Katipunan Company has financial liability (accounted under amortized cost) with face amount of P5,000,000 and a carrying amount of P4,800,000. In addition, there is an unpaid interest of P250,000, accrued. The creditor agreed to the settlement of the bonds payable in exchange for 50,000 shares of P50 par value. The shares have current market value of P4,500,000. How much should be recorded as additional share premium as a result of the extinguishment of the liability?

Katipunan Company has financial liability (accounted under amortized cost) with face amount of P5,000,000 and a carrying amount of P4,800,000. In addition, there is an unpaid interest of P250,000, accrued. The creditor agreed to the settlement of the bonds payable in exchange for 50,000 shares of P50 par value. The shares have current market value of P4,500,000. How much should be recorded as additional share premium as a result of the extinguishment of the liability?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

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N company purchased debt investment at amortized cost at a discount of P20,000. Subsequently, N sold these bonds at a premium of P28,000. During the period the N held this investment, amortization of discount amounted to P4,000. How much is the gain/loss on the sale of the debt investment?
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Entity A is listed in Hong Kong. It is a toy manufacturer which commenced its business more than thirty years. On 1 July 2018, Entity A bought a $3,500,000 5.25% bond for $3,650,000. It also incurred an issue cost of $2,312. Entity A paid the bond price by a direct bank transfer on the purchase date. The issue cost was settled on 16 July 2018. Fixed interest is received in arrears. The bond will be redeemed at a premium over its face value on 30 June 2021. Entity A intended to hold the bond until maturity. The fair value option was not elected at the initial recognition. The fair values of the bond were as follows: 30 June 2019 $3,980,000 30 June 2020 $3,560,000 30 November 2020 $3,250,000 31 December 2020 $3,350,000 30 June 2021 $4,365,400 The effective interest rate is 8.25%. The market environment is stable and credit risk-free. The end of the reporting period is 30 June. REQUIRED: According to relevant accounting standards, prepare journal entries to recognise the…