On January 1 of the current year, a company issued 5-year 10% bonds with a face amount of P10,000,000 at 109. The following costs were also incurred related to the issuance: Legal and accounting fees for registration 25,000 Commission fees 40,000 Cost of printing and engraving bond certificates 30,000 Cost of promotion 15,000 At the date of issuance, the effective rate is determined to be 8%. The bonds are payable as follows: the principal is payable at the end of 5 years and interest is payable annually every December 31. As of December 31 of the same year, the bonds were found to have a fair value of 10,500,000. All changes in fair value are attributable to market risk. Compute for the following: (1) If the bonds were designated at fair value, determine: (a) Carrying amount of the bonds as of January 1 (b) Net effect to profit or loss owing to transactions related to the bonds (if your answer is a net loss, enclose in parentheses or add a negative sign) (2) If the bonds were measured at amortized cost: (a) Interest expense for the current year (b) Carrying amount of the bonds as of December 31
On January 1 of the current year, a company issued 5-year 10% bonds with a face amount of P10,000,000 at 109. The following costs were also incurred related to the issuance: Legal and accounting fees for registration 25,000 Commission fees 40,000 Cost of printing and engraving bond certificates 30,000 Cost of promotion 15,000 At the date of issuance, the effective rate is determined to be 8%. The bonds are payable as follows: the principal is payable at the end of 5 years and interest is payable annually every December 31. As of December 31 of the same year, the bonds were found to have a fair value of 10,500,000. All changes in fair value are attributable to market risk. Compute for the following: (1) If the bonds were designated at fair value, determine: (a) Carrying amount of the bonds as of January 1 (b) Net effect to profit or loss owing to transactions related to the bonds (if your answer is a net loss, enclose in parentheses or add a negative sign) (2) If the bonds were measured at amortized cost: (a) Interest expense for the current year (b) Carrying amount of the bonds as of December 31
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