[AEAIS11]: [Intermediate Accounting 2]

Unit 3 - Topic 1
Accounting for Bonds Payable
Jay Christian D. Garcia
Affiliation 1; [email protected]
Correspondence: Janet Jardin (Classroom)

Instructor: Ms. Janet Jardin

Directions: Read and analyze the problem. Answer what is asked. Encode your answer in a separate word file and
submit it in the classwork section of our google class on or before the date as reflected in your study schedule.
Please follow the format in naming the file for submission. Lastname_Unit3_Topic1_Assessment

PART 1

Problem #1:

White Company issued a P8,000,000 12% bond on December 31, 2020 at 96. Interest is payable annually on
December 31.

Solution:

Problem #2:

On December 31, 2020, Fame Company sold a 12% serial bond with a face amount of P7,000,000 for P7,420,000.
The bonds mature in the amount of P1,000,000 on December 31 of each year beginning December 31, 2021 and
interest is payable annually. On December 31, 2022, the entity retired P1,000,000 of bonds due on that date and in
addition purchased at 105 and retired bonds with face amount of P1,000,000 which were due on December 31, 2024.

Solution:

PART 2 (Analyze each problem. Select your answer from the choices given and provide solutions. No merit shall be
given if without solutions).

Second Semester, A.Y. 2023-2024 Page 1 of 5

Problem #3:

Blue Company reported the following financial liabilities on December 31, 2021:

9% debentures, callable in 2022, due in 2023 3,500,000

11% collateral trust bonds, convertible into shares

Capital beginning in 2022, due in 2023 3,000,000

10% debentures, P300,000 maturing annually 1,500,000

Solution: d. 6,500,000

9% debentures 3,500,000

11% collateral trust bonds 3,000,000

Total terms bonds 6,500,000

Problem #4:

On October 1, 2021, Shane Company issued 5,000 12% bonds with a face amount of P1,000 per bond at 110. The
bonds which mature on January 1, 2026, pay interest semiannually on January 1 and July 1. The entity paid a bond
issue cost of P200,000.

Solution: a. 5,450,000

Issue price (5,000,000 x 110%) 5,500,000

Accrued interest (5,000,000 x 12% x 3/12) 150,000

Less: Bond issue 200,000

Cash received from bond issuance 5,450,000

Problem #5:

Second Semester, A.Y. 2023-2024 Page 2 of 5

On November 1, 2021, Mason Company issued P4,000,000 of 10-year, 8% term bonds dated October 1, 2021. The
bonds were sold to yield 10% with total proceeds of P3,500,000 plus accrued interest. Interest is paid every April 1
and October 1. What amount should be reported as accrued interest payable on December 31, 2021?

Solution: b. 80,000

Accrued interest payable from October 1 to

December 31, 2021 (4,000,000 x 8% x 3/12) 80,000

Problem #6:

On June 30, 2021, King Company had outstanding 9%, P5,000,000 face value bonds maturing on June 30, 2026.
Interest is payable semiannually every June 30 and December 31. On June 20, 2021, after amortization was
recorded for the period, the unamortized bond premium and unamortized bond discount were P30,000 and P50,000,
respectively. On that date, the entity acquired all outstanding bonds on the open market at 98 and retired them. On
June 30, 2021, what amount should be recognized as gain on redemption of bonds?

Solution: b. 80,000

Bonds payable 5,000,000

Add: Premium on bonds payable 30,000

Total 5,030,000

Less: Discount on bonds payable 50,000

Carrying amount 4,980,000

Less: Retirement price (5,000,000 x 98%) 4,900,000

Gain on redemption of bonds 80,000

Problem #7:

Second Semester, A.Y. 2023-2024 Page 3 of 5

On January 1, 2021, Davao Company issued 6% bonds with a face amount of P4,000,000 for net proceeds of
P3,677,600, a price that yields 8%. Interest is payable annually every December 31. The entity elected the fair value
option. On December 31, 2021, the bonds are quoted at 95.

Solution:

1. a. 240,000

Interest expense (4,000,000 x 6%) 240,000

2. d. 122,400

FV on January 1, 2021 3,667,600

FV on December 31, 2021 3,800,000

Loss on change in FV (122,400)

3. b. 3,800,000

Carrying amount on Dec. 31, 2021(4,000,000 x 95%) 3,800,000

Problem #8:

On January 1, 2021, Trisha Company received P1,077,200 for 12% bonds with a face amount of P1,000,000. The
bonds were sold to yield 10%. Interest is payable semiannually every January 1 and July 1. The entity elected the fair
value option for measuring financial liabilities. On December 31, 2021, the fair value of the bonds was P1,064,600.
The change in fair value of the bonds is attributable to market factors.

Solution:

1. b. 1,077,200

Carrying amount of January 1 2021 1,077,200

2. a. 120,000

Interest expense (1,000,000 x 12%) 120,000

3. c. 12,600 gain

Second Semester, A.Y. 2023-2024 Page 4 of 5

Second Semester, A.Y. 2023-2024 Page 5 of 5