PQ3 Bonds Payable Nov 28, 2019

Problem 1. Cadbury Company had bonds outstanding with a maturity value of P3,000,000. On April 30, 2019, when
these bonds had an unamortized discount of P100,000, they were called in at 104. To pay for these bonds, Cadbury had
issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The
new bonds were issued at 103 (the face value is P3,000,000). Issue costs related to the new bonds were P30,000.
Ignoring interest, compute the gain or loss on the bond refunding transaction.
Reacquisition price (P3,000,000 X 104%) ....................................... P3,120,000
Less: Net carrying amount of bonds redeemed:
Par value ............................................................... P3.000,000
Unamortized discount .......................................... (100,000) 2,900,000
Loss on redemption ....................................................................... P 220,000

Bonds Payable 3,000,000

Loss on Redemption of Bonds ........................................................ 220,000
Discount on Bonds Payable..................................... 100,000
Cash ....................................................................... 3,120,000
(To record redemption of bonds
payable)

Cash 3,060,000
Unamortized Bond Issue Costs ...................................................... 30,000
Premium on Bonds Payable .................................... 90,000
Bonds Payable ........................................................ 3,000,000
(To record issuance of new bonds)
Problem 2. Godiva Co. sold P2,500,000 of 11%, 10-year bonds at 106.231 and to yield 10% on January 1, 2019. The
bonds were dated January 1, 2019, and pay interest on July 1 and January 1. Determine the amount of interest expense
to be reported on July 1, 2019 and December 31, 2019.
Bond selling price (P2,500,000 X 1.06231) P 2,655,775

July 1, 2019
Interest expense reported (P2,655,775 X 10% X 6/12) P 132,789

December 31, 2019

Interest expense reported
 *(P2,655,775 – 4,711) x 5%  P 132,553*
132,789-(2,500,000 x 11% x 6/12)= 4,711

Problem 3. On October 1, 2019, Guylian Company sold 12% bonds having a maturity value of P800,000 for P853,382 plus
accrued interest which provides the bondholders with a 10% yield. The bonds are dated Jan 1, 2019 and mature Jan 1,
2024, with interest payable December 31 of each year.
Required:
1. Compute the cash proceeds from the issuance of the bonds on October 1, 2019.
2. As part of the journal entry made on December 31, 2019, at what amount should the interest expense account
be recorded?
Cash (P853,382 + P72,000) 1. 925,382
Bond Interest Expense
(72,000 + 21,335) 93,335 # 2
Premium on Bonds Payable 2,665*
Cash/ Interest Payable
(P800,000 X 12%) 96,000

*(P800,000 X 12%) – P72,000 P24,000

P853,382 X 10% X 3/12 21,335
P 2,665

(21,335) interest expense

P853,382 X 10% X 3/12
P2,665 premium amortized

Problem 4. On July 1, 2016, Maltesers Inc. issued P3,000,000 of bonds with a 13% face rate of interest for P3,180,000.
The bonds pay interest semiannually on each Jan 1 and Jul 1 and are to be repaid in three equal semiannual installments
beginning July 1, 2018. Assume that the company’s fiscal year ends May 31 and it makes reversing entries for year-end
accruals.
Required:
1. How much is the unamortized bond premium as of July 1, 2016?
2. How much is the premium amortization to be recorded on Jan 1, 2018?
 Fraction of Premium Interest Bonds
Premium Interest Amortization Expense Unamortized Payable Bonds Outstanding
Date Amortized payment Debit Debit Premium Debit
7/1/16 P180,000 P 3,000,000
1/1/17 3/15 P 195,000 P36,000 P159,000 144,000 3,000,000
7/1/17 3/15 195,000 36,000 159,000 108,000 3,000,000
1/1/18 3/15 195,000 36,000 159,000 72,000 3,000,000
7/1/18 3/15 195,000 36,000 159,000 36,000 P1,000,000 2,000,000
1/1/19 2/15 130,000 24,000 106,000 12,000 1,000,000 1,000,000
7/1/19 1/15 106,500 12,000 53,000 0 1,000,000 0
15/15 P15,000,000

Problem 5. The December 31, 2016 statement of financial position of Coney Island Corp includes the following items:
9% bonds payable due December 31, 2025 P1,400,000
Unamortized premium on bonds payable 37,800

The bonds were issued on December 31, 2015 at 103, with interest payable on July 1 and December 31 of each year. Coney Island
uses straight-line amortization. On March 1, 2017, Coney Island retired P560,000 of these bonds at 98 plus accrued interest. What
should Coney Island record as gain on retirement of these bonds? Answer : P26,040

Problem 6. On March 1, 2019, Haagen Company issued a 10,000 of its P1,000 face value bonds at 95 plus accrued interest. Haagen
paid bond issue cost of P1,000,000. The bonds were dated Nov 1, 2017, mature on Nov 1, 2027, and bear interest at 12% payable
semi-annually on Nov. 1 and May 1. What is the net amount that Haagen receive from the bond issuance? P8,900,000

Problem 7. The books of Baskin Co. shows the following accounts:

Debit Credit
12%, 25-yr Bonds Payable, issued Jan 1, 2015 P6,400,000
Treasury bonds transaction date Oct 1, 2019 864,000
Bond Premium as of Jan 1 2015 320,000
Bond interest expense transaction date Jan 1, 2019 384,000
Bond interest expense transaction date July 1, 2019 384,000

The bonds were redeemed for permanent cancelation on October 1, 2019 at 105 plus accrued interest. The company uses straight
line method in amortizing bond premium or discount.

1. What is the adjusted balance of bonds payable as of December 31, 2019? 5,600,000
2. What is the unamortized bond premium on December 31 2019? 224,000
3. What is the total interest expense for the year 2019? 731,600
4. How much is the gain or loss on partial redemption of the bonds? 7,600loss

Problem 8. FIC Corp. authorized the sale of P2,000,000 of 12%, 10 year debentures on January 1, 2014. Interest is payable on Jan 1
and July 1. The entire issue was sold on April 1, 2014 at 102 plus accrued interest. On April 1, 2019, P1,000,000 of the bond issue
was reacquired and retired at 99 plus accrued interest. On June 30, 2019, the remaining bonds were reacquired at 97 plus accrued
interest and refunded with an issue of P1,600,000 of 9% bonds which were sold at 100. How much is the gain or loss on the
retirement of P1,000,000 bonds on April 1, 2019? 39,231gain

Problem 9. On July 1, 2015, Milol Co. issued 1,000 of its 10%, P1,000 bonds at 99 plus accrued interest. The bonds are dated April 1,
2010 and mature on April 1, 2025. Interest is payable semi-annually on April 1 and October 1. What amount did Milo receive from
the bond issuance?
(P1,000,000 × .99) + (P1,000,000 × .10 × 3/12) = P1,015,000.