Bond Payable - accounting PDF

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ApplicationTRY THIS: 1. Superman Company was authorized to issue 12%, 10-year bonds with face amount of P7,000,000 on April 1, 2020. Interest on the bonds is payable semiannually on April 1 and October 1 of each year. The bonds were sold to underwriters on April 1, 2020 at 106. The entity amortizes ...

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Application TRY THIS: 1. Superman Company was authorized to issue 12%, 10-year bonds with face amount of P7,000,000 on April 1, 2020. Interest on the bonds is payable semiannually on April 1 and October 1 of each year. The bonds were sold to underwriters on April 1, 2020 at 106. The entity amortizes discount or premium only at the end of the fiscal year, using the straight line method. Required: Prepare journal entries for 2020 and 2021 including adjustments at the end of each year. Requirement: 2020 April 01

Cash

7,400,000 7,000,000 420,000

Bond payable Premium on bonds payable Oct.01

Dec. 31

31

2021 Jan.01

Apr.01

Oct.01

interest Expense (7,000,000x12%x6/12) Cash

420,000

Interest Expense (7,000,000x12%x3/12) Interest Payable

210,000

420,000

210,000

Premium on bonds payable 31,500 Interest Expense ( 420,000/10x9/12)

Accrued Interest Payable Interest Expense Interest Expense Cash Interest Expense Cash

31,500

210,000 210,000 420,000 420,000 420,000 420,000

Dec.31

Interest Expense Accrued interest payable 31

210,000 210,000

Premium on bonds payable 42,000 Interest Payable(420,000/10)

42,000

2. On January 1, 2020, Lucky Tian Company issued 12% bonds with face amount of P4,000,000 for P4,200,000. Interest is payable annually on December 31 and the bonds mature on January 1, 2025. On December 31, 2020, bonds with face amount of P1,000,000 were redeemed at 95. The entity used the straight line method of amortization. Required: Prepare journal entries in 2020 and 2021. Requirement: 2020 Jan.01

Cash

4,200,000 Bonds payable

4,000,000

Premium on bonds payable Dec. 31

200,000

Interest Expense

480,000

Cash (4,000,000x12%) 31

Premium bonds payable

480,000 40,000

Interest expense (200,000/5) 31

40,000

Bonds payable Premium on bonds payable

1,000,000 40,000

Cash

950,000

Gain on early retirement of bonds

90,000

Face of bonds payable retired

1,000,000

Applicable premiums (¼x160,000)

40,000

Carrying amount

1,040,000

Retirement price

(950,000)

Gain of early retirement of bonds

90,0000

2021 Dec.31

Interest Expense

360,000

Cash (3,000,000x12%) 31

Premium on bonds payable

360,000 30,000

Interest Expense(40,000x3/4)

30,000

Feedback Problem 1: Blue Company reported the following financial liabilities on December 31, 2020: 9% debentures callable in 2021, due in 2022 P3,500,000 11% collateral trust bonds, convertible into a share Capital beginning in 2021, due in 2022 P3,000,000 10%debentures, P300,000 maturing annually P1,500,000 What is the total amount of term bonds? a.P3,000,000 b. P3,500,000 c. P5,000,000 d. P6,500,000 Solution: 9% debentures 11% collateral trust bonds Total term bonds

3,500,000 3,000,000 6,500,000

Problem 2: On October 1, 2020, Shane Company issued 5,000 12% bonds with face amount of P1,000 per bond at 110. The bonds which mature on January 1, 2025, 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.P5,450,000

b. P5,650,000 c. P5,300,000 d. P5,550,000

Solution: Issue price (5,000,000x110) Accrued interest from july 1 to oct.1,2020 (5,000,000 x 12% x 3/12) Bond issue cost Net cash received

5,500,000 150,000 (200,000) 5,450,000

Problem 3: On July 1, 2020, Carol Company issued at 104, five thousand 10% bonds with face amount of P1,000 per bond. The bonds were issued through an underwriter to whom the entity paid bond issue cost of P125,000. On July 1, 2020, what is the carrying amount of the bonds payable? a.P4,875,000

b. P5,075,000 c. P5,200,000 d. P5,325,000

Solution: Bonds payable Premium on bonds payable(4%x5,000,000) Bond issue cost

5,000,000 200,000 (125,000)

Bond liability

5,075,000

Problem 4: Arc Company is authorized to issue P5,000,000 of 6%, 10-year bonds dated July 1, 2020 with interest payments on June 30 and December 31. When the bonds are issued on November 1, 2020, the entity received cash of P5,150,000 including accrued interest. What is the discount or premium from the issuance of the bonds? a. P150,000 bond premium b. P50,000 bond premium c. P150,000 bond discount d. No bond premium and discount Solution: Cash received Accrued income from Jun. 30 To Nov.01,2020 (5,000,000x6%x4/14) Issue price of bonds payable

5,150,000 (100,000) 5,050,000

Face value

(5,000,000)

Premium on bonds payables

50,000

Problem 5: On January 31, 2020, Seri’s Choice Company issued P3,000,000 maturity value, 12% bonds for P3,000,000 cash. The bonds are dated December 31, 2019, and mature on December 31, 2029. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should be reported on September 30,2020? a.P270,000 b. P240,000 c. P180,000 d. P90,000 Solution: Accrued interest payable from July to Sept. 30,2020 ( 3,000,000 x 12% x 3/12) 90,000 Problem 6: On January 1, 2020, 2N Box 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. On December 31, 2020, the bonds are quoted at 95. 1. What amount should be reported as interest expense for 2020? a.P240,000 b. P120,000 c. P294,208 d. P220,656 Solution: Interest Expense 4,000,000 x 6%

240,000

2. What is the carrying amount of the bonds payable on December 31, 2020? a. P3,677,600 b. P3,800,000 c. P3,493,720 d. P4,000,000 Solution: Bonds payable 4,000,000 x 95%

3,800,000...