On January 1, 2020, James Bond Co. issued ₱4,000,000 of 12% bonds payable maturing in 5 years. The bonds pay interest semiannually on June 30 and December 31. The bonds include share warrants giving the bondholder the right to purchase 8,000 ₱100 par value shares for ₱150 per share within the next three years. The bonds and warrants were issued at 120. The value of the warrants at the time of issuance was ₱750,000. The market rate of interest for similar bonds without the warrants is 10%. All share warrants were exercised on December 31, 2020. The following are extracted from the present value tables: 5% for 10 periods 6% for 10 periods Present value of 1 0.61 0.55 Present value of an ordinary annuity of 1 7.72 7.36 Questions: 1. On January 1, 2020, what amount should be recognized as increase in shareholders’ equity as a result of the bond issuances? 2. What is the total bond premium amortization for the year ended December 31, 2020? 3. What amount of share premium should be recognized as a result of the exercise of share warrants?
On January 1, 2020, James Bond Co. issued ₱4,000,000 of 12% bonds payable maturing in 5 years. The bonds pay interest semiannually on June 30 and December 31. The bonds include share warrants giving the bondholder the right to purchase 8,000 ₱100 par value shares for ₱150 per share within the next three years. The bonds and warrants were issued at 120. The value of the warrants at the time of issuance was ₱750,000. The market rate of interest for similar bonds without the warrants is 10%. All
share warrants were exercised on December 31, 2020.
The following are extracted from the
5% for 10 periods 6% for 10 periods
Present value of 1 0.61 0.55
Present value of an ordinary
Questions:
1. On January 1, 2020, what amount should be recognized as increase in shareholders’ equity as a
result of the bond issuances?
2. What is the total bond premium amortization for the year ended December 31, 2020?
3. What amount of share premium should be recognized as a result of the exercise of share
warrants?
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