NAME: ______________________________________________
YEAR/COURSE: ___________________________________
SCORE: _________________ RATING: ____________
GENERAL RULES:
 Use BLACK or BLUE pen. Using a pencil for writing final answers is not allowed.
 Use BASIC CALCULATOR.
 Write your final answer at the answer sheet indicated in the first page. Your solutions must be written in your worksheet.
 Strictly, NO ERASURES in the answer sheet.
 “NO ADMISSION SLIP, NO EXAMINATION” is strictly followed.
 You have exactly four (4) hours to finish the examination. GOOD LUCK!
________________________________________________________________________________________________________________
1. On October 1, 2014, Jammy Corporation issued, at 99 excluding accrued interest, 2,000 of its 8% ₱1,000 bonds. The bonds are dated
January 1, 2014, mature on January 1, 2024, and pay interest on July 1 and January 1. Jammy paid transaction costs of ₱70,000. From the
bond issuance, Jammy receive net cash of:
2. On January 2, 2014, Ariel Co. issued 9% bonds in the amount of ₱1,000,000, which mature on January 2, 2024. The bonds were issued
for ₱939,000 to yield 10%. Interest is payable annually on December 31. Ariel uses the interest method of amortizing bond discount. In its
December 31, 2014 statement of financial position, what amount should Ariel report as bonds payable?
For items 3-4:
In connection of your audit of the liabilities of Cring-Cring Company, you noted that on December 31, 2006. The company issued P2,000,000
8% serial bonds. To be repaid in the amount of P400,000 each year. Interest is payable annually on December 31. The bonds were issued to
yields 10% a year. The bond proceeds were P1,902,800 based on the present value at December 31, 2006 of five annual payments as
follows:
Due dates
Principal
Interest
12/31/07
P400,000
P160,000
12/31/08
400,000
128,000
12/31/09
400,000
96,000
12/31/10
400,000
64,000
12/31/11
400,000
32,000
The company uses the effective method in amortizing bond premium or discount.
3. How much is the amortization of discount for 2007?
4. How much is the carrying value of the bonds payable as of December 31, 2007?
5. On February 1, 2006, Marimar Company issued 12%, P2,000,000 face amount, 10 year bonds for P2,234,000 plus accrued interest. The
bonds are dated November 1, 2005 and interest is payable on May 1 and November 1. The entity uses the straight line method of
amortization. Marimar reacquired all of these bonds at 102 on May 1, 2009 and retired them. Ignoring income tax, what was Marimar’s gain
on the bond retirement?
For items 6-10:
Catriona Corporation authorized the sale of P2,000,000 of 12%, 10 year debentures on January 1, 2005. Interest is payable on January 1 and
July 1. The entire issue was sold on April 1, 2005, at 102 plus accrued interest. On April 1, 2010, P1,000,000 of the bond issue was
reacquired and retired at 99 plus accrued interest. On June 30, 2010, the remaining bonds were reacquired at 97 plus accrued interest and
refunded with an issue of P1,600,000 of 9% bonds which were sold at 100. Use straight-line method for computing the amortization.
6. Total cash receive from the sale of P2 million bonds on April 1, 2005
7. Interest expense for 2005
8. Carrying amount of bonds payable as of December 31, 2005
9. Gain or loss on retirement of P1 million bonds on April 1, 2010
10. Gain or loss on retirement of remaining bonds on June 30, 2010
For items 11-13:
On January 1, 2009, Viceral Corporation issued 5,000 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. Viceral uses the effective interest method of amortization. On December 31,
2010, the 3,000 bonds were extinguished early through acquisition in the open market by Viceral for P2,970,000 plus accrued interest.
11. The issue price of the bonds on January 1, 2009 is
12. The carrying amount of the bonds on December 31, 2009 is
13. The gain on early retirement of bonds on December 31, 2010 is
14. On January 1, 2011, Curtis Company issued 10 year bonds with a face amount of P5,000,000 and a stated interest rate of 8% payable
annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:
Present value of 1 for 10 periods at 10%
0.3855
Present value of an ordinary annuity of 1 for 10 periods at 10%
6.145
The total issue price of the bonds is:
For items 15-19:
On January 1, 2005, Calauag Corporation issued a 10 per cent convertible bonds with a face value of P4,000,000 maturing on December 31,
2014. Each P1,000 bond is convertible into ordinary shares of Calauag at a conversion price of P25 per share. Interest is payable half-yearly
in cash. At the date of issue, Calauag could have issued nonconvertible debt with a ten-year term bearing a coupon interest rate of 11
percent.
On January 1, 2010, the convertible bond has a fair value of P4,400,000. Calauag makes a tender offer to the holders to repurchase the
bonds for P4,400,000. The holders of the P2,000,000 bonds accepted the offer. At the fate of repurchase, Calauag could have issued nonconvertible debt with a five-year term bearing a coupon interest rate of 8 percent.
On December 31, 2010, to induce the holders of the remaining bonds to convert the bonds promptly, Calauag reduces the conversion price to
P20 if the bonds are converted before March 1, 2011 (ie within 2 months). The market price of Calauag’s ordinary shares on the date the
terms are amended is P32 per share.
15. The proceeds from issuance of convertible bonds to be allocated to the equity component is
16. The carrying amount of the bonds on December 31, 2009 is
17. The amount to be recognized in profit or loss as a result of the repurchase of the bonds on January 1, 2010 is
18. The repurchase of the bonds on January 1, 2010 decreased equity by
19. The amount to be recognized in profit or loss as a result of the amendment of the terms on December 31, 2010 is
For items 20-21:
On January 1, 2014, Trudis Liit Company issued its 10%, 5-year convertible debt instrument with a face amount of ₱10,000,000 for
10,000,000. Interest is payable every December 31 of each year. The debt instrument is convertible into 90,000 ordinary shares with a par
value of ₱100. When the debt instruments were issued, they were selling at 97% without conversion option. Trudis Liit Company incurred
₱80,000 transaction costs on the issue of the debt instruments.
20. How much of the net proceeds represent the equity component?
21. How much of the net proceeds represent the debt component?
22. During 2014, Colocar Corporation issued at 95, one thousand of its 8%, ₱5,000 bonds due in ten years. One detachable stock purchase
warrants entitling the holder to buy 20 shares of Colocar’s ordinary shares was attached to each bond. Shortly after issuance, the bonds are
selling at 10% ex-warrant, and each warrant was quoted at ₱60. What amount, if any, of the proceeds from the bond issuance should be
recorded as part of Colocar’s shareholders’ equity?
SUBJECT: AE 17 – Intermediate Accounting 3
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