BONDS and Other Liabilities

Exercises:
1. A Corporation had the following long term debt:
(a) Bonds maturing in installments, secured by machinery P 5,000,000
(b) Bonds maturing on a single debt, secured by realty 11,000,000
(c) Collateral trust bonds 2,000,000

The debenture bonds amounted to: _________________.

2. On June 1, 2013 B Corporation issued at 99 plus accrued interest, 5,000 of its 8% P1,000
bonds. The bonds are dated March 1, 2013, mature on March 1, 2020, and pay interest on
September 1 and March 1. B Paid bond issue costs of P100,000. From the bond issuance, B
received net cash of _______________________.

3. C Company showed the following balances in connection with its concurrent liabilities on
December 31, 2013:

Bonds payable -12%, maturing December 31, 2023 P 5,000,000
Bonds payable -14%, maturing December 31, 2018 4,000,000
Premium on Bonds payable 600,000
Discount on Bonds payable 200,000
Bond issue cost 600,000

The premium is related to the 12% bonds payable and the discount and bond issue cost are
applicable to the 14% bonds payable. No bonds were retired during 2014. How much
interest expense on the bonds payable should C report in its 2013 income statement? And
what should C report for the bonds payable in its balance sheet?

4. On February 5, 2013, an employee filed a P2,000,000 lawsuit against D Company for
damages suffered when one of Ds plant exploded on December 29, 2012. Ds lega counsel
expects the company will probably lose the lawsuit and estimates the loss to be P500,000.
The employee has offered to settle the lawsuit out of court for P900,000, but D will not
agree to the settlement. In its December 31, 2013 balance sheet, what amount should D
report as liability from lawsuit?

5. On January 1, 2013, E Inc. redeemed its 15-year bonds of P5,000,000 par value for 102. The
bonds were originally issued on January 1, 2001 at 98 with a maturity date of January 1,
2016. The bond issue costs relating to this transaction were P200,000. E amortizes discounts,
premiums and bond issue costs using the straight line method.

What is the amount of unamortized discount on the date of redemption?
What is the book value of the bond at the time of redemption?
What amount of gain/loss should E recognize on the redemption of these bonds?

6. The following information pertains to F Corporations issuance of bonds on July 1, 2013:

Face amount P5,000,000
Term 10 years
Stated interest 8%
Interest payment date Annually on July 1
Yield 10%
At 8% At 10%
Present value of 1 for 10 periods 0.46 0.39
Present value of ordinary annuity of 1 for 10 periods 6.71 6.15

What should be the issue price for each P1000 bond?
What is the discount for the entire bond?

7. On July 1, 2012, G Corp. issued P800,000 of bonds with an 8% face rate of interest. The
bonds were issued for 589,381.93, pay interest semiannually on June 30 and December 31,
carry on effective yield rate of 9%, and are payable in three annual installments of P200,000
each beginning June 30, 2013.
What is the amortization for year 2 using the bonds outstanding method?
What is the amortization for year 2 using the effective method?