On January 1, 2021, ABC Co. acqulred P2,000,000 face amount, 10% bonds for P1,903,927. The bonds were measured at amortized cost. The principal Is due on January 1, 2024 but Interest payments are due annually every December 31. The effective interest rate is 12%. On December 31, 2022, the Investee entered Into a corporate rehabilitation program resulting In the extenslon of the maturity of the bonds to January 1, 2026. ABC sees this as a loss event. ABC estimates that only the face amount of the bonds will be collected, in lump-sum, on January 1, 2026. There Is no interest recelvable as of December 31, 2022. The current market rate on December 31, 2022 Is 14%. The carrying amount of the impalred financlal asset on December 31, 2022 Is* P1,423,560 O P2,000,000 O P1,964,286 O P1,932,398

On January 1, 2021, ABC Co. acqulred P2,000,000 face amount, 10% bonds for P1,903,927. The bonds were measured at amortized cost. The principal Is due on January 1, 2024 but Interest payments are due annually every December 31. The effective interest rate is 12%. On December 31, 2022, the Investee entered Into a corporate rehabilitation program resulting In the extenslon of the maturity of the bonds to January 1, 2026. ABC sees this as a loss event. ABC estimates that only the face amount of the bonds will be collected, in lump-sum, on January 1, 2026. There Is no interest recelvable as of December 31, 2022. The current market rate on December 31, 2022 Is 14%. The carrying amount of the impalred financlal asset on December 31, 2022 Is* P1,423,560 O P2,000,000 O P1,964,286 O P1,932,398

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 6PA: Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1,...

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On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
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