Audit of Liabilities

Problem 1: The following data were obtained from the initial audit of BIBI Company: 15%,10-year, Bonds Payable, dated January 1, 2015. Debit Credit Balance Cash proceeds from issue on Jan. 1, 2015, of 1,000, P 1,000 bonds. The market rate of interest on the Date of issue was 12%. P 1,172,044 P 1,172,044 Bond Interest Expense Cash paid, 1/2/15 P 75,000 P 75,000 Cash paid, 7/1/15 75,000 150,000 Accrual, 12/31/16 75,000 225,000 Accrued Interest on Bonds Balance, 1/1/15 P 75,000 P 75,000 Accrual, 12/31/16 75,000 150,000 Treasury Bonds Redemption price and interest to date on 200 bonds permanently retired on Dec. 31, 2016 P 255,000 P 255,000 Based on the information, determine the following: 1. Carrying value of bonds payable at December 31, 2016. 2. Loss on bond redemption 3. Accrued interest on bonds at December 31, 2016. 4. Bond interest expense for the year ended December 31, 2016. Problem 2: Cam Corp. had outstanding balance P6,000,000 of11% bonds {interest payable July 31 and January 31] due in 10 years. On July 1, it issued P 9,000,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 97. A portion of the proceeds was used to call the 11% bonds at 103 on August 1. Unamortized bond discount and issue cost applicable to the 11% bonds were P 240,000 and P 60,000 respectively. Required: Prepare journal entries to record the following: a. Sale of the new issue b. Retirement ofthe old issue Problem 3: On January 1, 2016, Cain Company issued 3-year 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P 2 par value ordinary shares at any time up to maturity. On the date of issuance, the prevailing market interest rate for similar debt without the conversion privilege was 9%. 0n the same date, the market price of one ordinary share was P3. The bonds were converted on December 31, 2017. 1. The liability component of the convertible debt is 2. The equity component of the convertible debt is 3. The interest expense to be reported on Cain Company's income statement for the year ended December 31, 2017ir is 4. The entry to record the bond conversion on December 31, 2017 should include accrued a credit to share premium of