BSA 2201- INTERMEDIATE ACCOUNTING 3

PRELIM DEPARTMENTAL EXAM REVIEWER

ANSWER KEY

1. D 5. A 9. D
2. B 6. B 10. C
3. A 7. D 11. D
4. B 8. D 12. D

13. A
Bond issue price (P1,000 x 2,000 x 99%) P1,980,000
Transaction Cost (20,000)
Total cash received from bond issuance P1,960,000

14. A
Bond Issue price (P1,000 x 1,000 x 103%) P1,030,000
Accrued Interest (P1,000,000 x 15% x 2/12) 25,000
Transaction Cost (60,000)
Net cash receipts from bond issuance P995,000

15. B
Bond issue price (P1,000 x 2,000 x 97%) P1,940,000
The bond issue price of 97% already includes the accrued interest of P50,000
(2,000,000 x 10% x 3/12), incidentally, the bond issue price excluding the interest is
P1,890,000 (1,940,000 - P50,000)
16. C
Issue Price = Present value of expected cash outflows, such as
Future Interest (P2,000,000 x 5.5% x 6.463) P 710,000
Face amount (P2,000,000 x .677) 1,354,000
Total issue price P2,064,930
Less: Premium Amortization:
Interest Incurred (2,000,000 x 5.5.%) P110,000
Interest Expense (2,064,930 x 5%) 103,246 6, 754
Carrying value as of December 31, 2019 P2,058,176
 17. B
Face Value P4,000,000
Less: Carrying Value, December 31, 2015 3,788,760
Unamortized bond discount P 211,240
Date Interest Paid Interest Expense Discount Carrying Value
Amortization
01.01.14 P3,756,000
12.31.14 P360,000 P375,600 P15,600 3,771,600
12.31.15 P360,000 P377,160 P17,160 3,788,760

18. C
Carrying Value, January 2, 2019 P939,000
Add: Discount Amortization
Interest paid (P1,000,000 x 9%) P90,000
Less: Interest expense (P939,000 x 10%) 93,900 3,900
Carrying Value, December 31, 2019 P942,900
19. D
Proceeds from issue (P5,000,000 x 95%) P4,750,000
Less Fair value of the bands (Schedule 1) 4,383,000
Fair value of equity component P 367,000

Schedule 1
Present value of total interest (P5,000,000 x 8% x 6.145) P2,458,000
Present value of principal (P5,000,000 x .385) 1,925,000
Fair value of debt instrument P4,383,000

20. B
Carrying value of debt as of January 1, 2019 P4,264,800
Less: Premium amortization
Interest Paid P400,000
Interest Expense (P4,424,800 x 8%) 341,184 58,816
Carrying value of debt as of December 31, 2019 P4,205,984
Less: Face value of debt 4,000,000
Unamortized premium as of December 31, 2019 P 205,984
 21. A
22. B
Ratio Proceeds Transaction Net Proceeds
Debt 97% P 9,700,000 P77,600 P9,622,400
Equity 3% 300,000 2,400 297,600
Total 100% P10,000,000 P80,000 P9,920,000
23. B
Carrying value of debt as of December 31, 2015 P 4,728,549
Equity component 152,800
Total P4,881,349
Less: Par value of ordinary shares (80,000 shares x PS0) 4,000,000
Excess P 881,349
Less: Transaction costs 50,000
Credit to Share Premium P 831,349

Total proceeds from issue of debt P4,800,000

Less: Liability component (PV expected cash flows)
Interest (P5,000,000 x 6% x 7.024) P2,107,200
Face (P5,000,000 x .508) 2,540,000 4,647,200
Equity component P 152,800

24. B
Total issue price P 3,500,000
Less: Liability component (1,000,000 x 106%) 3,180,000
Equity Component P 320,000
Face of the debt instruments P 3,000,000
Unamortized premium 135,000
CV of the debt P 3,135,000
Ratio of debt converted 1/3
CV of the debt to be recognized P 1,045,000
Equity component to be transferred (320,000 x 1/3) 106,667
Total P 1,151,667
Par value of shares issued (10,000 x 100) 1,000,000
Credit to Share Premium on Conversion P 151,667
 25. D
26. B
Issue Price (5,000,000 x 104%) P5,200,000
Bonds Payable 5,000,000
Premium on Bonds Payable 200,000
Bond Issue Cost (125,000)
Carrying Amount of Bonds Payable P5,075,000
27. A
Retirement Price (P3,000,000 × 94%) P2,820,000
Less: Carrying value of bonds
Face value P3,000,000
Unamortized bond discount (105,000)
Unamortized bond issue cost (30,000) 2,865,000
Gain on early retirement P 45,000

28. B
29. C
Total proceeds from issue of debt P7,700,000
Less: Liability component (PV of expected cash flows)
Interest (P8,000,000 × 8% × 3.79) P2,425,600
Face (P8,000,000 × .621) 4,968,000 7,393,600
Equity component P 306,400

DATE INTEREST INTEREST DISCOUNT CARRYING

PAID EXPENSE AMORTIZATION VALUE
01.01.12 -0- -0- -0- 7,393,600
12.31.12 640,000 739,360 99,300 7,492,960
12.31.13 640,000 749,296 109,296 7,602,256
12.31.14 640,000 760,226 120,226 7,722,482
Total retirement price P8,000,000
Less: Retirement price – Liability Component (Sched. 1) 7,861,760
Retirement Price on Account of the Equity Component P 138,240

Retirement Price – Liability Component P7,861,760

Less: Amortized/carrying value of debt instruments 7,722,482
Loss on retirement of debt – profit or loss P 139,278
 Equity Component – to be cancelled (per book) P306,400
Retirement Price on Account of the Equity Component 138,240
Gain on cancellation – to shareholders’ equity P168,160

Schedule 1:
Retirement Price – Liability Component is equal to the fair value of the instrument at
the time of retirement which is present value of the discounted remaining cash
outflows (for two more years remaining term discounted at the prevailing rate of 9%)
PV of interest (P8,000,000 × 8% × 1.759) P1,125,760
PV of the face amount (P8,000,000 × .824) 6,736,000
Retirement Price – Liability Component P7,861,760

30. A
Total Issue Price P4,100,000
Less: Liability Component (Schedule A) 3,873,200
Equity Component P 226,800

Schedule A:
Present Value of the future interest discounted at 10%:
(4,000,000 × 9% × 3.170) P1,141,200
Present Value of the principal (4,000,000 × .683) 2,732,000
Liability Component P3,873,200

DATE INTEREST INTEREST DISCOUNT CARRYING

PAID EXPENSE AMORTIZATION VALUE
01.01.13 -0- -0- -0- 3,873,200
12.31.13 360,000 387,32O 27,320 3,900,520
12.31.14 360,000 390,052 30,052 3,930,572
Total retirement price P1,000,000
Less: Lilability Component 970,000
Retirement Price in Account of the Equity Component P 30,000

Equity Component – to be cancelled (P226,800 × ¼) P 56,700

Retirement Price on Account of the Equity Component 30,000
Gain on cancellation – to shareholders’ equity P 26,700
Retirement price – Liability Component P 970,000
Less: Carrying value of debt instruments (3,930,572 × ¼) 982,643
Gain on retirement of debt – profit or loss P 12,643
31. D
32. D

Carrying value of debt as of December 31, 2015 ₱3,198,176

Less: par value of ordinary shares (30,000 shares x ₱100) 3,000,000
Credit to share premium on conversion date ₱198,176
Transfer of the equity component 223,100
Total credit to share premium on conversion ₱421,276

33. D
Total proceeds (₱3,000,000 x102%) ₱3,060,000
Assigned value of the bonds (₱3,000,000 x 97%) 2,910,000
Assigned value of warrants ₱150,000

34. D
Total proceeds ₱1,200,000
Less: fair value of bonds 1,080,000
Fair value of the warrants/equity reserve ₱120,000

35. C
Issue price (₱5,000,000 x 110) ₱5,500,000

Bonds payable 5,000,000

Premium on bonds payable 500,000
Bond issue cost (80,000)
Carrying amount ₱5,420,000

Interest expense (6% x 5,420,000) 325,200

Interest paid (8% x 5,000,000) 400,000
Amortization of premium on bonds payable 74,800

Bonds payable 5,000,000

Premium on bonds payable (420,000-74,800) 345,200
Carrying amount – December 31, 2016 5,345,200