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University of Luzon College of Accountnacy Acc 412 - NCL Part 2 NAME: - Problem 1

This document contains 6 problems related to accounting for long-term notes payable, bonds payable, and debt restructuring. It asks the student to calculate amounts related to the cost of acquiring assets, interest expense, carrying amounts of notes payable, gain or loss on debt extinguishment, amortization of bond discounts, and more. There are a total of 25 multiple choice or calculation questions across the 6 problems for the student to complete.

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223 views3 pages

University of Luzon College of Accountnacy Acc 412 - NCL Part 2 NAME: - Problem 1

This document contains 6 problems related to accounting for long-term notes payable, bonds payable, and debt restructuring. It asks the student to calculate amounts related to the cost of acquiring assets, interest expense, carrying amounts of notes payable, gain or loss on debt extinguishment, amortization of bond discounts, and more. There are a total of 25 multiple choice or calculation questions across the 6 problems for the student to complete.

Uploaded by

fghhnnnjml
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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UNIVERSITY OF LUZON

COLLEGE OF ACCOUNTNACY
ACC 412 – NCL PART 2

NAME:________________________

PROBLEM 1
On January 1, 2017, Davao Co. acquired machinery from Malita Co. On the same date, Davao gave P200,000
plus 4-year, 15% P4,000,000 interest bearing note. Principal is due in 4 equal annual installments starting
December 31, 2017. Interest is payable every December 31. The prevailing rate of interest for this type of
note is 10%.

Questions:

1. How much is the cost of the machinery acquired on January 1, 2017?

2. How much is the interest expense for 2017?

3. How much is the carrying amount of the note on December 31, 2017?

4. How much is the current portion of the note on December 31, 2017?

5. How much is the non-current portion of the note on December 31, 2017?

PROBLEM 2
On January 1, 2015, Tagbilaran Co. issued its 3,000, P1,000, 10%, 5 year, convertible bonds for the face
amount of P3,000,000. The bonds are convertible into 4,000 shares of P400 par value ordinary shares. The
prevailing rate of interest of the bonds without conversion option is 12%. Interest is payable every December
31.

On December 31, 2015, after the payment of interest, half of the bonds were retired at P1,600,000.

On December 31, 2016, the remaining bonds were converted into shares.

Questions:

6. How much is allocated to liability component on January 1, 2015?

7. How much is the proceeds on January 1,2015?

8. How much is the gain or loss on the retirement of bonds on December 31, 2015?

9. How much is the interest expense on December 31, 2016?

10. How much is credited to share premium on December 31, 2016?

PROBLEM 3
SINO CO. showed the following data on December 31, 2017:
Notes payable, 10% P20,000,000
Interest payable 2,000,000

Under debt restructuring, compute gain on extinguishment of debt under each of the following assumptions:
11. The creditor agrees to accept equipment with a cost of P15,000,000 and P3,000,000 accumulated
depreciation for full settlement of debt. The fair value of the equipment is P16,000,000.

12. The creditor agrees to accept 50,000 ordinary shares, P100 par value for full settlement of debt. The fair
value of the shares is P250. The fair value of the liability is P11,000,000.

13. The creditor agrees to accept 50,000 ordinary shares, P100 par value for full settlement of debt. The fair
value of the liability is P14,000,000.

14. In the agreement with the creditor, the company obtained the following changes in the terms of the note.
a. The accrued interest is forgiven.
b. The principal is reduce to P15,000,000 and due after 3 years.
c. The new interest rate is 6% which is payable annually starting December 31, 2018.

PROBLEM 4
When the LUAYON MANUFACTURING COMPANY was expanding its metal window division, it did not
have enough capital to finance the expansion. So, management sought and received approval from the board
of directors to issue bonds. The company planned to issue P5,000,000 of 8 percent, five-year bonds in 2017.
Interest would be paid on June 30 and December 31 of each year. The bonds would be callable at 104, and
each P1,000 bond would be convertible into 30 shares of P10 par value common stock.

On January 1, 2017, the bonds were sold at 96 because the market rate of interest for similar investment was
9 percent. The company decided to amortize the bond discount by using the effective interest method.

On July 1, 2019, management called and retired 60% the bonds, and investors converted the 40% into
common stock.

Questions

15. Carrying value of the bonds at December 31, 2018 is:

16. Interest expense at December 31, 2018 is:

17. Carrying value of the bonds converted is:

18. Additional paid-in capital in the conversion of bonds is:

19. Loss on early retirement of bonds is:

20. Interest expense on the bonds at December 31, 2019 is:

PROBLEM 5
On January 1, 2017, CPA NAKO company issued eight-year bonds with a face value of P2,000,000 and a
stated interest rate of 6% payable semiannually on June 30 and December 31. The bonds were sold to yield
8%. Table values are:

Present value of 1 for 8 periods at 6% 00.627


Present value of 1 for 8 periods at 8% 00.540
Present value of 1 for 10 periods at 3% 00.623
Present value of 1 for 10 periods at 4% 00.534
Present value of annuity of 1 for 8 periods at 6% 6.210
Present value of annuity of 1 for 8 periods at 8% 5.747
Present value of annuity of 1 for 10 periods at 3% 12.561
Present value of annuity of 1 for 10 periods at 4% 11.652

Questions

21. The present value of the principal is

22. The present value of the interest is

23. The issue price of the bonds is

PROBLEM 6
In connection of your audit of the liabilities of Cring-Cring Company, you noted that on December 31, 2016.
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, 2016 of five annual payments as follows:

Due dates Principal Interest


12/31/17 P400,000 P160,000
12/31/18 400,000 128,000
12/31/19 400,000 96,000
12/31/20 400,000 64,000
12/31/21 400,000 32,000

The company uses the effective method in amortizing bond premium or discount.

Questions:

24. How much is the amortization of discount for 2018?

25. How much is the carrying value of the bonds payable as of December 31, 2019?

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