Lobrigas, Claudine L.

BSIA-IV

Intermediate Accounting 2

Directions: Read and analyze the problem. Answer what is asked. Encode your answer in a
separate word file and submit in the classwork section of our google class on or before the date
as reflected in your study schedule. Please follow the format in naming the file for submission.
Lastname_Unit3_Topic1_Assessment

PART 1

Problem #1:

White Company issued a P8,000,000 12% bonds on December 31, 2020 at 96. Interest is
payable annually on December 31.

Bond Maturity

December 31

2022 1,000,000

2023 1,000,000

2024 1,000,000

2025 1,000,000

2026 2,000,000

2027 2,000,000

8,000,000

Required: Prepare a schedule showing the annual amortization of the bond discount using the
bond outstanding method.

Year Bonds Outstanding Fraction Discount amortization

2021 8,000,000 8/34 75,294

2022 7,000,000 7/34 65,882

2023 6,000,000 6/34 56,471

2024 5,000,000 5/34 47,059

 2025 4,000,000 4/34 37,647

2026 2,000,000 2/34 18,824

2027 2,000,000 2/34 18,824

34,000,000 320,000

Problem #2:

Prepare journal entries from 2020 - 2022. The bond outstanding method of amortization
to be used.

Year Bonds Outstanding Fraction Premier amortization

2021 7,000,000 7/28 105,000

2022 6,000,000 6/28 90,000

2023 5,000,000 5/28 75,000

2024 4,000,000 4/28 60,000

2025 3,000,000 3/28 45,000

2026 2,000,000 2/28 30,000

2027 1,000,000 1/28 15,000

28,000,000 420,000

Journal Entries

2020

Dec. 31 Cash 7,,420,000

Bonds payable 7,000,000

Premium on bonds payable 420,000

 2021

Dec. 31 Interest expense 840,000

Cash 840,000

to record annual inyerest payment

Premium on bonds payabke 105,000

Interest expense 105,000

to record amortization of prwmium for 2021

Bonds payable 1,000,000

Cash 1,000,000

to record payment of the first series of bonds

Ratio = 420,000/28,000,000 = 0.015 rate per year

Unamortized premium = 1,000,000 x 0.015 = 15,000 per year

Unamortized premium to be cancelled = 15,000 x 2 years = 30,000

Revised Schedule of Amortization

Year Original premium Premium cancelled Premier amortization

amortization

2021 105,000 105,000

2022 90,000 90,000

2023 75,000 15,000 60,000

2024 60,000 15,000 45,000

2025 45,000 45,000

2026 30,000 30,000

2027 15,000 15,000

 420,000 30,000 390,000

Dec. 31, Bonds payable 1,000,000

2022
Premium on bonds payable 30,000

Loss on early retirement 20,000

Cash (1,000,000 x 1.05) 1,050,000

Part 2 - (Analyze each problem. Select your answer from the choices given and provide
solutions. No merit shall be given if without solutions).

Problem #3:

Blue Company reported the following financial liabilities on December 31, 2021:

9% debentures, callable in 2022, due in 2023. 3,500,000

11% collateral trust bonds, convertible into shares

Capital beginning in 2022, due in 2023 3,000,000

10% debentures, P300,000 maturing annually 1,500,000

What is the total amount of term bonds?

a. 3,000,000

b. 3,500,000

c. 5,000,000

d. 6,500,000

9% debentures, collable in 2022, due in 2023 3,500,000

11% collateral trust bonds, convertible into shares Capital beginning in 3,000,000
2022, due in 2023

Total term bonds 6,500,000

Problem #4:

On October 1, 2021, Shane Company issued 5,000 12% bonds with face amount of P1,000
per bond at 110. The bonds which mature on January 1, 2026, pay interest semiannually on
January 1 and July 1. The entity paid bond issue cost of P200,000. How much cash was received
from the issuance of the bonds?

a. 5,450,000

b. 5,650,000

c. 5,300,000

d. 5,550,000

Issued bonds payable 1,000,000

Price x 1.10

Total 5,500,000

Bonds payable issued 5,500,000

Accrued interest (July 1-Oct. 1) - 5,000,000 x 12% x 3/12 150,000

Bond issued cost (200,000)

Net cash received 5,450,000

Problem #5:

On November 1, 2021, Mason Company issued P4,000,000 of 10-year, 8% term bonds

dated October 1, 2021. The bonds were sold to yield 10% with total proceeds of P3,500,000
plus accrued interest. Interest is paid every April 1 and October 1.

What amount should be reported as accrued interest payable on December 31, 2021?

a. 100,000

b. 80,000

c. 53,333
 d. 87,500

Face amount 4,000,000

Nominal rate x 8%

320,000

Accrued interest x 2/12

Accrued interest payable 53,333

Problem #6:

On June 30, 2021, King Company had outstanding 9%, P5,000,000 face value bonds
maturing on June 30, 2026. Interest is payable semiannually every June 30 and December 31.
On June 20, 2021, after amortization was recorded for the period, the unamortized bond
premium and unamortized bond discount were P30,000 and P50,000, respectively. On that
date, the entity acquired all outstanding bonds on the open market at 98 and retired them. On
June 30, 2021, what amount should be recognized as gain on redemption of bonds?

a. 20,000

b. 80,000

c. 120,000

d. 180,000

Retirement price 4,980,000

(5,000,000 x 98%) 4,900,000

Gain on redemption of bonds 80,000

Problem #7:

On January 1, 2021, Davao Company issued 6% bonds with face amount of P4,000,000 for
net proceeds of P3,677,600, a price that yields 8%. Interest is payable annually every December
31. The entity elected the fair value option. On December 31, 2021, the bonds are quoted at 95.

1. What amount should be reported as interest expense for 2021?

 a. 240,000

b. 120,000

c. 294,208

d. 220,656

Face amount 4,000,000

Rate 6%

Interest expense 240,000

2. What amount should be recorded as gain or loss from change in fair value for

2021?

a. 322,400 gain

b. 322,400 loss

c. 122,400 gain

d. 122,400 loss

Carrying amount 3,667,600

Multiplied by: Fair value (4,000,000 x 95) 3,800,000

Loss 132,400

3. What is the carrying amount of the bonds payable on December 31, 2021?

a. 3,677,600

b. 3,800,000

c. 3,493,720

d. 4,000,000

Face amount 4,000,000

Price x 95

Carrying amount 3,800,000

Problem #8:

On January 1, 2021, Trisha Company received P1,077,200 for 12% bonds with face amount
of P1,000,000. The bonds were sold to yield 10%. Interest is payable semiannually every
January 1 and July 1. The entity elected the fair value option for measuring financial liabilities.
On December 31, 2021, the fair value of the bonds is P1,064,600. The change in fair value of the
bonds is attributable to market factors.

1. What is the carrying amount of the bonds payable on January 1, 2021?

a. 1,000,000

b. 1,077,200

c. 500,000

d. 538,600

Carrying amount, Jan. 1, 2021 = 1,077,200

2. What is the interest expense for 2021?

a. 120,000

b. 100,000

c. 107,720

d. 129,264

Interest expense = 1,000,000 x 12% = 120,000

3. What is the gain or loss from change in fair value of the bonds payable for 2021?

a. 64,600 gain

b. 64,600 loss

c. 12,600 gain

d. 12,600 loss
Change in fair value

Fair value, Jan. 2021 1,077,200

Fair value, Dec. 2021 (1,064,600)

Gain 12,600

4. What is the carrying amount of the bonds payable on December 31, 2021?

a. 1,064,600

b. 1,077,200

c. 1,000,000

d. 1,064,920

Carrying amount, Dec. 2021 = 1,064,600