BONDS PAYABLE

Bonds issued at face amount- transaction costs negligible

1. On January 1, 20x1, SLAUGHTER MASACCRE Co. issued 1,000, 4,000, 12%, 3-year
Bonds at face amount. Transaction costs are due annually every year-end. How much is the carrying
amount of the bonds on initial recognition?

Bonds issued at a discount

2. On January 1, 20x1, SUMPTUOUS LUXORIOUS Co. issued 1,000 4,000, 10%, 3 year bonds for
3,807,852. Principal is due on December 31, 20x3 but interests are due annually every year-end. The
effective interest rate is 2%.

How much is the authorized discount on bonds as of December 31, 20x1?

Bonds issued at a premium

3. On January 1, 20x1, SMIUDGE BLUR Co., issued 1,000, 4,000, 12%, 3- year bonds for 4,198,948.
Principal is due on December 31, 20x3 but interest are due annually every year-end. The effective interest
rate is 10%. How much is the unamortized discount on bonds as of December 31, 20x1?

Bonds issued at face amount with transaction costs

Use the following information for the next two questions:
On January 1, 20x1, SLOPPY UNTIDY Co. issued 10%, 4,000,000 bonds at face amount. Commission
paid to underwriters amounted to 192,148. Principal is due on December 31, 20x3 but interest payments
are made annually every year-end.

4. How much is the carrying amount of the bonds on initial recognition?

5. How much is the unamortized discount on bonds as of December 31, 20x1?

Bonds issued at a discount- with transaction costs

Use the following information for the next three questions:
On January 1, 20x1, SCRAWNY SKINNY Co. issued 1,000, 4,000, 10% 3-year bonds for 3,807,852.
Principal is due on December 31,20x3 but interest due annually year-end. In addition, SCRAWNY
incurred bonds issue costs of 179,316. The effective interest rate is 12% before adjustment for bond
issue cost and 14% after adjustment for bond issue costs.

6. How much is the carrying amount the note on initial recognition?

7. How much is the interest expense in 20x1?
8. How much is the carrying amount of the note on December 31, 20x1?

Bonds issued at premium with transactions costs

9. On January 1, 20x1, SALIENT PROMINENT Co. issued 1,000, 4,000, 12% 3-year bonds for
4,412,336. Principal is due on December 31, 20x3 but interest are due annually every year-end. In
addition, SALIENT incurred bond issue cost of 213,388. The effective interest rate before adjustment
for transaction costs is 8%. How much is the carrying amount of the note on December 31, 20x1?
Issuance price bonds issuance on the interest dates
14. HAPHAZARD BY CHANCE Co. is contemplating on issuing a 12%, 3-year, 4,000,000 bonds.
Principal is due at maturity but interest due annually at each year-end. HAPHAZARD determines that the
current market rate on January 1, 20x1 estimated issue price of the bonds assuming HAPHAZARD issues
bonds on January 1, 20x1?

Issuance price of bonds issuance in between interest rate dates

15. Use the same information in the preceding problem except that HAPHAZARD plans to issuance the
bonds on April 1, 20x1. How much is the estimated total proceeds from the issuance of the bonds on
April 1, 20x1?

Retirement of bonds- Bond refunding

16. On September 30, 20x1, ADMONISH WARN Co. issued new bonds with face amount of the 10M
for a net issuance proceeds of 43,200,000. ADMONISH used the proceeds to retire an existing 10-year,
12%, 32,000,000 bonds issued five years earlier. The bonds have an unamortized discount of
1,360,000 as of September 30,20x1. ADMONISH reacquired the entire outstanding bonds at a call
premium 0f 1,600,000. Costs incurred that are directly attributable to the retirement amounted to
200,000. ADMONISH has an income tax rate of 30% How much is the gain (loss) on the retirement of
the bonds to be recognized in 20x1?

Retirement of bonds
17. On January 1, 20x1, POTENT POWERFUL Co. issued 5-year, 12%, 4,000,000 bonds for
4,303,264. Principal is due at maturity but interests are due annually. The effective interest rate is 10%.
On July 1, 20x3, POTENT called in the entire bonds and retired them at 102. The retirement price
includes payment for any accrued interest. How much is the gain (loss)on the extinguishment of the
bonds?

Serial bonds Issued at discount

18. On January 1, 20X1, TIPSY UNSTEADY Co. issued 10%, 12,000,000 bonds for 11,601,220.
Principal on the bonds matures in three equal annual installments. Interest is also due annually at each
year-end. The effective interest rate on the bonds is 12%. How much is the carrying amount of the bonds
on December 31,20x1?

Adjustment to effective interest- serial bonds

19. On January 1,20x1, NIX FORBID Co. issued 10%, 12,000,000 bonds at 105. Transaction costs
incurred amounted to 177,096. Principal on the bonds mature in three equal annual installments. price
bonds on December 31, 20x1?

Issuance price of serial bonds- in between interest date

20. On January 1,20x1, ZEAL EAGERNESS Co. contemplates on issuing 10%, 12,000,000 bonds.
Principal on the bonds will mature in three equal annual installments. Interest on the outstanding principal
balance are also payable annually at each year-end. The effective interest rate as of January 1, 20x1 is
12%. How much is the estimated issue price of the bonds on January 1, 20x1?
Issuance price of serial bonds- in between interest dates
21. Use the same information in the preceding problem but assume ZEALO Co. issues bonds on
September 30, 20x1. How much is the total cash proceeds from the issuance of the bonds on September
30, 20x1?

Zero-coupon bonds
22. On January 1, 20x1 PAGEANT SHOW Co. issued 10%, 3-year, 12,000,000 bonds at a yield to
maturity interest of 18%. Principal and interest are due on December 31, 20x3. How much is the carrying
amount of the bonds on initial recognition?

Issuance of convertible bonds

23. On January 1, 20x1, VIGILANT WATCHFUL CAO. Issued its 10%, 3-year, 4,000,000 convertible
bonds for the face amount of 4,000,000. Each 4,000 bond is convertible into 8 shares with par value of
400 per share. When the bonds were issued, they were selling at 98 without the conversion option
VIGILANT incurred 200,000 transaction costs on the issue of the bonds. How much is the equity
component of the compound instrument?

Conversion of the convertible bonds

24. On January 1, 20x1, CRYSTALLINE TRANSPARENT Co. issued its 10%, 3-year, 4,000,000
convertible bonds at 105. Each 4,000 bond is convertible into 8 shares with par value share of 400.
Principal is due on December 31, 20x3 but interests are due annually at each year-end. When the bonds
were issued, they were selling at a yield to maturity market rate of 12% without the conversion option. On
December 31, 20x2, all of the bonds were converted into equity. Conversion costs incurred amounted to
80,000.

How much is the net increase in equity on December 31, 290x2 due to the conversion of the bonds?

Partial conversion of convertible bonds

Use the following information for the next two questions:
On January 1, 20x1, OCCIDENTAL WETERN Co. issued its 12%, 3-year, 4,000,000 convertible bonds
at 110. Each 4,000 bond is convertible into 8 shares with par value per share 0f 400. Principal is due on
December 31, 20x3 but interests are due annually at each year-end when the bonds were issued, they were
selling at a yield to maturity market rate of 10% without the conversion option.

On December 31, 20x2, half of the bonds were converted into equity. Conversion costs incurred
amounted to 80,000.

25. How much is the net increase in equity as a result of the conversion?
26. How much is the net increase in share premium general account as a result of the conversion?

Conversion in between interest payment dates

Use the following information for the next two questions:
On January 1, 20x1, BLEARLY DIMMED Co. issued its 12%, 3 year, 4,000,000 convertible bonds at
110. The bonds are convertible into 8 shares with par value per share of 400. Principal is due on
December 31, 20x3 but interest are due annually at each year-end. At issuance date, the bonds are selling
at 4,198,948 without the conversion privilege. The effective interest rate is 10%. On July 1, 20x2, all of
the bonds were converted into equity. Conversion costs incurred amounted to 80,000. The accrued
interest is settled separately in cash.

27. How much is the equity component of the compound instrument on January 1, 20x1?
28. How much is the net credit to share premium account on July 1, 20x2?

Retirement of Convertible bonds

Use the following information for the next three questions:
On January 1, 20x1, ELABORATE COMPLICATED Co. issued 3-year, 10%, 4,000,000 convertible
bonds for 4,400,000. Principal is due at maturity but interests is payable every year-end. The bonds are
convertible into 6,000 ordinary shares with par value of 400. At issuance date, the prevailing market rate
of interest for similar debt without conversion feature is 12%.

On December 31,20x2, all the convertible bonds were retired for 4,000,000. The prevailing rate of the
interest on a similar debt instrument as of December 31, 20x2 is 11% without the conversion feature.

29. How much is the gain (loss) on the extinguishment of the bonds on December 31, 20x2?
30. How much is the net credit to share premium account on December 31, 20x2?
31. How much is the net increase (decrease) in equity due to the retirement of the bonds on December 31,
20x2?

Use the following information for the next two Questions:

On January 1, 20x1, SINEWY MUSCULAR Co. issued 3-year, 10%, 4,000,000 convertible bonds for
4,400,000. Principal is due at maturity but the interests is payable every year-end. The bonds are
convertible into 6,000 ordinary shares with par value of 400. At issuance date, the prevailing market rate
of interest for similar debt without conversion feature.

32. How much is the gain (loss) on the extinguishment of the bonds on December 31, 20x2?
33. How much is the net credit to share premium account on December 31, 20x1?

Bonds with detachable share warrants

Use the following information for the next three questions:
On January 1, 20x1, MYSTIFY PUZZLE Co. issued 3-year, 10%, 1,000, 4,000 bonds at 97. Each bonds
has one detachable share warrant entitling the holder to buy 10 shares of MYSTIFY with par value of
400 at 480 per share. Shortly after issuance, the bonds are selling at 95 ex-warrants.

34. How much is the equity component of the compound instrument on January 1, 20x1?
35. Assuming half of the warrants were exercised on September 21, 20x1 the net credit to share
premium account is
36. Assuming half of the warrants expired on December 31, 20x2, the net credit to share premium
account is
Bonds with detachable share warrants
Use the following information for the next two questions:
On January 1, 20x1, INDEBTED OWING Co. issued 3-year, 12%. 4,000,000 bonds for 4,400,000.
Each 4,000 bond has two detachable warrants entitling the holder to purchase one share of INDEBTED
with par value of 2,000 for 2,080. Without the warrants, the bonds are selling at a yield to maturity rate
of 10%. On September 21, 20x1, all of the share warrants were exercised.

37. How much is the gain (loss) on the exercise of the warrants on September 21, 20x1?
38. How much is the net credit (debit) to share premium account on September 21, 20x1?