Classroom Exercises on Bonds Payable

1. Issuance of Bonds on Interest Payment Date Discount

On December 31, 2011, ABS Company issues a two- year 8% P 2,000,000 face
value bonds at a price tat will yield a 10% effective interest rate! "nterest is
payable semi-annually on #une 30 and December 31!

$e%uired& Prepare all pertinent entries!
2. Issuance of Bonds on Interest Payment Date Premium
On December 31, 2011, CB Company issues a tree - year 12% P2,000,000
face value bonds at a price tat will yield a 10% effective interest rate! 'e
interest is payable annually every December 31!
$e%uired& Prepare all pertinent entries!
!. Issuance of Bonds Bet"een Interest Payment Dates Discount
On (ebruary 1, 2011, #$A Company sells a two-year 8% P2,000,000 face
value bonds at a price tat will yield a 10% effective interest rate! 'e bonds are
dated December 31, 2010! "nterest is payable semi-annually on #une 30 and
December 31!
Prepare& Prepare all pertinent entries!
%. Issuance of Bonds Bet"een Interest Payment Dates Premium
On )arc 1, 2011, &P Company sells a tree-year 12% P2,000,000 face value
bonds at a price tat will yield a 10% effective interest rate! 'e bonds are dated
December 31, 2010! "nterest is payable annually every December 31!
Prepare all pertinent entries!
'. Bond &etirement on $aturity Date
*ssume tat P2,000,000 face value bonds are sold on #anuary 1, 2008 wit 12%
interest payable every #uly 1 and December 31! "t will mature on December 31,
2011!
Prepare entry to record te bond retirement to+eter wit te payment of last
semi-annual interest!
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(. Bond &etirement Prior to $aturity Date
*ssume tat P10,000,000 face value bonds are sold on *pril 1, 2011 and mature
on *pril 1, 201, wit 12% interest payable semi-annually on *pril 1 and October
1! 'e bonds yield 10%! *ll te bonds are retired on *u+ust 1, 2013 at -8!
Prepare all necessary .ournal entries!
). Partial Bond &etirement Prior to $aturity Date
IBC Company is buildin+ a new +ymnasium at a cost of P/,000,000! "t received
a down payment of P1,000,000 from local businesses to support te pro.ect and
need to borrow P3,000,000 to complete te pro.ect! "t terefore decided to issue
P3,000,000 of 10!0 % 10-year bonds! 'ese bonds were issued on #anuary 1,
2011 and pay interest annually every #anuary 1! 'e bonds yield 12%! On #uly
1, 2013, alf of te bonds were retired at P1,,00,000 plus accrued interest!
Prepare all necessary .ournal entries!
*. Con+ertible Bonds
,B- Corporation issued P2,000,000 of 8% bonds on October 1, 2011 due on
October 1, 201, at 100! 'e interest is to be paid twice a year on *pril 1 and
October 1! 1en te bonds were issued, te prevailin+ mar2et rate is 10%
witout te conversion privile+e! 34O 5orporation closes its boo2s annually on
December 31!
6ac P1,000 bond is convertible into 8 sares of P100 par value common stoc2!
On #anuary 1, 2013, 1,000 bonds are converted into ordinary sares! *t tis
time, te sare as a mar2et value of P100 per sare and te bonds are %uoted
at 102!
Prepare .ournal entries on October 1, 2011 and #anuary 1, 2013!
.. Bonds /it0 /arrants
On #anuary 1, 2011, B Corporation issued 3,000 10-year bonds of 12%
P1,000 face value eac wit warrants to ac%uire ordinary sares at P00 per
sare! 'e interest on te bonds is payable annually every December 31!
6ac bond contains one warrant wic can be used to ac%uire 0 sares of P/0
par value ordinary sares! "t is estimated tat witout warrants te bonds would
sell at P-8! 'e bond price wit warrants is 100! *ll warrants are e7ercised on
December 31, 2011!
Prepare entries in connection wit bond issuance and e7ercise of warrants!
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11. Bond &efundin2
'e records of ABC Corporation on #anuary 1, 2011 sow te followin+
accounts&
Premium on bonds payable P 100,000
4ond issue cost -0,000
*ccrued interest 0/0,000
4onds payable due #anuary 2010 interest at 12% payable semi-
annually on #anuary 1 and #uly 1
-,000,000
On #anuary 1, 2011, te followin+ too2 place& 5as of P11,800,000 was made
available from te sale of P12,000,000 of 10-year 10% bonds! 5as from te
new issue was used for te retirement of te 12% bonds at a call price of 102!
Prepare te pertinent entries
11. Amorti3ation of Bond Issue Costs 4sin2 Effecti+e Interest $et0od
On #anuary 1, 2011, C Company issued a 3-year bond wit face value of
P1,000,000 and a -% stated rate! 'e bonds mature on #anuary 1, 201/ and
interest is payable annually on December 31! 'e bonds are issued wit an
effective yield of 10%! 'e company also paid bond issue costs! 4ecause of te
bond issue costs, te ad.usted effective rate is 11%!
Required:
a! 5ompute for te bond issue cost!
b! Prepare te amorti9ation table usin+ effective interest metod!
c! Prepare all pertinent entries!
12. Issuance of Bonds Discount5 6air 7alue -ption
On December 31, 2011, ABS Company issues a two- year 8% P 2,000,000 face
value bonds at a price tat will yield a 10% effective interest rate! "nterest is
payable semi-annually on #une 30 and December 31! *4: e7ercises te fair
value option in measurin+ its bonds payable! 'e bonds are repurcased on 30
#une 2013! 'e followin+ are te mar2et rates for te *4: bonds&
31 December 2012 12%
30 #une 2013 8%

$e%uired& Prepare all pertinent entries!
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1!. Issuance of Bonds on Interest Payment Date Premium5 6air 7alue
-ption
On December 31, 2011, CB Company issues a tree - year 12% P2,000,000
face value bonds at a price tat will yield a 10% effective interest rate! 'e
interest is payable annually every December 31! 54; e7ercises te fair value
option in measurin+ its bonds payable! 'e bonds are repurcased on 30 #une
201/ at 102, its fair value at tat date! 'e followin+ are te mar2et rates for te
54; bonds&
31 December 2012 8%
31 December 2013 12%
$e%uired& Prepare all pertinent entries!
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