On September 30, 2020, ChowFan Company issued P5,000,000 face value, 5-year bonds at 102. Each P1,000 bond was issued with 20 detachable share warrants, each of which entitled the bondholder to purchase one share of P5 par ordinary share at P25. At time of issuance, there was no available market value for the warrant. The stated interest rate on the bonds is 11% payable annually every September 30. However, the prevailing market rate of interest for similar bonds without warrants is 12%. The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60. ChowFan Company’s accounting year ends on December 31. 1. On September 30, 2020, what amount should ChowFan record as discount or premium on bonds payable? A. 170K discount B. 400K discount C. 170K premium D. 400K premium 2. How much is the interest expense for the year ended December 31, 2020? A. 132,825 B. 137,500 C. 150,000 D. 144,900
On September 30, 2020, ChowFan Company issued P5,000,000 face
1. On September 30, 2020, what amount should ChowFan record as discount or premium on bonds payable?
A. 170K discount
B. 400K discount
C. 170K premium
D. 400K premium
2. How much is the interest expense for the year ended December 31, 2020?
A. 132,825
B. 137,500
C. 150,000
D. 144,900
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