INTER. ACCT. (COMPOUND - PROBLEMS) Flashcards
At year-end, ___ Company issued 5,000 8%, 10-year bonds, P1,000 face amount with detachable share warrants at 110.
Each bond carried a detachable warrant for ten ordinary shares of __ Company at a specified option price of P25 per share. The par value of the ordinary share is P20.
Immediately after issuance, the market value of the bonds without the warrants was P5,400,000 and the market value of the warrants was P600,000.
What is the carrying amount of bonds payable at year-end?
a. 5,000,000
b. 4,950,000
c. 4,900,000
d. 5,400,000
D. 5,400,000
At the beginning of current year, ____ Company issued P5,000,000 face amount, 5-year bonds at 109.
Each P1,000 bond was issued with 50 detachable share warrants, each of which entitled the bondholder to purchase one ordinary share of P5 par value at P25. Immediately after issuance, the market value of each warrant was P5.
The stated interest rate on the bonds is 11% payable annually every December 31. However, the prevailing market rate of interest for similar bonds without warrants is 12%.
The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60.
- What is the initial carrying amount of the bonds payable?
a. 5,450,000
b. 4,830,000
c. 5,000,000
d. 4,380,000 - What amount should be recorded initially as discount or premium on bonds payable?
a. 170,000 discount
b. 450,000 premium
c. 450,000 discount
d. 800,000 discount - What amount should be reported as equity component arising from the issuance of bonds payable?
a. 450,000
b. 500,000
c. 620,000
d. 0 - What amount should be recorded as share premium if all of the warrants are exercised?
a. 1,250,000
b. 2,500,000
c. 5,000,000
d. 5,620,000
- b. 4,830,000
- a. 170,000 discount
- c. 620,000
- d. 5,620,000
At the beginning of current year, ___ Company issued P5,000,000 of 12% nonconvertible 5-year bonds at 103.
In addition, each P1,000 bond was issued with 30 detachable share warrants, each of which entitled the bondholder to purchase, for P50, one ordinary share of Company, par value P25.
The quoted market value of each warrant was P4. The market value of the bonds ex-warrants at the time of issuance is 95.
- What is the carrying amount of the bonds payable?
a. 5,000,000
b. 4,750,000
c. 5,150,000
d. 4,550,000 - What amount of the proceeds from the bond issue should be recognized as an increase in shareholders’ equity?
a. 600,000
b. 300,000
c. 200,000
d. 400,000
- b. 4,750,000
- d. 400,000
Company issued P5,000,000 face amount 12% convertible bonds at 110 at the beginning of current year. The bonds pay interest semiannually on January 1 and July 1.
It is estimated that the bonds would sell only at 103 without the conversion feature. Each P1,000 bond is convertible into 10 ordinary shares with P100 par value.
What amount should be reported as increase in shareholders’ equity arising from the original issuance of the convertible bonds payable?
a. 350,000
b. 500,000
c. 150,000
d. 0
a. 350,000
At the beginning of current year, Company issued 5,000 convertible bonds payable. The bonds have a three-year term and are issued at 110 with a face amount of P1,000 per bond.
Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of P5.
When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%.
The present value of 1 at 9% for 3 periods is.77 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53.
What amount should be reported as equity component of the original issuance of the convertible bonds payable?
a. 1,150,000
b. 1,650,000
c. 891,000
d. 391,000
c. 891,000
Company had outstanding share capital with par value of P50,000,000 and a 12% convertible bond payable in the face amount of P10,000,000, Interest payment dates of the bond issue are June 30 and December 31.
The conversion clause in the bond indenture entitled the bondholders to receive 40 shares of P20 par value in exchange for each P1,000 bond.
On June 30, the holders of bonds with face amount of P5,000,000 exercised the conversion privilege. The market price of the bonds on that date was P1,100 per bond and the market price of the share was P30.
The total unamortized bond discount at the date of conversion was P500,000. The share premium from conversion privilege has a balance of P2,000,000 on June 30.
What amount of share premium should be recognized by reason of the conversion of bonds payable into share capital?
a. 2,000,000
b. 2,750,000
c. 3,000,000
d. 1,750,000
d. 1,750,000
Company had P600,000 convertible 8% bonds payable outstanding on June 30. Each P1,000 bond was convertible into 10 ordinary shares of P50 par value.
On July 1, the interest was paid to bondholders, and the bonds were converted into ordinary shares, which had a fair value of P75 per share.
The unamortized premium on these bonds was P12,000 at the date of conversion. No equity component was recognized when the bonds were originally issued.
- What amount should be recorded as increase in share capital as a result of the bond conversion?
a. 300,000
b. 306,000
c. 450,000
d. 600,000 - What amount should be recorded as increase in share premium as a result of the bond conversion?
a. 312,000
b. 306,000
c. 162,000
d. 12,000
- a. 300,000
- a. 312,000
At year-end, Company had outstanding 10%, P1,000,000 face amount convertible bonds payable maturing in three years.
Interest is payable on June 30 and December 31. Each P1,000 bond is convertible into 50 shares of P10 par value.
The unamortized premium on bonds payable was P60,000 at year-end.
At year-end, 400 bonds were converted when __ share had a market price of P24. The entity incurred P4,000 in connection with the conversion.
No equity component was recognized when the bonds were originally issued.
What amount should be recorded as share premium from the issuance of shares as a result of the bond conversion at year-end?
a. 176,000
b. 220,000
c. 276,000
d. 280,000
b. 220,000
Company had outstanding share capital with par value of P50,000,000 and a 12% convertible bonds payable in the face amount of P10,000,000. Interest on the bond is payable annually on December 31. The conversion clause entitled the bondholders to receive 50 shares of P20 par value in exchange for cach P1,000 bond.
At year-end, the holders of bonds with face amount of P2.000.000 exercised the conversion privilege The market price of the bonds on that date was P1.100 per bond and the market price of the share was P30.
The premium on bonds payable at the date of conversion was P3,000,000. The paid in capital from conversion privilege has a balance P1.500.000 at the date of conversion.
What amount of share premium should be recognized by reason of the bond conversion?
a. 450,000
b. 300,000
c. 600,000
d. 900,000
d. 900,000
After recording interest and amortization. Company converted P5,000,000 of 12% convertible bonds into 50,000 shares of P50 par value. On the conversion date, the carrying amount of the bonds payable was P6,000,000, the market value of the bonds P6,500,000 and the share was publicly trading at 150.
The entity incurred P200,000 in connection with the bond conversion. When the bonds were originally issued, the equity component was recorded at P2,000,000.
What amount of share premium should be recorded as a result of the bond conversion?
a. 6,000,000
b. 5,800,000
c. 5,300,000
d. 5,500,000
c. 5,300,000
Company issued 5,000 convertible bonds at the beginning of the current year. The bonds had a four-year term with a stated rate of interest of 6%, and were issued at par with a face amount of P1,000 per bond. Interest is payable annually on December 31.
Each bond is convertible into 50 ordinary shares with a par value of P10. The market rate of interest on similar nonconvertible bond is 9%.
At the issuance date, the amount of P485,000 was credited to share premium from conversion privilege.
The bonds were not converted and instead, the entity paid off the convertible bondholders at maturity.
What amount should be recorded as gain or loss on the full payment of the convertible bonds at maturity?
a. 300,000 gain
b. 485,000 loss
c. 485,000 gain
d. 0
c. 485,000 gain
On January 1, 2022, Company issued convertible bonds with a face amount of P5,000,000 for P6,000,000.
The bonds are convertible into 50,000 shares with P100 par value..
The bonds have a 5-year life with 10% stated interest rate payable annually every December 31.
The fair value of the convertible bonds without conversion option is computed at P5,399,300 on January 1, 2022.
On December 31, 2024, the convertible bonds were not converted but fully paid for P5,550,000.
On such date, the fair value of the bonds without conversion privilege is P5,400,000 and the carrying amount is P5,178,300.
- What is the carrying amount of the bonds payable on January 1, 2022?
a. 5,000,000
b. 6,000,000
c. 5,399,300
d. 5,500,000 - What is the premium on bonds payable on January 1, 2022?
a. 1,000,000
b. 500,000
c. 399,300
d. 0 - What amount should be recorded as equity component arising from issuance of bonds payable on January 1, 2022?
a. 500,000
b. 600,700
c. 450,000
d 0 - What amount should be recorded as loss on the extinguishment of the convertible bonds payable on December 31, 2024?
a. 221,700
b. 371,700
c. 150,000
d. 0
- c. 5,399,300
- c. 399,300
- b. 600,700
- a. 221,700
