Items 5 to 7 are based on the following information. On January 1, 2020, Sykunno Company issued P5,000,000 of 12% nonconvertible bonds payable at 103 which are due on December 31, 2024. In addition, each P1,000 bond was issued with 30 detachable share warrants, each of which entitle the bond holder to purchase for P50, one ordinary share of Sykunno Company, par value P25. On January 1, 2020, the quoted market value of each warrant was P4. The market value of the bonds, ex-warrant at the time of issuance is 95.

Items 5 to 7 are based on the following information. On January 1, 2020, Sykunno Company issued P5,000,000 of 12% nonconvertible bonds payable at 103 which are due on December 31, 2024. In addition, each P1,000 bond was issued with 30 detachable share warrants, each of which entitle the bond holder to purchase for P50, one ordinary share of Sykunno Company, par value P25. On January 1, 2020, the quoted market value of each warrant was P4. The market value of the bonds, ex-warrant at the time of issuance is 95.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 4EB: Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market...

See similar textbooks

Similar questions

Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
Naval Inc. issued $200,000 face value bonds at a discount and received $190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is $5,000. This years balance sheet will show a net liability of ________. A. $200,000 B. $180,000 C. $195,000 D. $205,000
Starmount Inc. sold bonds with a $50,000 face value, 12% interest, and 10-year term at $48,000. What is the total amount of interest expense over the life of the bonds?
Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of premium
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $540,000. Interest is payable annually. The premium is amortized using the straightline method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of premium D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of premium
On March 1, 2020, ABC Company issued P5,000,000 of 12% nonconvertible bonds at 103 which are due on February 28, 2025. In addition, each P1,000 bond issue was issued with 30 detachable share warrants, each of which entitled the bondholder to purchase for P50 one ordinary share of ABC Company par value P25. On March 1, 2020, the quoted market value of each warrant was P4. The market value of the bonds ex-warrant at the time of issuance is 95. What amount of the proceeds from the bond issue should ABC record as an increase in shareholders' equity? Round answer to whole number.
On January 1, 2020, Wimp Corporation purchased P2,000,000 10% bonds for P2,051,510 (including broker’s commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31, 2022. The prevailing market rate for the bonds is 9% at December 31, 2020. 1.) If the bonds are classified as FA@FVTOCI, what is the amount to be recognized as fair value adjustment loss in the 2020 other comprehensive income of the entity? 2.) If the entity sold the investment on Dec. 31, 2020 at fair value and bonds are classified as FA@FVTOCI, what will be the reclassification adjustment to be reported by the entity?
12. On January 1, 2018, Kimber Company issued 9% bonds in face amount of P8,000,000, which mature on January 1, 2028. The bonds were issued for P7,512,000 to yield 10%. The entity used the interest method of amortizing bond discount. Interest is payable annually on December 31. On December 31, 2018, what is the carrying amount of bonds payable? Group of answer choices 7,543,000 7,592,000 7,584,000 7,587,120
On August 31, 2020, Cebu Pacific Co. issued a 3,000, P1,000, 10%, 5 year bonds at 110 including accrued interest. The bond was dated January 1, 2020. Each bond is entitled of 2 warrants where each warrant gives the bondholder the right to purchase 15 shares of common stock, P100 par at P110. On August 31, 2020, the prevailing market interest rate for similar debt without warrant is 12%. On January 1, 2021, 40% of the warrant was exercised. Question: What is the equity component (warrant) of the bond?