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On January 1, 20x1, POTENT POWERFUL Co. issued 12% bonds with face amount of P4,000,000 for P4,303,264. The bonds mature in five years and pay annual interest every year-end. The effective interest rate is 10%. On July 1, 20x3, POTENT called-in the entire bonds and retired them at 102, which is inclusive of payment for accrued interest. How much is the gain (loss) on the extinguishment of the bonds? a. 328,897 c. (118,948) d. 118,948 b. (328,896)

On January 1, 20x1, POTENT POWERFUL Co. issued 12% bonds with face amount of P4,000,000 for P4,303,264. The bonds mature in five years and pay annual interest every year-end. The effective interest rate is 10%. On July 1, 20x3, POTENT called-in the entire bonds and retired them at 102, which is inclusive of payment for accrued interest. How much is the gain (loss) on the extinguishment of the bonds? a. 328,897 c. (118,948) d. 118,948 b. (328,896)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Please answer number 8 (include excel if needed)

8. On January 1, 20x1, POTENT POWERFUL Co. issued 12% bonds with face amount of P4,000,000 for P4,303,264. The bonds mature in five years and pay annual interest every year-end. The effective interest rate is 10%. On July 1, 20x3, POTENT called-in the entire bonds and retired them at 102, which is inclusive of payment for accrued interest. How much is the gain (loss) on the extinguishment of the bonds? a. 328,897 b. (328,896) c. (118,948) d. 118,948 9. On January 1, 20x1, TIPSY UNSTEADY Co. issued 10%, P12,000,000 bonds for P11,601,220. Principal on the bonds matures in three equal annual installments. Interest is also due annually at each year-end. The effective interest rate on the bonds is 12%. How much is the carrying amount of the bonds on December 31, 20x1? a. 7,844,635 b.7,793,366 c. 7,683,343 d. 7,543,341 10. On December 31, 20x1, CONFLAGRATION LARGE FIRE Co. agreed to the following modification of its existing liability: • The principal remained unchanged at P20,000,000. • The repayment of the accrued interest of P600,000 was waived. The maturity date was extended from December 31, 20x2 to December 31, 20x4. The stated rate was reduced from 12% to 10%. Interest is payable annually at each year-end. The original effective interest rate is 12%. CONFLAGRATION Co. incurred costs of P200,000 which were directly attributable to the restructuring. The costs were paid to third parties. How much is the gain (loss) on the extinguishment of the debt? a. (1,360,732) b. 1,360,732 c. (200,000) d. 0
Transcribed Image Text:8. On January 1, 20x1, POTENT POWERFUL Co. issued 12% bonds with face amount of P4,000,000 for P4,303,264. The bonds mature in five years and pay annual interest every year-end. The effective interest rate is 10%. On July 1, 20x3, POTENT called-in the entire bonds and retired them at 102, which is inclusive of payment for accrued interest. How much is the gain (loss) on the extinguishment of the bonds? a. 328,897 b. (328,896) c. (118,948) d. 118,948 9. On January 1, 20x1, TIPSY UNSTEADY Co. issued 10%, P12,000,000 bonds for P11,601,220. Principal on the bonds matures in three equal annual installments. Interest is also due annually at each year-end. The effective interest rate on the bonds is 12%. How much is the carrying amount of the bonds on December 31, 20x1? a. 7,844,635 b.7,793,366 c. 7,683,343 d. 7,543,341 10. On December 31, 20x1, CONFLAGRATION LARGE FIRE Co. agreed to the following modification of its existing liability: • The principal remained unchanged at P20,000,000. • The repayment of the accrued interest of P600,000 was waived. The maturity date was extended from December 31, 20x2 to December 31, 20x4. The stated rate was reduced from 12% to 10%. Interest is payable annually at each year-end. The original effective interest rate is 12%. CONFLAGRATION Co. incurred costs of P200,000 which were directly attributable to the restructuring. The costs were paid to third parties. How much is the gain (loss) on the extinguishment of the debt? a. (1,360,732) b. 1,360,732 c. (200,000) d. 0
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