Bonds Payable

J. Gonzales

On January 1, 2015, Merzo Co. issued eight-year bonds with a face value of P2,000,000 and a
stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were
sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% ...........................................
Present value of 1 for 8 periods at 8% ...........................................
Present value of 1 for 16 periods at 3% .........................................
Present value of 1 for 16 periods at 4% .........................................
Present value of annuity for 8 periods at 6% .................................
Present value of annuity for 8 periods at 8% .................................
Present value of annuity for 16 periods at 3% ...............................
Present value of annuity for 16 periods at 4% ...............................

.627
.540
.623
.534
6.210
5.747
12.561
11.652

1.

The present value of the principal is

a. P1,068,000.
b. P1,080,000.
c. P1,246,000.
d. P1,254,000.

2.

The present value of the interest is

a. P689,640.
b. P699,120.
c. P745,200.
d. P753,660.

3.

The issue price of the bonds is

a. P1,767,120.
b. P1,769,640.
c. P1,779,120.
d. P1,999,200.

4.

Mesina Company issues P15,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2015. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P14,703,109. Using effective-interest amortization, how much interest expense will be
recognized in 2015?
a. P585,000
b. P1,170,000
c. P1,176,374
d. P1,176,249

5.

Nacario Company issues P15,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2015. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P14,703,109. Using effective-interest amortization, what will the carrying value of the
bonds be on the December 31, 2015 balance sheet?
a. P14,709,482
b. P15,000,000
c. P14,718,844
d. P14,706,232

6.

Ong Company issues P15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013.
Interest is paid on June 30 and December 31. The proceeds from the bonds are

Bonds Payable

J. Gonzales

P14,703,109. Using straight-line amortization, what is the carrying value of the bonds on
December 31, 2015?
a. P14,752,673
b. P14,955,466
c. P14,725,375
d. P14,747,642
7.

Orias Company issues P15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2015.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
P14,703,109. What is interest expense for 2016, using straight-line amortization?
a. P1,540,207
b. P1,170,000
c. P1,176,894
d. P1,184,845

8.

Palacio Company issues P10,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2015. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P9,802,072. Using effective-interest amortization, how much interest expense will be
recognized in 2015?
a. P390,000
b. P780,000
c. P784,248
d. P784,166

9.

Parreno Company issues P10,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2015. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P9,802,072. Using effective-interest amortization, what will the carrying value of the bonds
be on the December 31, 2015 balance sheet?
a. P9,806,320
b. P10,000,000
c. P9,812,562
d. P9,804,154

10.

Perez Company issues P10,000,000, 7.8%, 20-year bonds to yield 8% on January 1,

2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P9,802,072. Using straight-line amortization, what is the carrying value of the bonds on
December 31, 2015?
a. P9,835,116
b. P9,970,312
c. P9,816,916
d. P9,831,762

11.

Prudenciado Company issues P10,000,000, 7.8%, 20-year bonds to yield 8% on January

1, 2015. Interest is paid on June 30 and December 31. The proceeds from the bonds are
P9,802,072. What is interest expense for 2016, using straight-line amortization?
a. P770,104
b. P780,000
c. P784,596
d. P789,896

Bonds Payable

J. Gonzales

On October 1, 2015 Reyes Corporation issued 5%, 10-year bonds with a face value of P2,000,000
at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a
straight-line basis.
12.

The entry to record the issuance of the bonds would include a credit of
a. P50,000 to Interest Payable.
b. P80,000 to Discount on Bonds Payable.
c. P1,920,000 to Bonds Payable.
d. P80,000 to Premium on Bonds Payable.

13.

Bond interest expense reported on the December 31, 2015 income statement of Reyes
Corporation would be
a. P23,000
b. P25,000
c. P27,000
d. P46,000

On October 1, 2015 Rodillas Corporation issued 5%, 10-year bonds with a face value of
P3,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts
amortized on a straight-line basis.
14.

The entry to record the issuance of the bonds would include a

a. credit of P75,000 to Interest Payable.
b. credit of P120,000 to Premium on Bonds Payable.
c. credit of P2,880,000 to Bonds Payable.
d. debit of P120,000 to Discount on Bonds Payable.

15.

Bond interest expense reported on the December 31, 2015 income statement of Rodillas
Corporation would be
a. P40,500
b. P69,000
c. P34,500
d. P37,500

16.

At the beginning of 2015, Timbal Corporation issued 10% bonds with a face value of
P1,500,000. These bonds mature in the five years, and interest is paid semiannually on
June 30 and December 31. The bonds were sold for P1,389,600 to yield 12%. Timbal
uses a calendar-year reporting period. Using the effective-interest method of amortization,
what amount of interest expense should be reported for 2015? (Round your answer to the
nearest peso.)
a. P172,080
b. P167,255
c. P166,750
d. P166,250

17.

On January 1, Tulagan Inc. issued P3,000,000, 9% bonds for P2,817,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Tulagan uses the effective-interest method of amortizing bond discount. At the end of the
first year, Tulagan should report unamortized bond discount of
a. P164,700.
b. P171,300.

Bonds Payable

J. Gonzales

c. P154,830.
d. P153,000.
18.

On January 1, Villanueva Inc. issued P4,000,000, 11% bonds for P4,260,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Villanueva uses the effective-interest method of amortizing bond premium. At the end of
the first year, Villanueva should report unamortized bond premium of:
a. P246,840
b. P246,000
c. P231,400
d. P220,000

19.

At the beginning of 2015, Yape Corporation issued 10% bonds with a face value of
P1,200,000. These bonds mature in five years, and interest is paid semiannually on June
30 and December 31. The bonds were sold for P1,111,680 to yield 12%. Yape uses a
calendar-year reporting period. Using the effective-interest method of amortization, what
amount of interest expense should be reported for 2015? (Round your answer to the
nearest peso.)
a. P133,000
b. P133,400
c. P133,804
d. P137,664

20.

Buenaventura Corporation retires its P500,000 face value bonds at 102 on January 1,
following the payment of interest. The carrying value of the bonds at the redemption date
is P481,250. The entry to record the redemption will include a
a. credit of P18,750 to Loss on Bond Redemption.
b. credit of P18,750 to Discount on Bonds Payable.
c. debit of P28,750 to Gain on Bond Redemption.
d. debit of P10,000 to Premium on Bonds Payable.

21.

Duritan Corporation retires its P500,000 face value bonds at 105 on January 1, following
the payment of interest. The carrying value of the bonds at the redemption date is
P518,725. The entry to record the redemption will include a
a. credit of P18,725 to Loss on Bond Redemption.
b. debit of P18,725 to Premium on Bonds Payable.
c. credit of P6,275 to Gain on Bond Redemption.
d. debit of P25,000 to Premium on Bonds Payable.

22.

At December 31, 2015 the following balances existed on the books of Napenas
Corporation:
Bonds Payable
P3,000,000
Discount on Bonds Payable
240,000
Interest Payable
75,000
Unamortized Bond Issue Costs
180,000
If the bonds are retired on January 1, 2016, at 102, what will Napenas report as a loss on
redemption?
a. P555,000
b. P480,000
c. P405,000
d. P300,000

Bonds Payable

23.

J. Gonzales

At December 31, 2015 the following balances existed on the books of Sofia Corporation:
Bonds Payable
P2,500,000
Discount on Bonds Payable
200,000
Interest Payable
60,000
Unamortized Bond Issue Costs
150,000
If the bonds are retired on January 1, 2016, at 102, what will Sofia report as a loss on
redemption?
a. P250,000
b. P337,500
c. P400,000
d. P460,000

24.

The December 31, 2015, balance sheet of Mikhaela Corporation includes the following
items:
9% bonds payable due December 31, 2024
Unamortized premium on bonds payable

P2,000,000
54,000

The bonds were issued on December 31, 2014, at 103, with interest payable on July 1
and December 31 of each year. Mikhaela uses straight-line amortization. On March 1,
2016, Mikhaela retired P800,000 of these bonds at 98 plus accrued interest. What should
Mikhaela record as a gain on retirement of these bonds? Ignore taxes.
a. P37,600.
b. P21,600.
c. P37,200.
d. P40,000.
25.

On January 1, 2009, Lean Corporation issued P3,600,000 of 10% ten-year bonds at 103.
The bonds are callable at the option of Lean at 105. Lean has recorded amortization of
the bond premium on the straight-line method (which was not materially different from the
effective-interest method).
On December 31, 2015, when the fair value of the bonds was 96, Lean repurchased
P800,000 of the bonds in the open market at 96. Lean has recorded interest and
amortization for 2015. Ignoring income taxes and assuming that the gain is material, Lean
should report this reacquisition as
a. a loss of P39,200.
b. a gain of P39,200.
c. a loss of P48,800.
d. a gain of P48,800.

Bonds Payable

J. Gonzales

26.

The 10% bonds payable of Dierlyn Company had a net carrying amount of P760,000 on
December 31, 2015. The bonds, which had a face value of P800,000, were issued at a
discount to yield 12%. The amortization of the bond discount was recorded under the
effective-interest method. Interest was paid on January 1 and July 1 of each year. On
July 2, 2016, several years before their maturity, Dierlyn retired the bonds at 102. The
interest payment on July 1, 2016 was made as scheduled. What is the loss that Dierlyn
should record on the early retirement of the bonds on July 2, 2016? Ignore taxes.
a. P16,000.
b. P50,400.
c. P44,800.
d. P56,000.

27.

Geovan Corporation called an outstanding bond obligation four years before maturity. At
that time there was an unamortized discount of P600,000. To extinguish this debt, the
company had to pay a call premium of P200,000. Ignoring income tax considerations, how
should these amounts be treated for accounting purposes?
a. Amortize P800,000 over four years.
b. Charge P800,000 to a loss in the year of extinguishment.
c. Charge P200,000 to a loss in the year of extinguishment and amortize P600,000 over
four years.
d. Either amortize P800,000 over four years or charge P800,000 to a loss immediately,
whichever management selects.

28.

The 12% bonds payable of Erico Co. had a carrying amount of P2,080,000 on
December 31, 2015. The bonds, which had a face value of P2,000,000, were issued at a
premium to yield 10%. Erico uses the effective-interest method of amortization. Interest is
paid on June 30 and December 31. On June 30, 2016, several years before their maturity,
Erico retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes,
is
a. P0.
b. P16,000.
c. P24,800.
d. P80,000.

29.

Bernard Company issues P15,000,000 face value of bonds at 96 on January 1, 2014. The
bonds are dated January 1, 2014, pay interest semiannually at 8% on June 30 and
December 31, and mature in 10 years. Straight-line amortization is used for discounts and
premiums. On September 1, 2017, P9,000,000 of the bonds are called at 102 plus accrued
interest. What gain or loss would be recognized on the called bonds on September 1,
2017?
a. P900,000 loss
b. P408,000 loss
c. P540,000 loss
d. P680,000 loss

Bonds Payable
30.

J. Gonzales

Nicole Company issues P3,000,000 face value of bonds at 96 on January 1, 2014. The
bonds are dated January 1, 2014, pay interest semiannually at 8% on June 30 and
December 31, and mature in 10 years. Straight-line amortization is used for discounts and
premiums. On September 1, 2017, P1,800,000 of the bonds are called at 102 plus accrued
interest. What gain or loss would be recognized on the called bonds on September 1,
2017?
a. P180,000 loss
b. P81,600 loss
c. P108,000 loss
d. P136,000 loss

31. Dorothy Company issues P10,000,000 of 10-year, 9% bonds on March 1, 2015 at 97 plus
accrued interest. The bonds are dated January 1, 2015, and pay interest on June 30 and
December 31. What is the total cash received on the issue date?
a. P9,700,000
b. P10,225,000
c. P9,850,000
d. P9,550,000
32. Angelica Company issues P15,000,000, 6%, 5-year bonds dated January 1, 2015 on
January 1, 2015. The bonds pays interest semiannually on June 30 and December 31.
The bonds are issued to yield 5%. What are the proceeds from the bond issue?
Present value of a single sum for 5 periods
Present value of a single sum for 10 periods
Present value of an annuity for 5 periods
Present value of an annuity for 10 periods

a.
b.
c.
d.
33.

2.5%
.88385
.78120
4.64583
8.75206

3.0%
.86261
.74409
4.57971
8.53020

5.0%
6.0%
.78353
.74726
.61391
.55839
4.32948 4.21236
7.72173 7.36009

P15,000,000
P15,649,482
P15,656,427
P15,651,924

Rhenzo Company issues P20,000,000 of 10-year, 9% bonds on March 1, 2015 at 97 plus

accrued interest. The bonds are dated January 1, 2015, and pay interest on June 30 and
December 31. What is the total cash received on the issue date?
a. P19,400,000
b. P20,450,000
c. P19,700,000
d. P19,100,000