Problem 7-9 (AICPA Adapted) A At the beginning of current year, Fence Company issued 12% P5,000,000 nonconvertible bonds payable at 103 which are due in 5 years. In addition, each P1,000 bond was issued 30 share warrants, each of which entitled the bondholder to purchase for P50 one share of Fence Company, par value P25. Interest is payable annually every end of the year. On the date of issuance, the market value of the share was P40 and the market value of the share warrant was P4. The market rate of interest for similar bonds ex-warrants is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present value of an ordinary annuity of 1 at 14% for 5 periods is 3.43. 1. What amount should te recognized as discount or premium on the original issuance of the bonds payable? a. 342,000 premium b. 342,000 discount c. 450,000 premium d. 450,000 discount ed bluode 2. What amount should be recorded as equity component arising from the issuance of bonds payable? 150,000 b. 450,000 a. 008 C. 492,000 as d. 3. What amount should be credited to share premium if all of the share warrants are exercised? a. 4,242,000 b. 3,500,000 c. 3,600,000 d. 3,950,000 000,000 00008) 000,00 255

Problem 7-9 (AICPA Adapted) A At the beginning of current year, Fence Company issued 12% P5,000,000 nonconvertible bonds payable at 103 which are due in 5 years. In addition, each P1,000 bond was issued 30 share warrants, each of which entitled the bondholder to purchase for P50 one share of Fence Company, par value P25. Interest is payable annually every end of the year. On the date of issuance, the market value of the share was P40 and the market value of the share warrant was P4. The market rate of interest for similar bonds ex-warrants is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present value of an ordinary annuity of 1 at 14% for 5 periods is 3.43. 1. What amount should te recognized as discount or premium on the original issuance of the bonds payable? a. 342,000 premium b. 342,000 discount c. 450,000 premium d. 450,000 discount ed bluode 2. What amount should be recorded as equity component arising from the issuance of bonds payable? 150,000 b. 450,000 a. 008 C. 492,000 as d. 3. What amount should be credited to share premium if all of the share warrants are exercised? a. 4,242,000 b. 3,500,000 c. 3,600,000 d. 3,950,000 000,000 00008) 000,00 255

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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