Problem #1

On January 1 20x1 an entity issues bonds with face amount of P 5,000,000 for P 5,200,000. The bonds mature on December 31, 20x3 and pay annual interest of 12%. The bonds can be converted into 10,000 ordinary shares of the entity with par value per share of P200. On January 1, 20x1, the bonds are selling at 101 without the conversion feature. The effective interest rate on the bonds is 11.59%. All of the bonds are converted into ordinary shares on January 1, 20x3.

Requirements: Provide the entries:

A. On January 1 20x1 to record the issuance of the convertible bonds.

B. On January 1 20x3 to record the conversation of the bonds.

Problem #2

Use the facts in the immediately preceding problem. However, in this case, the entity retires the bonds on January 1, 20x3 at a call premium of P200,000. Without the conversion feature, the bonds are selling on this date at 102.

Requirement:

A. Provide the entry on January 1, 20x3 to record the retirements of the bonds.

Problem #3

Use the following information for the next two questions:

On January 1, 20x1, an entity has outstanding note payable with carrying amount of P1,000,000.

1. On this date, the debtor agrees to receive equipment with historical cost of 1,800,000, accumulated depreciation of P 900,000 and fair value of P850,000 in full settlement of the note payable.

Requirement:

A. Compute for the gain or loss on the derecognition of the note payable?

2. On this date, the debtor agrees to receive 10,000 shares of the entity with par value per share of P10 in full settlement of the note payable. The shares are currently selling at P75 per shares.

Requirements:

A. Compute for the gain or loss on the derecognition of the note payable.

B. Provide the entry to record the derecognition of the note payable.