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File - Lecture notes 1,3,7,10
Accounting (Ramon Magsaysay Memorial Colleges)
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Answer Key
Lecture 4 Bonds Payable Assignment
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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
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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
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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:
1
1
1
1
1
1
1
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