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Answer Key Lecture 4 Bonds Payable Assignment ____

1. On December 31, 2016 , Boheme Company reported a 9% bonds payable due December 31, 2021 with a carrying amount of P15,405,000. The bonds were issued on December 31,2012 and had a face amount of P15,000,000 with interest payable semiannually on June 30 and December 31 of each year . On December 31, 2016 , the entity retired P5,000,000 of these bonds at 98. What amount should be reported as gain or loss on the retirement of the bonds for 2016 ? a. 235,000 gain c. 100,000 gain b. 235,000 loss d. 100,000 loss

ANSWER : A Carrying amount – Dec. 31, 2016 Multiplied by : Carrying amount of retired bonds Less: Retirement price (5M X.98) Gain on early retirement ____

2. On July 1, 2016 , Carr Company issued at 104 , five thousand of 10% P1,000 face value bonds. The bonds were issue through an underwriter to whom the entity paid bond issue cost of P125,000. On July 1, 2016 , what amount should be reported as bond liability ? a. 4,875,000 c. 5,200,000 b. 5,075,000 d. 5,325,000 ANSWER : B Face amount of Bonds (5,000 x P1,000) Multiplied by : Issue price Issue price Less: Bond issue cost Bond liability – carrying amount

____

15,405,000 5/15 5,135,000 4,900,000 235,000 Gain

P5,000,000 104% 5,200,000 (125,000) 5,075,000

3. On December 31, 2016 , Marie Company reported bonds payable of P7,360,000 and accrued interest payable of P200,000 . The bonds are retired on December 31, 2016 for P8,160,000, excluding accrued interest. What amount should be reported as gain or loss on extinguishment of bonds payable ? a. 800,000 gain c. 600,000 gain b. 800,000 loss d. 600,000 loss

ANSWER : B Carrying amount of retired bonds Less: Retirement price (5M X.98) Loss on early retirement ____

4. Zola Company had the following long-term debt : Bonds maturing in installments, secured by machinery Bonds maturing on a single date, secured by realty

7,360,000 8,160,000 800,000 Loss

1,000,000 1,800,000

Collateral trust bonds What is the total amount of debenture bonds ? a. 2,000,000 c. 1,800,000 b. 1,000,000 d. 0

2,000,000

ANSWER : D A debenture is a type of bond that is unsecured by collateral . All the bonds of Zola Company are secured. Hence , there is no debenture bonds. ____

5. On March 1, 2015 , Cain Company issued at 103 plus accrued interest 4,000 of 9% , P1,000 face value bonds. The bonds are dated January 1, 2015 and mature on January 1, 2025 . Interest is payable semiannually on January 1 and July 1 . The entity paid bond issue cost of P200,000. What is the net cash received from the bond issuance ? a. 4,320,000 c. 4,120,000 b. 4,180,000 d. 3,980,000 ANSWER : D Face amount of Bonds (4,000 x P1,000) Multiplied by : Issue price Issue price received Add: Accrued interest received (4M X 9% X 2/12) (From January 1 to March 1) Less: Bond issue cost paid Net cash received

____

P4,000,000 103% 4,120,000 60,000 (200,000) 3,980,000

6. On January 31, 2015 , Beau Company issued P3,000,000 maturity value , 12% bonds for P3,000,000 cash. The bonds are dated December 31, 2014 and mature on December 31, 2024. Interest is payable semianually on June 30 and December 31. What amount of accrued interest payable should be reported on September 30, 2015 ? a. 270,000 c. 180,000 b. 240,000 d. 90,000

ANSWER : D Accrued interest ( From June 30 – September 30) ____

3M X 12% x 3/12

90,000

7. On January 1, 2015 , Wolf Company issued 10% bonds in the face amount of P5,000,000 , which mature on January 1, 2025. The bonds were issued for P5,675,000 to yield 8%, resulting in bond premium of P675,000 . The entity used the interest method of amortizing bond premium. Interest is payable annually on December 31. On December 31, 2015 , what is the adjusted unamortized bond premium ? a. 675,000 c. 607,500 b. 629,000 d. 507,500 ANSWER : B Date Interest Paid (5M X 10%) January 1, 2015 December 500,000 31, 2015

Interest Expense (CA X 8%)

Premium Amortization

Carrying amount 5,675,000

454,000

46,000*

5,629,000

Journal entry to record premium amortization: Premium on bonds payable 46,000 Interest Expense 46,000 Premium on bonds – January 1, 2015 675,000 Less: Amortization (46,000) Premium on bonds – Dec. 31 629,000

Lecture 4 Bonds Payable Assignment Answer Section MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7.

ANS: ANS: ANS: ANS: ANS: ANS: ANS:

A B B D D D B

PTS: PTS: PTS: PTS: PTS: PTS: PTS:

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