d. P2,058.176
Present Value of Ordinary Annuity forXthe Interest
1.05 = 2,064,930 1 -
((1 + .10 )^-3))/.10 (6,753.5)
Present Value of 1 for the principal
Less 110,000 = 2,058,176.5
Q&A
Unamortized bond premium should be reported on the balance sheet
of the issuer as a

• a. direct addition to the face amounts of the bonds

• b. direct addition to the present value of the

• C. deferred credit

• d. deduction the issue costs

Unamortized bond premium should be reported on the balance sheet
of the issuer as a

• a. direct addition to the face amounts of the bonds

• b. direct addition to the present value of the

• C. deferred credit

• d. deduction the issue costs

In theory, the proceeds from the sale of a bond will be equal to

• a. the face amount of the bond

• b. the present value of the bond maturity value plus the present value of the
interest payments to be made during the life of the bond

• c. the face amount of the bond plus the present value of the interest payments
to be made during the life of the bond

• d. the sum of the face amount of the bond and the periodic interest payments.
In theory, the proceeds from the sale of a bond will be equal to

• a. the face amount of the bond

• b. the present value of the bond maturity value plus the present value of the
interest payments to be made during the life of the bond

• c. the face amount of the bond plus the present value of the interest payments
to be made during the life of the bond

• d. the sum of the face amount of the bond and the periodic interest payments.
• 5. Market price of a bond issued at a discount is the present value of its principal
amount at the market (effective) rate of interest

• a. plus the present value of all future interest payments at the market rate of interest

• b. plus the present value of all future interest payments at the rate of interest stated
on the bond
• c. minus the present value of all future interest payments at the market rate of interest

• d. minus the present value of all future interest payments at the rate of interest stated
on the bond
• 5. Market price of a bond issued at a discount is the present value of its principal
amount at the market (effective) rate of interest

• a. plus the present value of all future interest payments at the market rate of interest

• b. plus the present value of all future interest payments at the rate of interest stated
on the bond
• c. minus the present value of all future interest payments at the market rate of interest

• d. minus the present value of all future interest payments at the rate of interest stated
on the bond
Q&A
• 1. Bonds that mature on a single date are called

• a. serial bonds

• b term bonds

• c. debenture bonds

• d. secured bonds
• 1. Bonds that mature on a single date are called

• a. serial bonds

• b term bonds

• c. debenture bonds

• d. secured bonds
• 2. They are high-risk, high-yield bonds issued by companies that are heavily in
debt or otherwise in weak financial condition

• a. zero-interest bonds

• b. unsecured bonds

• c. junk bonds

• d. bearer bonds
• 2. They are high-risk, high-yield bonds issued by companies that are heavily in
debt or otherwise in weak financial condition

• a. zero-interest bonds

• b. unsecured bonds

• c. junk bonds

• d. bearer bonds
• 3. Bonds that provide the issuing corporation the right to call and retire the
bonds prior to their maturity

• a. callable bonds

• b. registered bonds

• c. convertible bonds

• d. secured bonds
• 3. Bonds that provide the issuing corporation the right to call and retire the
bonds prior to their maturity

• a. callable bonds

• b. registered bonds

• c. convertible bonds

• d. secured bonds
• 6. For a bond issue that sells for more than its par or face value, the market rate
of interest is

• a. dependent on the rate stated on the bond

• b. equal to the rate stated on the bond

• c. less than the rate stated on the bond

• d. higher than the rate stated on the bond

• 6. For a bond issue that sells for more than its par or face value, the market rate
of interest is

• a. dependent on the rate stated on the bond

• b. equal to the rate stated on the bond

• c. less than the rate stated on the bond

• d. higher than the rate stated on the bond

• 7. Unamortized bond premium should be reported on the balance sheet of the
issuer as a

• a. direct addition to the face amounts of the bonds

• b. direct addition to the present value of the

• C. deferred credit

• d. deduction the issue costs

• 7. Unamortized bond premium should be reported on the balance sheet of the
issuer as a

• a. direct addition to the face amounts of the bonds

• b. direct addition to the present value of the

• C. deferred credit

• d. deduction the issue costs

• 8. Which of the following is true when the effective interest method of
amortizing bond discount is used?

• a. The interest rate decreases each period.

• b. Interest expense increases each period.

• c. Interest expense remains constant for each period.

• d. Interest expense varies from period to period.

• 8. Which of the following is true when the effective interest method of
amortizing bond discount is used?

• a. The interest rate decreases each period.

• b. Interest expense increases each period.

• c. Interest expense remains constant for each period.

• d. Interest expense varies from period to period.

• 9. JKL Co. neglected to amortize premium on outstanding 20-year bonds payable.
What is the effect of the failure to record premium amortization on interest expense
and bond carrying value, respectively?

• a. Understated, understated

• b. Understated, overstated

• c. Overstated, overstated

• d. Overstated, understated
• 9. JKL Co. neglected to amortize premium on outstanding 20-year bonds payable.
What is the effect of the failure to record premium amortization on interest expense
and bond carrying value, respectively?

• a. Understated, understated

• b. Understated, overstated

• c. Overstated, overstated

• d. Overstated, understated
• 10. MNO Co. neglected to amortize discount on outstanding 20-year bonds payable.
What is the effect of the failure to record discount amortization on interest expense
and bond carrying value, respectively?

• a. Understated, understated

• b. Understated, overstated

• c. Overstated, overstated

• d. Overstated, understated
• 10. MNO Co. neglected to amortize discount on outstanding 20-year bonds payable.
What is the effect of the failure to record discount amortization on interest expense
and bond carrying value, respectively?

• a. Understated, understated

• b. Understated, overstated

• c. Overstated, overstated

• d. Overstated, understated
• 11. PQR, Inc. issued bonds with a maturity amount of P500, 000 and a maturity of ten
years from date of issue. If the bonds. were issued at a discount, this indicates that

• a. the yield rate of interest exceeded the stated rate

• b. the stated rate of interest exceeded the yield rate

• c. the yield and stated rates are the same

• d. no necessary relationship exists between the two rates

• 11. PQR, Inc. issued bonds with a maturity amount of P500, 000 and a maturity of ten
years from date of issue. If the bonds. were issued at a discount, this indicates that

• a. the yield rate of interest exceeded the stated rate

• b. the stated rate of interest exceeded the yield rate

• c. the yield and stated rates are the same

• d. no necessary relationship exists between the two rates

• On January 1, 2016. Trader Company issued its 8%, 4-year convertible debt instrument with a face amount
of P6,000,000 for P5,900,000. Interest is payable every December 31 of each year. The debt instrument is
convertible into 50,000 ordinary shares with a par value of P100. When the debt instruments were issued,
the prevailing market rate of interest for similar debt without conversion option is 10%.

PV of 10% for an ordinary annuity of Pl after 4 periods .683013

PV of 10% after 4 interest periods 3.169865

Question 1: What is the amortized cost of the debt as of December 31, 2018?
a. P5,619,616
c. P5,701,578
b. P5,791,735
d. P5,890,909
• On January 1, 2016. Trader Company issued its 8%, 4-year convertible debt instrument with a face amount
of P6,000,000 for P5,900,000. Interest is payable every December 31 of each year. The debt instrument is
convertible into 50,000 ordinary shares with a par value of P100. When the debt instruments were issued,
the prevailing market rate of interest for similar debt without conversion option is 10%.

PV of 10% for an ordinary annuity of Pl after 4 periods .683013

PV of 10% after 4 interest periods 3.169865

Question 2: What is the amount of interest expense for the year ended December 31, 2017?
a. P561.962
c. P570,158
b. P579.173
d. P589,091