Sample Problems - Bonds Payable

Problem 1
The RONNIE CO. sold P6,000,000 of 9% bonds on October 1, 2022, at P5,747,280 plus accrued interest.
The bonds were dated July 1, 2022; interest payable semiannually on January 1 and July 1; redeemable
after June 30, 2027 to June 30, 2030, at 101, and thereafter until maturity at 100; and convertible into P10
par value common stock as follows:
o Until June 30, 2027, at the rate of 6 shares for each P1,000 bond.
o From July 1, 2027, to June 30, 2030, at the rate of 5 shares for each P1,000 bond.
o After June 30, 2030, at the rate of 4 shares for each P1,000 bond.
The bonds mature 10 years form their issue date. The company adjust its books monthly and closes its
books as of December 31 each year.
The following transactions occur in connection with the bonds:
2028
July 1 P2,000,000 of bonds were converted into stock.
2029
Dec 31 P1,000,000 face value of bonds were reacquired at 99-1/4 plus accrued interest. These were
immediately retired.
2030
July 1 The remaining bonds were called for redemption and accrued interest was paid. For purposes of
obtaining funds for redemption and business expansion, an P8,000,000 issue of 7% bonds was sold at
97. These bonds are dated July 1, 2030, and are due in 20 years.
The amortization of discount/premium is computed using straight-line method.
Requirements:
1. What is the carrying value of bonds payable at December 31, 2022?
2. What is the total interest expense for 2022?
3. What is the gain or loss on bond conversion on July 1, 2028?
4. What is the carrying value of the bonds reacquired on December 31, 2029?
5. What is the gain (loss) on bond reacquisition on December 31, 2029?
Problem 3
The December 31 trial balance of the Ruel Corporation includes, among others, the
following:
Long-term Notes – which are payable in
annual installment of P10,000 on
February 1 of each year P 60,000
Rental income received in advance 16,000
Notes payable, which are trade notes,
with the exception of P20,000
Notes payable to bank on June 30 of the following year 60,000
Accounts payable which include account
with debit balance of P2,000 80,000
Notes Receivable which have been reduced by
notes discounted of P20,000 that are not
yet due and on which the Corporation is
contingently liable 100,000
Accounts Receivable, which include accounts
with credit balances of P10,000 and past due
accounts of P6,000 on which a loss of 80% is
anticipated 200,000 Merchandise Inventory,
which includes goods held for consignment,
P8,000, and goods received on December 31 of
P12,000; neither of these items having been
recorded as a purchase 180,000
Problem 4
On April 1, 20x1, ABC Co. issued 12%, P1,000,000 bonds dated January 1, 20x1 at 97 including accrued
interest. The bonds mature in ten years and pay interest annually every year-end
Problem 5
On April 1, 20x1, ABC Co. issued 12%, P1,000,000 bonds dated on January 1, 20x1 at 97 excluding
accrued interest. The bonds mature in ten years and pay interest annually every year end
Problem 6
On January 1, 20x1, ABC Co. issued its 10%, 3-year, P1,000,000 convertible bonds at 105. Each P1,000
bond is convertible into 8 shares with par value per share of P100. 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 share of 12% without the conversion option. On December 31, 20x2, all of the bonds
were converted into equity. Conversion costs incurred amounted to P20,000.
Problem 7
At December 31, 2006, the Core Corporation had the following liability and equity account
balances:
11% Bonds payable, at face value P2,500,000
Premium on bonds payable 176,190
Common stock 4,000,000
Additional paid in capital 1,147,500
Retained earnings 1,232,500
Treasury stock, at cost 162,500
Transactions during 2007 and other information relating to the Corporation’s liability and
equity accounts were as follows:
 The bonds were issued on December 31, 2005, for P2,689,000 to yield 10%. The bonds mature
on December 31, 2012. Interest is payable annually on December 31. The Corporation uses the
effective interest method to amortize bond premium.
 At December 31, 2006, the corporation had 1,000,000 authorized shares of P10 par common
stock.
 On November 2, 2007, the Corporation borrowed P2,000,000 at 9%, evidenced by a note
payable to Premium Bank. The note is payable in five equal annual principal installments of
P400,000. The first principal and interest payment is due on November 2, 2008.
1. How much is the bond premium amortization for 2007?

2. What is the carrying value of the bonds payable on December 31, 2007?
3. How much is the 2007 interest expense on bonds payable?
4. What is the treasury stock balance on December 31, 2007?
5. What is the long-term portion of the note payable to bank as of December 31, 2007?
6. What is the 2007 total interest expense?

Sample Problems - Bonds Payable

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Sample Problems - Bonds Payable

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Problem 1

The following transactions occur in connection with the bonds:

The amortization of discount/premium is computed using straight-line method.

1. How much is the bond premium amortization for 2007?

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