Problem 1

Jan. 1, 2013 Cash (5,000 x P1,000 x 120%)

Bonds Payable (5,000 x P1,000)
Premium on Bonds Payable
Share Warrants Outstanding

Dec. 31, 2013 Interest Expense (E.R. x Carrying Amount of BP) 6% x 5,735,000
Premium on Bonds Payable
Cash (N.R. x F.A.) 8% x 5,000,000

Cash (4 shares/bond x 5,000 x P30)

Share Warrants Outstanding
Share Capital (20,000 shares x P25)
Share Premium

Problem 2

Jan. 1, 2013 Cash

Discount on Bonds Payable
Bonds Payable
Share Warrants Outstanding

Dec. 31, 2013 Interest Expense (E.R. x C.A.) (14% x 4,657,000)

Discount on Bonds Payable
Cash (N.R. X F.A.) (12% x 5,000,000)

Cash (5 x 5,000 x P100)

Share Warrants Outstanding
Share Capital (25,000 shares x P50)
Share Premium

Problem 3
Total Issue Price (P8,000,000 x 120%)
Less: Present Value of Bonds Payable
Present Value of Principal (8,000,000 x 0.61)
Present Value of Interest (P8,000,000 x 0.06 x 7.72)
Value assigned to Share Warrants

Jan. 1, 2013 Cash (8,000,000 x 120%)

Bonds Payable
Premium on Bonds Payable
Share Warrants Outstanding

June 30, 2013 Interest Expense (E.R. x C.A.) 5% x 8,585,600

Premium on Bonds Payable
Cash ( N.R. x F.A.) (6% x 8,000,000)
Dec. 31, 2013 Carrying Amount of Bonds Payable:
Face Amount
Premium on Bonds Payable

Interest Expense (E.R. X C.A.) 5% x 8,534,880

Premium on Bonds Payable
Cash (N.R. x F.A.) (6% x 8,000,000)

Cash (16,000 shares x P150)

Share Warrants Outstanding
Share Capital (16,000 shares x P100)
Share Premium

Problem 4

Jan. 1, 2013 Cash (P5,000,000 x 105%)

Discount on Bonds Payable
Bonds Payable
Share Premium - Conversion Privilege

Dec. 31, 2013 Interest Expense (E.R. X C.A ) (14% x 4,700,000)

Discount on Bonds Payable
Cash (N.R. x F.A.) (12% x 5,000,000)

Bonds Payable
Share Premium - Conversion Privilege
Discount on Bonds Payable
Share Capital (8 x 5,000 x 100)
Share Premium - Issuance

Problem 5 Total Issue Price

Less: Fair Value of Bonds Payable (Present Value)
PV of Principal (P4,000,000 x 0.79)
PV of Interest (P4,000,000 x 0.06 x 2.58)
Value assigned to Share Premium - Conversion Privilege

Jan. 1, 2017 Cash (P4,000,000 x 105%)

Discount on Bonds Payable
Bonds Payable
Share Premium - Conversion Privilege

Jan. 1, 2020 Bonds Payable

Share Premium - Conversion Privilege
Cash
 Share Premium - Issuance

Problem 6

Jan. 1, 2017 Cash

Premium on Bonds Payable
Bonds Payable
Share Premium - Conversion Privilege

December 31, 2019 Bonds Payable

Premium on Bonds Payable
Share Premium - Conversion Privilege
Loss on Extinguishment
Cash

Total Consideration
FV of the bonds without conversion privilege
Equity Component

Interest Expense
Cash

Share Premium - Conversion Privilege

Share Premium - Issuance

Problem 7

Jan. 1, 2017 Land

Cash
Notes Payable

Dec. 31, 2017 Interest Expense (900,000 x 10%)

Interest Payable

Dec. 31, 2018 Interest Expense (900,000 + 90,000) x 10%

Interest Payable

Jan. 1, 2019 Notes Payable

Interest Payable
Cash

Problem 8

Jan. 1, 2017 Building (500,000 + 1,500,000 x 2.4018)

Discount on Notes Payable
Cash
 Notes Payable

Dec. 31, 2017 Notes Payable

Cash

Interest Expense (3,602,700 x 12%)

Discount on Notes Payable

Problem 9

Jan. 1, 2017 Land (1,250,000 + 4,000,000 x 0.7118)

Discount on Note Payable
Cash
Note Payable

Dec. 31, 2017 Interest Expense (2,847,200 x 12%)

Discount on Note Payable

Jan. 1, 2020 Note Payable

Cash

Problem 10

April 1, 2017 Note Payable

Interest Payable ( 9 months) - expensed last year
Interest Expense (3 months)
Cash

July 1, 2017 Cash

Discount on Note Payable
Note Payable

Dec. 31, 2017 Interest Expense (2,800,000 - 700,000) x 12% x 9/12

Interest Payable

Interest Expense (226,000 x 6/12)

Discount on Note Payable

Total Current Liabilities - 12/31/17

Note Payable to bank

Interest Payable
Note Payable to shareholder:
Face Amount
Discount on Note Payable
Total Current Liabilities -12/31/17
 Interest Expense - 2017

Interest on Note Payable to bank:

January 1 - April 1, 2017

April 1, 2017 - December 31, 2017

Interest on Note Payable to shareholder:

July 1 - December 31, 2017
Total Interest Expense - 2017

Problem 11 Interest Expense - 2017 (1M x 10% x 6/12)

Carrying Amount of Note Payable - 12/31/17

Gain from change in fair value

6,000,000 FV of Bonds Payable without warrants:
5,000,000 Face Amount 5,000,000
735,000 x 114.70%
265,000 FV of Bonds Payable wi 5,735,000

344,100 Face Amount Nominal Rate Interest Paid (Cr Cash)

55,900 Carrying Amount Effective Rate Interest Expense (Dr Interest Expen
400,000

600,000 Investment in Equity Se 600,000

265,000 Cash 600,000
500,000
365,000

5,100,000 FV of Bonds Payable without warrants:

343,000
5,000,000 Face Amount 5,000,000
443,000 Discount on BP 343,000
FV of Bonds Payable wi 4,657,000
651,980
51,980 5,100,000
600,000 - 4,657,000
SWO 443,000
2,500,000
443,000
1,250,000
1,693,000

9,600,000
Interest Principal
4,880,000 Year 1:
3,705,600 8,585,600 June 30 480,000
1,014,400 December 31 480,000

9,600,000 Year 2:
8,000,000 June 30 480,000
585,600 December 31 480,000
1,014,400
Year 3:
429,280 June 30 480,000
50,720 December 31 480,000
480,000
Year 4:
 June 30 480,000
8,000,000 December 31 480,000
534,880 8,534,880
Year 5:
June 30 480,000
426,744 December 31 480,000 8,000,000
53,256 7.72 x 0.61
480,000 PV 3,705,600 4,880,000

2,400,000 Carrying Amount - 6/30 8,534,880

1,014,400 Less: premium amort. 53,256
1,600,000 Carrying Amount - 12/ 8,481,624
1,814,400
FACE AMOUNT 8,000,000
Premium on Bonds Paya 481,624
Carrying Amount - 12/ 8,481,624

5,250,000
300,000
5,000,000
550,000

658,000
58,000
600,000

5,000,000
550,000
242,000
4,000,000
1,308,000

4,200,000

3,160,000 year 1 year 2 year 3

619,200 3,779,200 Interest 240,000 240,000 240,000
420,800 Principal 4,000,000

4,200,000
220,800
4,000,000
420,800

4,000,000
420,800
4,000,000
 420,800

6,000,000
399,300
5,000,000
600,700

5,000,000 Bonds Payable 5,000,000

178,300 Premium on Bonds Payable 178,300
150,000 Share Premium - Conversion Privileg 600,700
221,700 Loss on Extinguishment 221,700
5,550,000 Cash 5,550,000
Share Premium - Issuance 450,700
5,550,000
5,400,000
150,000

500,000
500,000

450,700
450,700

1,000,000
100,000
900,000

90,000
90,000

99,000
99,000

900,000
189,000
1,089,000

4,102,700 Face of NP 4,500,000

897,300 PV of NP 3,602,700
500,000 Discount 897,300
 4,500,000

1,500,000
1,500,000

432,324
432,324

4,097,200 Face Amount of NP 4,000,000

1,152,800 PV of NP 2,847,200
1,250,000 Discount on NP 1,152,800
4,000,000

341,664
341,664

4,000,000
4,000,000

700,000 Dec. 31, 2016

252,000 336,000
84,000 Interest Expense 252,000
1,036,000 Interest Payable

1,774,000
226,000
2,000,000

189,000
189,000

113,000
113,000

700,000
189,000

2,000,000
113,000 1,887,000
2,776,000
 84,000
189,000

113,000
386,000

50,000

975,000

25,000
nterest Paid (Cr Cash)
nterest Expense (Dr Interest Expense)
2.58 619,200
0.79 3,160,000
3,779,200
252,000
Notes Payable

Irrecovably Designated at FV throuhg PL Not Irrecovably Designated at FV through PL

Initial Measurement Fair Value Fair Value
Trasaction Cost Expensed Deducted
Interest Expense Nominal Effective
Balance Sheet Valuation Fair Value Amortized Cost
Changes in Fair Value P/L N/A
If change in FV is identified as Credit Risk OCI N/A

Note Issued solely for cash

On November 1, 2017, an entity discounted its own note of P1,000,000 at 12% for one year.

Note Payable 1,000,000.00

Less: Discount (12% x 1,000,000) 120,000.00
Net Proceeds 880,000.00

Nov. 1, 2017
Cash 880,000.00
Discount on note payable 120,000.00
Note Payable 1,000,000.00

Dec. 31, 2017

Interest Expense (120,000 x 2/12) 20,000.00

Discount on note payable 20,000.00

Carrying amount of the Note Payable - 12/31/17

Note Payable 1,000,000.00

Discount on note payable 100,000.00
Carrying amount 900,000.00

Note issued for Property

Rules on Capitalizing PPE if Note is issued:

1. If the property is purchased by installment, capitalized the PPE at its Cash Price Equivalent.
2. If the Cash Price Equivalent is not given, check if note is interest bearing or noninterest bearing.
2.a. If the note is interest bearing, the representation of the Cash Price Equivalent is the FACE AMOUNT of the note.
2.b. If the note is noninterest bearing, the representation of the Cash Price Equivalent is (in order of priority):
1. Fair Value of the asset
2. Market Value of the Note
3. Discounted value of future cash flows at prevailing market rate

Illustation:

A. Acquired a land for P1,000,000 on January 1, 2017, payable in 5 equal annual installments every December 31 of each year. Interest is 10% on the unpaid balance.

2017

Jan. 1

Equipment 1,000,000.00
Note Payable 1,000,000.00

Dec. 31

Interest Expense (1,000,000 x 10%) 100,000.00

Note Payable (1M/5 years) 200,000.00
Cash 300,000.00
2018

Dec. 31

Interest Expense (800,000 x 10%) 80,000.00

Note Payable (1M/5 years) 200,000.00
Cash 280,000.00

B. On January 1, 2017, an entity acquired an equipment with a cash price of P350,000 for P500,000, P100,000 down and the balance payable in 4 equal installments.

Equipment 350,000.00
Discount on Note Payable 150,000.00
Cash 100,000.00
Note Payable 400,000.00

C. On January 1, 2017, an entity acquired an equipment for P1,000,000 payable in 5 equal annual installments on every December 31 of each year. The prevailing market rate of a note of this type is 10%.
The present value of an ordinary annuity of 1 for 5 years at 10% is 3.7908.
Year 1 Year 2
2017 Prin. + Int. 200,000.00 200,000.00

Jan. 1

Equipment (3.7908 x 200,000) 758,160.00

Discount on Note Payable 241,840.00
Note Payable 1,000,000.00

Dec. 31

Note Payable 200,000.00

 Cash 200,000.00

Interest Expense 75,816.00

Discount on Note Payable 75,816.00

Balance Sheet Presentation:

Note Payable (1M - 200,000) 800,000.00

Discount on Note Payable 166,024.00
Carrying Amount - 12/31/17 633,976.00

Current Portion:

Note Payable 200,000.00

Discount on Note Payable 63,397.60
Current Liability 136,602.40

Carrying Amount - 12/31/17 633,976.00

Less: Current Portion 136,602.40
Non Current Liability 497,373.60

D. On January 1, 2017, an entity acquired an equipment for P1,000,000. The entity paid P100,000 down and signed a noninterest bearing note for the balance which is due after three years on January 1, 2020.
There was no established cash price for the equipment. The prevailing interest rate for this type on note is 10%. The present value of 1 for 3 periods is 0.7513.

2017 Year 0 Year 1 Year 2

Jan. 1 - -

Equipment (900,000 x 0.7513) 776,170.00

Discount on Note Payable 223,830.00
Cash 100,000.00
Note Payable 900,000.00
Dec. 31

Interest Expense (900,000 - 223,830) x 10% 67,617.00

Discount on Note Payable 67,617.00

Balance Sheet Presentation:

Note Payable 900,000.00

Discount on Note Payable 156,213.00
Carrying Amount - 12/31/17 743,787.00

E. On January 1, 2017, an entity borrowed from a bank P4,000,000 on a 12% 5-year interest bearing note. The entity received P4,000,000 which is the fair value of the note on January 1, 2017.
Transaction cost of P100,000 was paid by the entity. The fair value of the note payable was P3,500,000 on December 31, 2017.
The entity has elected irrevocably the fair value option for measuring the note payable.
The change in fair value comprised P50,000 attributable to credit risk and P450,000 to interest risk.

2017

Jan. 1

Cash 4,000,000.00
Note Payable 4,000,000.00

Transaction Cost 100,000.00

Cash 100,000.00

Dec. 31

Interest Expense (4,000,000 x 12%) 480,000.00

Cash 480,000.00

Note Payable 500,000.00

 Gain from change in Fair Value - P/L 450,000.00
Gain from credit risk - OCI 50,000.00

Carrying Amount - 1/1/17 4,000,000.00

FV - 12/31/17 3,500,000.00
Loss from change in Fair Value 500,000.00
a note of this type is 10%.

Year 3 Year 4 Year 5

200,000.00 200,000.00 200,000.00
hree years on January 1, 2020.

Year 3
900,000.00
nuary 1, 2017.