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    Audit Fot Liability Problem #14

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    Ma Teresa B. Cerezo
    Emilia Corp had the following bond payable balances on their ledger as of various dates: - $5,000,000 of 12% bonds payable issued on 1/2/2005 - $1,100,000 of treasury bonds purchased to redeem the bonds on 10/1/2007 - $500,000 bond discount credited on 1/2/2005 Interest expense of $300,000 and $300,000 was recorded on 1/1/2007 and 7/1/2007, respectively. The bonds were redeemed on 10/1/2007 at 107% of par plus accrued interest.

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    Audit Fot Liability Problem #14

    Uploaded by

    Ma Teresa B. Cerezo
    44 views2 pages
    Emilia Corp had the following bond payable balances on their ledger as of various dates: - $5,000,000 of 12% bonds payable issued on 1/2/2005 - $1,100,000 of treasury bonds purchased to redeem the bonds on 10/1/2007 - $500,000 bond discount credited on 1/2/2005 Interest expense of $300,000 and $300,000 was recorded on 1/1/2007 and 7/1/2007, respectively. The bonds were redeemed on 10/1/2007 at 107% of par plus accrued interest.

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    Audit fot Liability Problem #14

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    Emilia Corp had the following bond payable balances on their ledger as of various dates: - $5,000,000 of 12% bonds payable issued on 1/2/2005 - $1,100,000 of treasury bonds purchased to redeem the bonds on 10/1/2007 - $500,000 bond discount credited on 1/2/2005 Interest expense of $300,000 and $300,000 was recorded on 1/1/2007 and 7/1/2007, respectively. The bonds were redeemed on 10/1/2007 at 107% of par plus accrued interest.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    44 views2 pages

    Audit Fot Liability Problem #14

    Uploaded by

    Ma Teresa B. Cerezo
    Emilia Corp had the following bond payable balances on their ledger as of various dates: - $5,000,000 of 12% bonds payable issued on 1/2/2005 - $1,100,000 of treasury bonds purchased to redeem the bonds on 10/1/2007 - $500,000 bond discount credited on 1/2/2005 Interest expense of $300,000 and $300,000 was recorded on 1/1/2007 and 7/1/2007, respectively. The bonds were redeemed on 10/1/2007 at 107% of par plus accrued interest.

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    © All Rights Reserved
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    of 2

    Problem 14

    In your initial audit of EMILIA CORP., you find the following ledger account balances.

    12% Bonds Payable – maturity date, 1/1/2015


    1/2/05 CR P5,000,000

    Treasury Bonds
    10/1/07 CD P1,100,000

    Bond Discount
    1/2/05 CD P 500,000

    Bond Interest Expense


    1/1/07 CD P 300,000
    7/1/07 CD 300,000

    The bonds were redeemed for permanent cancellation on October 1, 2007, at 107 plus
    accrued interest.

    Questions
    1. Adjusted balance of bonds payable on December 31, 2007.
    a. P 5,000,000 b. P 4,000,000 c. P 3,900,000 d. P
    3,000,000

    2. Adjusted balance of bond discount on December 31, 2007.


    a. P 360,000 b. P 352,500 c. P 327,500 d. P 280,000

    3. Bond interest expense for 2007.


    a. P 917,500 b. P 870,000 c. P 680,000 d. P 617,500

    4. Gain or loss on bond redemption.


    a. P 170,000 b. P 142,500 c. P 127,500 d. P 97,500

    Solution
    Retained earnings 100,000
    Bond discount 100,000
    Retained earnings 300,000
    Interest expense 300,000
    --------------------------------------------------------------
    OE: Treasury bonds 1,100,000
    Cash 1,100,000
    CE: Bonds payable 1,000,000 * 1/5 x P500,000 = P100,000
    Interest expense 30,000 100,000/120 x 33 (27,500)
    Loss on early extinguishment Unamortized disc.
    of debt 142,500 for the P100,000
    Bonds discount 72,500 * bond P 72,500
    Cash 1,100,000
    Adj: Loss on early extinguishment
    of debt 142,500
    Interest expense 30,000
    Bonds payable 1,000,000
    Bonds discount 72,500
    Treasury bonds 1,100,000
    ----------------------------------------------------------------
    Interest expense 240,000
    Interest payable 240,000
    ----------------------------------------------------------------
    Interest expense 47,500
    Bonds discount 47,500
    P100,000 bond / 10 years x 9/12 = P 7,500
    P400,000 bond / 10 years = 40,000
    P47,500
    Answer:
    1. B 2. D 3. D 4. B

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