Face Value of bonds 4,000,000 On July 1, 2015, an entity issued bonds with face amount of 7,000,000 and 10 On December 31, 2015 the Niloko Company retired its P5,000,000 face value,

5. Face Value of bonds 4,000,000

Nominal rate 12 Effective rate 14 Date of issue January 1,2016 The bonds mature on every December 31 of each year at the rate of 1,000,000 for 4 years. The interest is payable annually on December 31. The present value of 1 at 14 is as follows: One period .8772 Two periods .7695 Three periods .6750 Four periods .5921 What is the present value of the bonds on January 1, 2016? a 3,844,928 c 2,652,608 b 3,299,528 d 4,000,000 Answer is a Solution: a b axb Principal Interest Total PV Present Date Payment Payment Payment Factor Value 12-31-16 1,000,000 480,000 1,480,000 0.8772 1,298,25 6 12-31-17 1,000,000 360,000 1,360,000 0.7695 1,046,52 12-31-18 1,000,000 240,000 1,240,000 0.6749 837,000 12-31-19 1,000,000 120,000 1,120,000 0.5921 663,152 3,844,92 8

6. On July 1, 2015, an entity issued bonds with face amount of 7,000,000 and 10

interest rate for 7,703,000. The bonds are sold to yield 8. Interest is payable annually. The entity paid bond issue costs of 150,000. On December 31, 2015, the fair value of the bonds is determined to be 7,650,000. The entity elects the fair value option of measuring the bonds payable. What is the carrying amount of the bonds payable on December 31,2015 and the gain or loss in the change of fair value, respectively. a 7,650,000 and 97,000 gain b 7,650,000 and 97,000 loss c 7,457,240 and 95,760 gain d 7,457,240 and 95,760 loss Answer is b Solution: Carrying amount of bonds—January 1, 2015 P7,553,000 7,703,000-150,000 Carrying amount of bonds—December 31, 2015 7,650,000 Increase in fair value of bonds payable—loss P 97,000

7. On December 31, 2015 the Niloko Company retired its P5,000,000 face value,

10 bonds. The entity paid a total cash of P5,500,000 including the accrued interest of P400,000. The entity incurred a loss of 150,000 in the retirement of the said bonds. What is the unamortized premium or discount of the retired bonds? a 350,000 premium c 100,000 discount b 250,000 premium d 50,000 discount Answer is d Solution: Total cash paid P5,500,000 Accrued interest 400,000 Retirement price P5,100,000 Loss on retirement 150,000 Carrying amount of bonds P4,950,000 Face value of bonds P5,000,000 Carrying amount of bonds 4,950,000 Unamortized discount P 50,000

8. The entity retired its bond with a face value of P5,000,000 and an unamortized