On January 1, 20x1, an entity issues bonds with a face amount of P8,000,000 for P8,600,000. The bonds mature on December 31, 20x4 and pay annual interest of 11% every December 31. The entity incurs transaction costs of P81,645. The effective interest rate adjusted for transaction costs is 9%. ◦Requirements: ◦A. Compute for the initial carrying amount of the bonds. ◦B. Compute for the net discount or net premium (including the effect of the bond issue cost) from the issuance on initial recognition. ◦C. Are the periodic interest payments greater than or less than the periodic interest expenses? ◦D. Prepare all the journal entries during the term of the bonds.
On January 1, 20x1, an entity issues bonds with a face amount of P8,000,000 for P8,600,000. The bonds mature on December 31, 20x4 and pay annual interest of 11% every December 31. The entity incurs transaction costs of P81,645. The effective interest rate adjusted for transaction costs is 9%. ◦Requirements: ◦A. Compute for the initial carrying amount of the bonds. ◦B. Compute for the net discount or net premium (including the effect of the bond issue cost) from the issuance on initial recognition. ◦C. Are the periodic interest payments greater than or less than the periodic interest expenses? ◦D. Prepare all the journal entries during the term of the bonds.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 20x1, an entity issues bonds with a face amount of P8,000,000 for P8,600,000. The bonds mature on December 31, 20x4 and pay annual interest of 11% every December 31. The entity incurs transaction costs of P81,645. The effective interest rate adjusted for transaction costs is 9%.
◦Requirements:
◦A. Compute for the initial carrying amount of the bonds.
◦B. Compute for the net discount or net premium (including the effect of the bond issue cost) from the issuance on initial recognition.
◦C. Are the periodic interest payments greater than or less than the periodic interest expenses?
◦D. Prepare all the journal entries during the term of the bonds.
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