Bonds Payable
Answer the following questions with complete solutions.
1. On April 1, 2022, Mosaka Company issued at 99 plus accrued interest,
2,000 of 8% P1,000 Face Value bonds. The bonds are dated January 1,
2015, mature on January 1, 2032, and pay interest on January 1 and July
1. The entity paid bond issue costs of P70,000. From the bond issuance,
what is the net cash received?
Solution:
Issue Price (2,000 x 1,000 = 2,000,000 x 99%)
Accrued Interest from January 1 to April 1, 2022
(2,000,000 x 8% x 3/12)
₱ 1,980,000
40,000
TOTAL
Bond issue cost
Net cash received from bond issuance
2,020,000
(70,000)
₱ 1,950,000
2. On January 31, 2022, Macabre Company issued P3,000,000 maturity value,
12% bonds for P3,000,000 cash. The bonds are dated December 31, 2021
and mature on December 31, 2031. Interest is payable semiannually on
June 30 and December 31. What amount of accrued interest payable should
be reported on September 31, 2022?
Solution:
Accrued Interest from June 30, 2022, to September 30, 2022
(3,000,000 x 12% x 3/12)
₱
90,000
3. On June 30, 2022, Yamashita Company issued at 99, five thousand of 8%,
P1,000 face value bonds. The bonds were issued through an underwriter
to whom the entity paid a bond issue cost of P425,000. On June 30,
2022, what amount should be reported as a bond liability?
Solution:
Issue Price (5,000 x 1,000 = 5,000,000 x 99%)
Bonds Payable
Discount on bonds payable (5,000,000-4,950,000)
Bonds issue cost
Carrying Amount of bonds payable
₱ 4,950,000
5,000,000
(50,000)
(425,000)
₱ 4,525,000
4. On January 1, 2022, Moscow Company issued 10% bonds in the face amount
of P1,000,000 that mature on January 1, 2032. The bonds were issued for
P886,000 to yield 12%, resulting in a bond discount of P114,000. The
entity used the interest method of amortizing the bond discount.
Interest is payable on January 1 and July 1. For the year ended
December 31, 2022, what amount should be reported as bond interest
expense?
Solution:
Date
Interest
Paid
Interest
Expense
50,000
50,000
100,000
53,160
53,350
106,510
Discount
Amortization
1/1/22
6/30/22
12/31/22
Carrying
Amount
886,000
Interest paid
(1,000,000 x 10% x 6/12)
3,160
3,350
6,510
889,160
892,510
₱
Interest expense for 2022:
886,000 x 12% x 6/12
889,160 X 12% X 6/12 (rounded)
Interest expense for 2022
50,000
53,160
53,350
₱
106,510
5. On January 1, 2022, Maroon Company issued 9% bonds in the face amount
of P5,000,000, which mature on January 1, 2032. The bonds were issued
for P4,695,000 to yield 10%. Interest is payable annually on December
31. The entity used the interest method of amortizing the bond
discount. On December 31, 2022, what is the carrying amount of the
bonds payable?
Solution:
Bonds Payable
Discount on bonds payable
₱ 5,000,000
(285,000)
Carrying Amount – December 31,2022
₱ 4,714,500
6. On January 1, 2022, Ridgewood Company issued 3-year bonds with a face
value of P5,000,000 at 98. Additionally, the entity paid a
bond issue cost of P140,000. The nominal rate is 10% and the effective
rate is 12%. The interest is payable annually on
December 31. The entity used the effective interest method in
amortizing the bond discount and issue cost. What is the carrying
amount of the bonds payable on December 31, 2022?
Solution:
Issue Price (5,000,000 x 98%)
₱ 4,900,000
Bonds Payable
Discount on bonds payable
Bond issue cost
Carrying amount on January 1
Interest expense
(12% x 4,760,000)
Interest Paid
(10% x 5,000,000)
Amortization of discount on bonds payable
Bonds payable
Discount on bonds payable (240,000-71,200)
Carrying amount on December 31
₱ 5,000,000
(100,000)
(140,000)
4,760,000
571,200
500,000
71,200
5,000,000
(168,800)
₱ 4,831,200