At the beginning of the current year, Moses 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 2%. 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
At the beginning of the current year, Moses 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 2%. 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
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