AUDIT OF LIABILITIES

1. ABCD Corp. had an outstanding P6, 000,000 of 11% bonds due in 10 years. Interest is payable every July 31 and January 31. On July 1, it issued P9, 000,000 of 9%, 15-year bonds where interest is payable on July 1 and January 1 at 97. A portion of the proceeds was used to call the 10% bonds at 103 on August 1. Unamortized bond discount and issue cost applicable to the 10% bonds were P240, 000 and P60,000, respectively.

Requirements:

a. Prepare the journal entry to record the sale of the new issued bonds.

b. Prepare the journal entry to record the retirement of the old issued bonds.

2. Boomerang, Inc started his operations on January 1, 2018. At the end of the first year of operations, the company reported P7, 500,000 income before income taxes on its statement but only P700, 000 taxable income on its tax return. Analysis of the P6, 800,000 difference revealed that P6, 200,000 was a temporary difference and P600, 000 was a permanent difference related to a current asset. At the end of 2019, the accumulated temporary tax liability difference related to future years is P1, 100,000. The enacted tax rate is 30% for 2018 and 2019.

Requirements:

a. Prepare the journal entry to adjust the deferred tax liability at the end of 2019.

b. Assume that at the end of 2019, the accumulated temporary tax liability difference related to future years is P550, 000. Prepare the journal entry to adjust the deferred tax liability at the end of 2019.

3. Kakayanin Ko Pa Corporation issued P800, 000 of 12% face value bonds for P851, 705.70. The bonds were dated and issued on April 1, 2016, are due MARCH 31, 2020, and pay interest semi-annually on September 30 and March 31. The company sold the bonds to yield 10%.

Requirements:

a. Prepare the bond interest expense and premium amortization schedule using the effective interest method.

b. Assume the company retires the bonds on June 30, 2017, at 102 plus accrued interest. Prepare the journal entries to record the bond retirement.