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ACCTG: ACTIVITY ON TERM BONDS
Solve it if you can...
CASE 1
G Company is contemplating on issuing 12% 3-year, Php4,000,000 bonds. Principal is due at maturity but interest is due annually at each year-end. G Company determines that the current market rate on January 1, 2014 is 10%.
a. How much is the estimated issue price of the bonds assuming G Company issues bonds on January 1, 2014?
b. If G Company plans to issue the bonds on April 1, 2014, how much is the estimated total proceeds from the issuance of the bonds on April 1, 2014?
CASE 2
On January 1, 2014, L Company issued 3-year bonds with face value of Php5,000,000 at 99. The nominal rate is 10% and the interest is payable annually on December 31. Additionally, the entity paid bond issue cost of Php150,000. What is the interest expense for 2014?
CASE 3
On January 1, 2014, M Corporation issued 2,000 of its 5-year, P1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31. M Corporation uses the effective interest method of amortization. On December 31, 2015, the 2,000 bonds were extinguished early through acquisition in the open market by M Corporation for P1,980,000 plus accrued interest.
a. What is the issue price of the bonds?
b. What is the carrying value of the bonds as of December 31, 2014?
c. How much is the gain or loss on early retirement of bonds on December 31, 2015?
CASE 4
Z Company issued 10-year bonds on January 1, 2014. The company’s yearend is December 31, and financial statements are prepared annually. The amortization and interest schedule below reflects the bond issuance and the subsequent interest payments and charges.
Based on the above, answer the following:
a. What amortization method is used in the amortization schedule presented?
b. What is the nominal interest rate of the bonds issued on January 2014?
c. What is the effective interest rate of the bonds issued on January 1, 2014?
d. What journal entry was made to record the issuance of the bonds on January 1, 2014?
CASE 5
On January 1, 2014, X INC. issued P100,000, 10%, 10-year bonds when the market interest rate was 8%. Interest is payable on June 30 and December 31. The following financial information is available:
Based on the above, answer the following:
a. What is the carrying value of bonds on January 1, 2014?
b. How much was paid to bondholders for interest during 2014?
c. What is the carrying value of the bonds on December 31, 2014?
d. What is the interest expense for 2014?
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