INTERMEDIATE ACCOUNTING 2

1) The long-term debt section of Elmo Company's statement of financial position as of December 31, 2021, included 9% bonds payable of P400,000, less unamortized discount of P32,000. Further examination revealed that these bonds were issued to yield 10%. The amortization of the bond discount was recorded using the effective interest method. Interest was paid on January 1 and July 1 of the year. On July 1, 2022, Elmo retired the bonds at 105 before maturity.

Question:

a) What is the amount of loss to be recognized on the retirement of bonds?

2) On January 1, 2022, Dias Company issued a 3-year, 4,000 convertible bonds at face value of P1,000 per bond. Interest is to be paid annually in arrears at the coupon rate of 6%. Each bond is convertible, at the holder's option, into 200 P2 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 is 9%. On the same date, the market price of one ordinary share was P3. The bonds were converted on December 31, 2023.

	6%	9%
Present value of 1 for 3 periods	0.83962	0.77218
Present value of an ordinary annuity of 1 for 3 periods	2.67301	2.5313
Present value of an annuity due of 1 for 3 periods	2.83339	2.75911

Questions:

a) How much is the liability component?

b) How much is the equity component?

c) How much is the interest expense on bonds for year 1?

d) How much is the amortization in year 2?

e) How much is the carrying value at year 2?