On January 2, 2017, the Nati, Inc. issued P2,000,000 of 8% convertible bonds at par. The

bonds will mature on January 1, 2021 and interest is payable annually every January 1. The

bond contract entitles the bondholders to receive 6, P100 par value, ordinary shares in

exchange for each P1,000 bond. On the date of issue, the prevailing market interest rate for

similar debt without the conversion option is 10%.

On January 1, 2021, the holders of the bonds with total face value of P1,000,000 exercised their

conversion privilege. On that date, the bonds were selling at 110 and the ordinary share at P42.

Based on the above and the result of your audit, answer the following:

(Round off present value

factors to 4 decimal places)

1.The proceeds from issuance of convertible bonds to be allocated to the liability component

is

a. P1,366,000

b. P1,778,336

c. P1,873,184

d. P2,000,000

2.The proceeds from issuance of convertible bonds to be allocated to the equity component is

a. P634,000

b. P221,664

c. P126,816

d. P 0

3.The carrying amount of the bonds payable on December 31, 2017 is

a. P2,000,000

b. P1,796,170

c. P1,389,400

d. P1,900,502

4.The interest expense for the year 2018 is

a. P160,000

b. P179,617

c. P138,940

d. P190,050

5. The gain to be recognized on conversion of the bonds is

a. P126,816

b. P400,000

c. P463,408

d. P 0