Celeron Company Issue price of bonds without conversion privilege b Amortization Table Date Interest Paid Expense Interest Amortization Premium Bond Carrying Value *Adjusted; d
Trang 1PROBLEMS 2-1 (Ruby Corporation)
Computations:
At 8%
Issue price = (1,000,000 x 0.6756) + (50,000 x 8.1109)
= 675,600 + 405,545 = 1,081,145
Date
A Interest Paid
B Interest Expense
C Premium Amortization
D Bond Carrying Value
A = Face value x 5%
B = Carrying value, beg of year x 4%
At 12%
Issue price = (1,000,000 x 0.5584) + (50,000 x 7.3601)
= 558,400 + 368,005 = 926,405
Date
A Interest Paid
B Interest Expense
C Discount Amortization
D Bond Carrying Value
2-2 (Fire Company)
Correction to the text:
A = 5% x face value
B = 4% of previous carrying value
(a) Issue price
Present value of face value (4,000,000 x 0.6756) P2,702,400 Present value of interest payments (200,000 x 8.1109) 1,622,180
Trang 2(b) Amortization Table
Date Interest Paid Expense Interest Amortization Premium Bond Carrying Value
(c)
12/31/12 Interest Expense (171,903 x 4/6) 114,602
02/28/13 Interest Expense (171,903 – 114,602) 57,301
Premium on Bonds Payable (28,097 –
2-3 (Metal Corporation)
Issue price of bonds and warrants 5,000,000 x 1.08 5,400,000
MV of bonds without warrants 5,000,000 x 1.02 5,100,000
Ordinary Shares (5,000 x 2 x 100) 1,000,000
2-4 (Onyx)
(a) Issue price of bonds with warrants (1,000,000 x 1.03) 1,030,000
Bond price without warrants
Trang 3(b) Interest Expense for 2012 (887,020 x 12% x 10/12 88,702
Amortization through December 31, 2012
2-5 (Celeron Company)
Issue price of bonds without conversion privilege
(b) Amortization Table
Date Interest Paid Expense Interest Amortization Premium Bond Carrying Value
*Adjusted; difference is due to rounding off
(c)
PIC Arising from Conversion Privilege 86,544
Trang 4Carrying value,bonds converted (1,903,865 x 120/200 1,142,319
Discount on bonds payable cancelled 57,681 Value of equity converted (144,240 x 120/200) 86,544 Par value of ordinary shares issued (120 x 80 x 100) 960,000
PIC Arising from Bond Conversion Privilege 57,696
PIC from Unexercised Bond Conversion Privilege 57,696 (144,240 – 86,544)
2-6 (Iron Company)
Premium on Bonds Payable (450,000 x 2/20) 45,000
PIC Arising from Bond Conversion Privilege(320,000 x 2/20) 32,000
2-7 (Lim Corporation)
Premium on Bonds Payable (5,000 x 1/5) 10,000 PIC Arising from Bond Conversion Privilege 60,000
300,000 x 1/5 = 60,000
Premium on Bonds Payable (5,000 x 2/5) 20,000 PIC Arising from Bond Conversion Privilege 120,000
PIC from Unexercised Bond Conversion Privilege 50,000
Trang 5Retirement price 2,080,000 Retirement price on account of liability
2,000,000 x 1.005 2,010,000 Retirement price on account of equity 70,000 Carrying value of bonds retired
Unamortized premium (50,000 x 2/5) _20,000
2,020,000 Retirement price of bonds (2M x 1.005) 2,010,000 Gain on retirement of bonds 10,000 Carrying value of equity cancelled 120,000 Retirement price on account of equity 70,000 Gain on cancellation taken to equity 50,000
2-8 (Emerald Corporation)
The following table may facilitate the computations required in this problem
Date Interest Paid Interest Expense Amortization Premium Carrying Value Bond
*Adjusted; difference is due to rounding off
Amortization for one month (33,843 x 1/6) 5,640
(b) Interest Expense for year 2013
(c) Carrying value of bonds retired on December 1, 2014
Amortization through April 1, 2015 (37,312 x 4/6 x 2/5) 9,950 Carrying value of bonds retired on April 1, 2015 2,091,557
Trang 6(e) Carrying value of remaining bonds, December 1, 2015 3,106,367
Amortization through December 31, 2015 (24,682 x 1/6) 4,114 Carrying value of remaining bonds, December 31, 2015 3,102,253
January 1-April 1, 2013 (262,688 x 2/5 x 3/6) 52,538
On remaining bonds January 1-June 1, 2013 (262,688 x 3/5 x 5/6) 131,344
December 1-31, 2015 (155,318 x 1/6) 25,886 January 1-June 1, 2016 (155,318 x 5/6) 129,432
December 1-31, 2016 (152,788 x 1/6) 25,465
2-9 (Ohio Company) Partial Amortization Table
Date Interest Paid Expense Interest Amortization Premium Bond Carrying Value
(a) Effective interest (12,734,120 – 50,000) x 8% 1,014,730
(b) Carrying value of bonds on December 31, 2015 (see table) 11,849,272 (c) Carrying value of bonds called (11,849,272 x 5/10) 5,924,636
Call price/retirement price (5,000,000 x 110%) 5,500,000
(d) Interest Expense for year 2016 (see table) 473,971 (e) Unamortized premium on bonds payable, Dec 31, 2016
2-10 (Sim Company)
Partial Amortization Table Date Nominal Interest Effective Interest Amortization Premium Carrying value Bond
Trang 7(a) Interest expense recorded on September 1, 2012 88,335
Discount amortization recorded on September 1, 2012 3,335 (b) Carrying amount of the bonds, September 1, 2012 1,966,335
Amortization through December 31, 2010 (3,485 x 4/6) 2,323 Carrying amount of the bonds, December 31, 2012 1,968,658
Accrued interest (2,000,000 x 8.5% x 4/12) 56,667
(d) Carrying value, March 1, 2015 (see table) 1,985,401
Amortization through June 30, 2015 (4,343 x 4/6) 2,895
2-11 (Kim Company)
(a) Issue price of the bonds
Due Date
Principal Due
Interest Due
Amount Due PV Factor
Present Value 12/31/13 2,000,000 800,000 2,800,000 0.8929 2,500,120 12/31/14 2,000,000 640,000 2,640,000 0.7972 2,104,608 12/31/15 2,000,000 480,000 2,480,000 0.7118 1,765,264 12/31/16 2,000,000 320,000 2,320,000 0.6355 1,474,360 12/31/17 2,000,000 160,000 2,160,000 0.5674 1,225,584
Due Date Principal Due Interest Due Effective Interest Amortization Discount Value, end Carrying
12/31/14 2,000,000 640,000 882,999 242,999 5,601,327 12/31/15 2,000,000 480,000 672,159 192,159 3,793,486 12/31/16 2,000,000 320,000 455,218 135,218 1,928,704 12/31/17 2,000,000 160,000 231,296 71,296* -0-
*Adjusted; difference is due to rounding off
Trang 82-12 (Blue Sapphire Corporation)
(a) Issue price of the bonds
Due Date Principal Due Interest Due Amount Due PV Factor Present Value
Due Date Principal Due Interest Due Effective Interest Amortization Discount Value, end Carrying
*Adjusted; difference is due to rounding off
2-13 (KFC Delivery Service)
(a) 6,949,800/9,000,000 = 0.7722 This present value factor for three periods is under the rate of 9% (Table II, Present Value of a Single Payment) Hence, effective interest for this transaction is 9%
*Adjusted; difference is due to rounding off
Trang 9(c) Interest expense for 2012 (625,482 x 4/12) 208,494
09/01/13 Interest Expense (625,482 -208,494) 416,988
12/31/13 Interest Expense (681,775 x 4/12) 227,258
09/01/14 Interest Expense (681,775 – 227,258) 454,517
12/31/14 Interest Expense (742,943 x 4/12) 247,648
08/31/15 Interest Expense (742,943 – 247,648) 495,295
2-14 (JFC)
6,949,800 x 9%= 625,482
6,949,800 x 1.09 = 7,575,282 7,575,282 x 9%= 681,775
7,575,282 x 1.09 = 8,257,057 8,257,057 x 9%= 743,135
(c) Non-current Liabilities
Trang 10Current Liabilities
2-15 (Wendy’s Catering Service)
(a) Present value of note (800,000 x 3.2397) 2,591,760 (b) Date Principal Due Amortization Carrying Value of Note
3/31/16 800,000 66,076* -0-
*Adjusted; difference is due to rounding off
12/31/12 Interest Expense (233,258 x 9/12) 174,944
12/31/13 Interest Expense (182,252 x 9/12) 136,689
Trang 1112/31/14 Interest Expense (126,654 x 9/12) 94,991
12/31/15 Interest Expense (66,076 x 9/12) 49,557
2-16 (Burgee’s Food Corporation)
(a)
Principal
*Adjusted
12/31/12 Interest Expense (233,258 x 9/12) 174,944
Interest Expense (233,258 – 174,944) 58,314
12/31/13 Interest Expense (182,252 x 9/12) 136,689
Interest Expense (182,252 – 136,689) 45,563
12/31/14 Interest Expense (126,654 x 9/12) 94,991
Interest Expense (126,654 – 94,991) 31,663
12/31/15 Interest Expense (66,076 x 9/12) 49,557
Trang 1204/01/14 Interest Payable 49,557
Interest Expense (66,076 – 49,557) 16,519
(c) Current portion at December 31, 2013
Noncurrent portion at December 31, 2013
2-17
(b) (Joy Company)
(c) (Capshell Company)
(see computations and explanation below) Present value of future payments at historical rate:
8,000,000 x 0.7972 = 6,377,600 8,000,000 x 8% x 1.6901 = 1,081,664 Total 7,459,264 Carrying value of liability 11,200,000 Difference 3,740,736 3,740,736/11,200,000 = 33%, thus the restructuring qualifies as a derecognition
of the old liability and creation of a new liability
The old liability shall be cancelled; the new liability shall be measured based on the discounted cash flow of the future payments based on the entity’s incremental borrowing rate considering its credit rating:
Trang 13Present value of future payments at incremental borrowing rate, considering its credit rating:
8,000,000 x 0.7831 = 6,264,800 8,000,000 x 8% x 1.6681 = 1,067,584 Total 7,332,384 Carrying value of the old 11,200,000 Gain on debt restructuring 3,867,616
Alternatively, the entry may be recorded as:
Discount on Restructured Notes Payable 667,616
(d) (Solid Company)
Deferred Gain on Debt Restructuring 218,976 Present value of future payments
3,000,000 x 0.5935 = 1,780,500 3,000,000 x 12% x 3.6959 = 1,330,524 Total 3,111,024 Carrying value of liability 3,330,000 Difference 218,976 218,976/3,330,000 < 10% of 3,330,000
Thus, the debt restructuring does not qualify for derecognition of the old obligation No gain shall be recognized and a new effective interest rate shall be computed
Alternatively, the restructuring may be recorded as:
Premium on Restructured Notes Payable 111,024
Trang 14MULTIPLE CHOICE QUESTIONS Theory
effective rate (supposedly A)
Problems
MC22 D (1,000,000 x 0.38554) + (80,000 x 6.14457) = 877,106
MC23 B (1,000 x 0.31) + (40 x 11.47) = 768.80
MC24 A (2,000,000 x 97%) + (2,000,000 x 10% x 3/12) = 1,990,000
MC25 B (2,000 X 1,040) - 2,000,000 = 80,000
MC26 B (4,000,000 x 97%) + (4,000,000 x 12% x 3/12) = 4,000,000
MC27 C 1,070,000 - (96% x 1,000,000) = 110,000
MC28 A 1,000,000 x 12% x 1/12 = 10,000
MC29 B (1,000,000 x 1.02) – 50,000 = 970,000
MC30 D 1,000,000 - 30,000 + 50,000 = 1,020,000;
1,020,000 - (40,000 x 20) - 10,000 = 210,000 MC31 D Use the book value method; no gain or loss is recorded upon conversion; the
conversion is in accordance with the original terms of the bond; thus, IFRIC 19 does not apply
MC32 C 1,032,880 x 10% x 6/12 = 51,644
MC33 A 1,032,880 - {(1,000,000 x 6%) - 51,644}= 1,024,524
MC34 A 1,878,000 - {(10% x 1,878,000) -(2,000,000 x 9%) = 1,885,800
MC35 B 10,000,000 – 1,145,000 = 8,855,000;
(8,855,000 x 6%) - (10,000,000 x 5%) = 31,300 MC36 C 5,680,000 x 8% x 6/12 = 227,200
MC37 A (2,100,000 x 6%) – (2,000,000 x 7%) = 14,000; 2,100,000 – 14,000 = 2,086,000 BCV;
BCV of P2,086,000 – face value of P2,000,000 = P86,000 premium MC38 C 1,032,880 x 10% = 103,288
MC39 D 1,902,800 x 10% = 190,280 effective interest; 190,280 effective interest – nominal
interest of 160,000=30,280 discount amortization; carrying value = 1,902,800 + 30,280 – principal payment of 400,000 = 1,533,080
MC40 B 2,400,000 X 12% = 288,000
MC41 D 2,400,000 – 1,000,000 + 288,000 = 1,688,000
1,688,000 X 12% = 202,560; 1,000,000 – 202,560 = 797,440 MC42 B 3,000,000 – 2,400,000 = 600,000; 600,000 – 288,000 = 312,000
MC43 A (1) 49,737 X 10%= 4,974; 49,737 – (20,000 – 4,974) = 34,711
MC44 D 5,500,000 – 3,000,000 = 2,500,000
MC45 D 6,000,000 + 600,000 = 6,600,000
(6000,000 x 0.621) +(6000,000 x 12% x 3.791) = 6,455,520 6,600,000 – 6455,520= 144,480, which is less than 10% of 6,600,000; no gain is recognized
MC46 C 6,600,000 – [(5,000,000 x 6209) +(5,000,000 x 12 x 3.7908)] =1,221,020
MC47 B 8,000,000 + 640,000 = 8,640,000
(6,000,000 x 0.8573) + (6,000,000 x 10% x 1.7833) = 6,213,780 8,640,000 – 6,213,780 = 2,426,220