Bonds Payable

1. On March 01, 2020 an entity issued P5,000 and P1,000 face value of bonds at 110 plus accrued
interest. The entity paid bond issue cost of P400,000. The bonds were dated November 1, 2019,
mature on November 1, 2029, and bear interest at 12% payable semiannually on May 1 and
November 1. What net amount was received from the bond issuance?

a.) 5,500,000
b.) 5,700,000
c.) 5,300,000
d.) 5,100,000

2. During the current year, an entity issued P5,000,000 9% face value bonds at 110 at interest date.
In connection with the issue of the bonds, the entity paid the following costs:

Promotion cost 100,000

Engraving and printing cost 200,000
Underwriter commission 400,000
Legal fees 350,000
Fees paid to accountants for registration 50,000

What amount should be recorded initially as discount or premium on bonds payable?

a.) 500,000 premium

b.) 500,000 discount
c.) 600,000 premium
d.) 600,000 discount

3. On January 1, 2020 an entity issued 9% bonds in the face amount of P5,000,000 which mature on
on January 1, 2030. The bonds were issued for P4,695,000 to yield 10%. Interest is payable
annually on December 31. The entity used the interest method of amortizing bond discount.
1. What is the interest expense for 2020?
a.) 469,500
b.) 500,000
c.) 450,000
d.) 422,500

2. What is the carrying amount of the bonds payable on December 31, 2020
a.) 4,695,000
b.) 4,704,750
c.) 4,714,500
d.) 5,000,000

4. On January 1, 2020, an entity issued 10 year bonds with face amount of P5,000,000 for
P5,775,000. The entity paid bond issue cost of P100,000 on same date. The stated interest rate on
the bonds is 30% payable annually on December 31. The bonds have an 8% interest yield per
annum after considering the bond issue cost. The entity used the effective interest method if
amortizing bond premium.
1. What is the interest expense for 2021?
a.) 454,000
b.) 458,960
c.) 500,000
d.) 450,320
 2. What is the carrying amount of the bonds payable on December 31, 2021?
a.) 5,695,960
b.) 5,579,320
c.) 5,629,000
d.) 5,737,000

5. An entity issued 5,000 of 8% 10 -year P1,000 face amount bonds with detachable warrant at 110.
Each bond carried a detachable warrant for 10 ordinary shares of P100 per value at a specified
option piece of P120. Immediately after issuance, the market value of the bonds without warrants
was P4,800,000 and the market value of the warrants was P1,200,000.
1. What is the initial carrying amount of bonds payable?
a.) 5,500,000
b.) 4,800,000
c.) 4,400,000
d.) 5,000,000
2. What is the increase in equity as a result of bonds issuance?
a.) 1,200,000
b.) 1,100,000
c.) 500,000
d.) 700,000
3. What is the share premium from the subsequent exercise of all share warrants?
a.) 1,700,000
b.) 1,000,000
c.) 2,100,000
d.) 0
6. An entity issued P5,000,000 face amount 5- year bonds at 120. Each P1,000 bond was issued
with 20 nondetachable warrant. Each warrant entitled the bondholder to purchase one share of
P20 par value for P25. Immediately after issuance , the market value of cash warrant was P5. The
interest rate is 11% payable annually every December 31. The prevailing market rate of interest
for similar bonds without warrants is 12%. The PV of 1 at 12% for 5 periods is 0.57 and the PV
of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What amount should be as increase in
equity as a result of the bond issuance?

a.) 1,170,000
b.) 1,000,000
c.) 2,000,000
d.) 0

7. An entity issued 5,000 convertible bonds with P1,000 face amount per bond. The bonds mature in
three years and are issued at P110. Interest is payable annually every December 31 at a nominal
6% interest rate. Each bond is convertible anytime up to maturity into 100 shares with par value
of P5. It is reliably determined that the bonds would sell only at P4,600,000 without the
conversion privilege. What is the equity component of the issuance of the convertible bonds?

a.) 500,000
b.) 400,000
c.) 900,000
d.) 0

8. After recording interest and amortization, an entity converted P5,000,000 of 12% convertible
bonds into 50,000 shares of P50 par value. On the conversion date, the carrying amount of the
bonds payable was P6,000,000 the market value of the bonds was P6,500,000 and the share was
public trading at P150. The entity incurred P100,000 in connection with the conversion. When the
bonds were originally issued, the equity component was recorded at P1,500,000. What amount of
the shared premium should be recorded as a result of the conversion?
a.) 5,000,000
b.) 3,500,000
c.) 4,900,000
d.) 3,400,000