PROBLEM No. 1 During your regular annual audit of Rockets Company for the year ended December 31, 2005, you obtain the following evidence and data relative to your examination of the bonds payable and related accounts. From your permanent file working papers: Client is authorized to issue 20,000 bonds with par value of P1,000 each. Bonds are dated May 1, 2002 and are due May 1, 2012. Interest at 12% per annum is due semiannually every May 1 and November 1. The December 31, 2004 balance of P9,500,000 represents proceeds from issuance of 10,000 bonds on November 2, 2003. From the client's ledger: 12%, 10-year Bonds Payable 12/31/2004 Balance P9,500,000 07/01/2005 CR 2,100,000 Interest Expense 07/01/2005 CR P40,000 05/01/2005 CV-120 P600,000 11/01/2005 CV-53l 720,000 From supporting documents: CR Cash receipts entry for issuance of 2,000 bonds for a total of P2,100,000 on July 1, 2005. Trustee's remittance statement attached. Entry recorded Cash P2, 140,000 Bonds Payable P2, 100,000 Interest expense 40,000 CV-120 Cash payment to trustee for November 1, 2004 through April 30, 2005 interest. Paid check to trustee attached. CV-531 Cash payment to trustee for May 1, 2005 through October 31, 2005 interest. Paid check to trustee attached. REQUIRED: Use the straight line method to amortized bond discount and premium, if any. 1. Compute for the adjusted balances of the following as of December 31, 2005: a. Bonds payable P12, 000,000 b. Bond discount 372,549 c. Bond premium 92,683 d. Accrued interest 240,000 e. Interest expense 1,371,506 PROBLEM NO. 2 Wizards Company presented to you their records in connection with the audit of the company's financial statements for the year ended December 31, 2005. This is the first time the company has been audited. The company floated a serial bond issue in 2003. Your audit showed the following details of the issue and the accounts as of December 31, 2005: Total amount P5, 000,000 Date of issue October 2, 2003 Drnrnnrlc Frnm icclln D/I onn nnn