INTERMEDIATE ACCOUNTING 2

(PLEASE SOLVE ALL AND GIVE SOLUTIONS)

1:

An entity issued P5,000,000 face amount 5-year bonds at 120. Each P1,000 bond was issued with 20 nondetachable share warrants. Each warrant entitled the bondholder to purchase one share of P20 par value for P25. Immediately after issuance, the market value of each warrant was P5. The interest rate is 11% payable annually every December 31. The prevailing market rate of interest for similar bonds without warrants is 12%. The PV of 1 at 12% for 5 periods is 0.57 and the PV of an ordinary annuity of I at 12% for 5 periods is 3.60. What amount should be recorded as increase in equity as a result of the bond issuance?

a. 1,170,000

B. 1,000,000

c. 2,000,000

d.0

2:

An entity issued 5,000 convertible bonds with a P1,000 face amount per bond. The bonds mature in three years and are issued at 110. Interest is payable annually every December 31 at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 shares with par value of P5. It is reliably determined that the bonds would sell only at P4,600,000 without the conversion privilege. What is the equity component of the original issuance of the convertible bonds?

a. 500,000

b. 400,000

c. 900,000

d.0

3:

After recording interest and amortization. an entity converts P5,000,000 of 12% convertible bonds into 50,000 shares of P50 par value. On the conversion date, the carrying amount of the bonds payable was P6,000,000, the market value of the bonds was P6,500,000. and the share was publicly trading at P150. The entity incurred P100,000 in connection with the conversion. When the bonds were originally issued, the equity component was recorded at P1,500,000. What amount of share premium should be recorded as a result of the conversion?

a. 5,000,000

b. 3.500,000

c. 4,900.000

d. 3,400,000