Intermediate accounting by robles empleoanswers chapter 2 vol 2 2009

Chapter 2 - Non-Current Liabilities

CHAPTER 2
NON-CURRENT LIABILITIES
PROBLEMS
2-1.

(Ruby Corporation)
At 8%
Bond issue price
Nominal interest for 2009
Interest expense for 2009
Premium/discount
amortization
in
2009
Bond carrying value at December 31,
2009
Nominal interest for 2010
Interest expense for 2010
Premium/discount
amortization
in
2010
Bond carrying value at December 31,
2010

At 11%

1,081,145
50,000

43,246
6,754

962,280
50,000
52,925
2,925

1,074,391

965,205

100,000
85,671
14,059

100,000
106,342
6,342

1,060,332

971,547

Computations:
At 8%
Issue price = (1,000,000 x 0.6756) + (50,000 x 8.1109)
= 675,600 + 405,545 = 1,081,145

Date

A
Interest
Paid

B
Interest
Expense

C
Premium
Amortization

06/30/09
12/31/09
06/30/10
12/31/10

50,000
50,000
50,000

43,246
42,976
42,695

6,754
7,024
7,035

A
B

=
=

D
Bond
Carrying
Value
1,081,145
1,074,391
1,067,367
1,060,332

Face value x 5%
Carrying value, beg of year x 4%

At 11%
Issue price = (1,000,000 x 0.5854) + (50,000 x 7.5376)
= 585,430 + 376,880 = 962,280

2-2.

Date

A
Interest
Paid

B
Interest
Expense

C
Discount
Amortization

06/30/09
12/31/09
06/30/10
12/31/10

50,000
50,000
50,000

52,925
53,086
53,256

2,925
3,086
3,256

(Fire Company)

9

D

Bond
Carrying
Value
962,280
965,205
968,291
971,547


Chapter 2 - Non-Current Liabilities

(a)

(b)

Issue price

Present value of face value
(4,000,000 x
0.5083)
Present value of interest payments (320,000 x
7.0236)
Issue price

P2,033,
200
2,247,552
P4,280,75
2

Amortization Table
Date
3/01/09
8/31/09
2/28/10
8/31/10
2/28/11

(c)
03/01/09

Interes
t Paid
320,00
0
320,00
0
320,00
0
320,00
0

Interest
Expense
299,653

Premium
Amortization
20,347

Bond Carrying
Value
4,280,752
4,260,405

298,228

21,772

4,238,633

296,704

23,296

4,215,337

295,074

24,926

4,190,411

Cash

4,281,15
2

Bonds Payable
Premium on Bonds Payable

08/31/09

12/31/09

2/28/10

8/31/10

12/31/10

2/28/11

Interest Expense
Premium on Bonds Payable
Cash

299,653
20,347

Interest Expense (298,228 x 4/6)
Premium on Bonds Payable
Interest Payable (320,000 x 4/6)

198,819
14,514

Interest Expense
Premium on Bonds Payable
Interest Payable
Cash

99,409
7,258
213,333

Interest Expense
Premium on Bonds Payable
Cash

296,704
23,296

Interest Expense (295,074 x 4/6)
Premium on Bonds Payable
Interest Payable

196,716
16,617

Interest Expense
Premium on Bonds Payable
Interest Payable
Cash

99,025
7,642
213,333

10

4,000,00
0
280,752

320,000

213,333

320,000

320,000

213,333

320,000


Chapter 2 - Non-Current Liabilities

2-3.

(Metal Corporation)
Market value of bonds
Market value of warrants
Total issue price
(a)

5,000,000 x .98
5,000 x 70

Cash
Discount on Bonds Payable
Bonds Payable

4,900,000
350,000
5,250,000
5,250,00
0
100,000
5,000,00
0
350,000

Share Warrants Outstanding
(b)

Cash (5,000 x 20 x 20)
Share Warrants Outstanding
Ordinary Shares (5,000 x 20 x 15)

2,000,00
0
350,000

Share Premium
2-4.

(Onyx)
(a)

Issue price of bonds with warrants (1,000,000 x
1.03)

Bond price without warrants
1,000,000 x 0.3220
100,000 x 5.6502
Value of share warrants
(b)

Interest Expense for 2009 (887,020 x 12% x
10/12

(c)

Bond carrying value, March 1, 2009
Amortization through December 31,
2009
887,020 x 12% x 10/12
1,000,000 x 12% x 10/12
Bond carrying value, December 31,
2009

(d)

Cash (1,000 x 30 x 50)
Share Warrants Outstanding
Ordinary Share (30,000 x 25)
Share Premium

2-5.

322,000
565,020

88,702
83,333

1,500,00
0
142,980

Issue price of bonds without conversion privilege
2,000,000 x 0.5674
1,134,800
200,000 x 3.6048
720,960

11

1,030,00
0
887,020
142,980
88,702

887,020

(Celeron Company)
(a)

Issue price of convertible bonds

Allocation to equity

1,500,00
0
850,000

5,369
892,389

750,000
892,980

2,000,00
0
1,855,76
0
144,240


Chapter 2 - Non-Current Liabilities

(b)

Amortization Table
Date

Interest
Paid

07/01/09
06/30/10
200,000
06/30/11
200,000
06/30/11
06/30/11
06/30/12
80,000
06/30/13
80,000
06/30/14
80,000
*Adjusted; difference is due to

(c)
07/01/09

Interest
Expense

Discount
Amortization

222,691
225,414

22,691
25,414

91,386
92,752
94,316*
rounding off.

11,386
12,752
14,316

Cash
Discount on Bonds Payable
Bonds Payable

2,000,00
0
144,240
2,000,00
0
144,240

PIC Arising from Bond Conversion Privilege

06/30/10

Interest Expense
Discount on Bonds Payable
Cash

222,691

06/30/11

Interest Expense
Discount on Bonds Payable
Cash

225,414

06/30/11

Bonds Payable
PIC
Arising
from
Conversion
Privilege
Discount on Bonds Payable
Ordinary Share
Share Premium

22,691
200,000

57,681
960,000
268,863

Face value of bonds converted
Discount on bonds payable cancelled

Value of equity converted (144,240 x
120/200)
Par value of ordinary shares issued (120 x 80 x
100)

Interest Expense
Discount on Bonds Payable
Cash

12

25,414
200,000

1,200,00
0
86,544

Carrying value,bonds converted (1,903,865 x
120/200

06/30/12

Bond
Carrying
Value
1,855,760
1,878,451
1,903,865
(1,142,319)

761,546
772,932
785,684
800,000

91,386

1,142,31
9
1,200,00
0
57,681
86,544
960,000

11,386
80,000


Chapter 2 - Non-Current Liabilities

06/30/13

Interest Expense
Discount on Bonds Payable
Cash

92,752

06/30/14

Interest Expense
Discount on Bonds Payable
Cash

94,316

06/30/14

Bonds Payable

800,000
57,69
6

PIC Arising from Bond Conversion Privilege

Cash

PIC from Unexercised Bond Conversion Privilege

(144,240 – 86,544)
2-6.

12,752
80,000
14,316
80,000

800,000

57,696

(Iron Company)
Bonds Payable
Premium on Bonds Payable (450,000 x 2/20)

2,000,000
45,000
PIC Arising from Bond Conversion Privilege(320,000 x
32,000
2/20)

Ordinary Shares (1,000 x 60 x 20)
Share Premium
2-7.

1,200,000
877,000

(Lim Corporation)
(a)

Cash

5,500,00
0

Bonds Payable

5,000,00

0
200,000
300,000

Premium on Bonds Payable

PIC Arising from Bond Conversion
Privilege

(b)

Bonds Payable
Premium on Bonds Payable (5,000 x
1/5)
PIC
Arising
Privilege

from

Bond

1,000,00
0
10,000

Conversion

60,000

Ordinary Share (200 x 40 x 100)
Share Premium
300,000 x 1/5 = 60,000
(c)

Bonds Payable
Premium on Bonds Payable (5,000 x
2/5)
PIC
Arising
Privilege

from

Bond

Conversion

800,000
270,000
2,000,00
0
20,000
120,000

Cash (2,000,000 x 1.04)
Gain on Retirement of Bonds

PIC from Unexercised Bond Conversion
Privilege

13

2,080,00
0
10,000
50,000


Chapter 2 - Non-Current Liabilities

Retirement price

2,080,00
0

Retirement price on account of
liability

2,000,000 x 1.005

2,010,00
0
70,000

Retirement price on account of
equity

Carrying value of bonds retired
Face value

Unamortized premium (50,000 x
2/5)

2,000,00
0
___20,000

Retirement price of bonds (2M x
1.005)

Gain on retirement of bonds

2,020,00
0
2,010,00
0
10,000

Carrying value of equity

120,000

Retirement price on account of

70,000

Gain on cancellation taken to

50,000

cancelled
equity

equity
2-8.

(Emerald Corporation)
The following table may facilitate the computations required in this
problem.
Date
12/01/09
06/01/10
12/01/10
06/01/11
12/01/11
06/01/12
12/01/12
06/01/13
12/01/13
06/01/14
12/01/14

Interes
t Paid
300,00
0
300,00
0
300,00
0

300,00
0
300,00
0
180,00
0
180,00
0
180,00
0
180,00
0
180,00
0

Interest
Expense
269,304

Premium
Amortization
30,696

Bond
Carrying Value
5,386,072
5,355,376

267,769

32,231

5,323,145

266,157

33,843

5,289,302

264,465

35,535

5,253,767

262,688

37,312

5,216,455

156,494

23,506

3,106,367

155,318

24,682

3,081,685

154,084

25,916

3,055,769

152,788

27,212

3,028,557

151,443*

28,557

3,000,000

*Adjusted; difference is due to rounding off.
(a)

Carrying value, December 1, 2006 (see,
table)

14

5,323,14
5


Chapter 2 - Non-Current Liabilities

Amortization for one month (33,843 x
1/6)
Carrying value, December 31, 2010

____5,640
5,317,50
5

(b)

Interest Expense for year 2010
January 1-June 1, 2010 (269,304 x 5/6)
June 1-December 1, 2010
December 1-31, 2010 (266,157 x 1/6)
Total

(c)

Carrying value of bonds retired on December 1,
2011

224,420
267,769
_44,360

536,549

5,253,767 x 2/5

2,101,50
7
____9,950

Amortization through April 1, 2012 (37,312 x 4/6 x
2/5)

(d)

Carrying value of bonds retired on April 1,
2012

2,091,55
7

Carrying value of bonds retired

2,091,55
7
2,080,00
0
11,557

Redemption price (2,000,000 x 1.04)
Gain on redemption of bonds

(e)

(f)

Carrying value of remaining bonds, December 1,
2011
Amortization through December 31, 2011 (24,682 x
1/6)
Carrying value of remaining bonds, December 31,
2011

On bonds redeemed:

January 1-June 1, 2012 (262,688 x 3/5 x 5/6)

June 1-December 1, 2012
December 1-31, 2012 (155,318 x 1/6)
January 1-June 1, 2013 (155,318 x 5/6)
June 1-December 1, 2013
December 1-31, 2013 (152,788 x 1/6)
Interest Expense
2-9.

(Ohio Company)
Date
01/01/09
12/31/09
12/31/10
12/31/11
12/31/12

4,114
3,102,253

2012
52,538

January 1-April 1, 2012 (262,688 x 2/5 x 3/6)

On remaining bonds

3,106,367

203

131,344
156,494
25,886
______
366,262

129,432
154,084
25,465
308,981

Partial Amortization Table
Interest
Paid
1,200,00

0
1,200,00
0
1,200,00
0
1,200,00
0

Interest
Expense
1,014,73
0
999,90
8
983,90
1
966,61
3

15

Premium
Amortization
185,270

Bond Carrying
Value
12,684,120
12,498,850

200,092

12,298,758

216,099

12,082,659

233,387

11,849,272


Chapter 2 - Non-Current Liabilities

12/31/13

600,00
0
600,00
0

12/31/14

473,97
1
463,88
9

126,029

5,798,607

136,111

5,662,496

(a)

Effective interest (12,734,120 – 50,000) x 8%
Nominal interest (10,000,000 x 12%
Amortization of premium for 2009

1,014,730
1,200,000
185,270

(b)

Carrying value of bonds on December 31, 2012 (see
table)

11,849,27
2

(c)

Carrying value of bonds called (11,849,272 x
5/10)
Call price/retirement price (5,000,000 x 110%)

Gain on retirement of bonds

5,924,636

(d)

Interest Expense for year 2014 (see table)

(e)

Unamortized premium on bonds payable, Dec. 31,
2014

463,889

5,662,496 – 5,000,000
2-10. (Sim Company)
Date
03/01/09
09/01/09
03/01/10
09/01/10
03/01/11
09/01/11
03/01/12
09/01/12

(a)

(b)

662,496

Partial Amortization Table
Nominal
Interest

Effective
Interest

Premium
Amortization

85,000
85,000
85,000
85,000
85,000
85,000
85,000

88,335
88,485
88,642
88,806
88,977
89,156
89,343

3,335

3,485
3,642
3,806
3,977
4,156
4,343

Bond
Carrying value
P1,963,000
1,966,335
1,969,820
1,973,462
1,977,268
1,981,245
1,985,401
1,989,744

Interest expense recorded on September 1,
2009
Discount amortization recorded on September
1, 2009
Carrying amount of the bonds, September 1,
2009
Amortization through December 31, 2009 (3,485 x
4/6)

(c)

88,335

3,335
1,966,33
5
2,323

Carrying amount of the bonds, December 31,
2009

1,968,65
8

Retirement price (at face value)

2,000,00
0
56,667
2,056,66
7

Accrued interest (2,000,000 x 8.5% x 4/12)
Amount of cash paid on June 30, 2012
(d)

5,050,000
874,636

Carrying value, March 1, 2012 (see table)
Amortization through June 30, 2012 (4,343 x

16

1,985,40
1
2,895


Chapter 2 - Non-Current Liabilities

4/6)
Carrying value, June 30, 2012

1,988,29
6
2,000,00
0
11,704

Retirement price (at face value)
Loss on retirement of bonds
2-11. (Lim Company)
(a)

Issue price of the bonds
Principal
Interest
Due Date
Due
Due
12/31/10

2,000,00
0
12/31/11
2,000,00
0
12/31/12
2,000,00
0
12/31/13
2,000,00
0
12/31/14
2,000,00
0
Selling price of bonds

Amount
Due

Present
Value

800,000

2,800,000

PV
Factor
0.8929

640,000

2,640,000

0.7972

2,104,608

480,000

2,480,000

0.7118

1,765,264

320,000

2,320,000

0.6355

1,474,360

160,000

2,160,000

0.5674

1,225,584

2,500,120

P9,069,936
(b)
Principal
Due

Due Date

Amortization Table
Interest
Effective
Discount
Due
Interest
Amortizatio
n

Carrying
Value, end

12/31/09

12/31/10

2,000,00
0
12/31/11

2,000,00
0
12/31/12
2,000,00
0
12/31/13
2,000,00
0
12/31/14
2,000,00
0
*Adjusted; difference is due

800,000

1,088,392

288,392

P9,069,93
6
7,358,328

640,000

882,999

242,999

5,601,327

480,000

672,159

192,159

3,793,486

320,000

455,218

135,218

1,928,704

160,000

231,296

71,296*

-0-

to rounding off.

(c)

12/31/09

Cash
Discount on Bonds Payable
Bonds Payable

12/31/10

Interest Expense
Discount on Bonds Payable
Cash
Bonds Payable

9,069,93
6
930,064

1,088,39
2

2,000,00
0

17

10,000,00
0

288,392
800,000

Chapter 2 - Non-Current Liabilities

Cash
12/31/11

2,000,000

Interest Expense
Discount on Bonds Payable
Cash
Bonds Payable

2,000,00
0

Cash
2-12. (Blue Sapphire Corporation)
(a) Issue price of the bonds
Principal
Due

Interest
Due

Amount
Due

2,000,00
0

12/31/10
2,000,00
0
12/31/11
2,000,00
0
12/31/12
2,000,00
0
Selling price of bonds

960,000

Due Date
12/31/09

882,999

242,999
640,000

2,000,000
Present
Value

2,960,000

PV
Factor
0.9259

2,740,664

720,000

2,720,000

0.8573

2,331,856

480,000

2,480,000

0.7938

1,968,624

240,000

2,240,000

0.7355

1,646,400

P8,687,544
(b)
Principal

Due

Due Date

Amortization Table
Interest
Effectiv
Discount
Due
e
Amortizatio
Interest
n

01/01/09
12/31/09

2,000,00
960,000
695,004
0
12/31/10
2,000,00
720,000
513,804
0
12/31/11
2,000,00
480,000
337,308

0
12/31/12
2,000,00
240,000
166,340
0
*
*Adjusted; difference is due to rounding off.

Carrying
Value, end

264,996

8,687,544
6,422,548

206,196

4,216,352

142,692

2,073,660

73,660

-0-

(c)

01/01/09

Cash

8,687,54
4

Bonds Payable
Premium on Bonds Payable
12/31/09

Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable

12/31/10

695,004
264,996
960,000
2,000,00
0

Cash
Interest Expense
Premium on Bonds Payable

18

8,000,00
0
687,544

513,804
206,196

2,000,00
0


Chapter 2 - Non-Current Liabilities

Cash

720,000

Bonds Payable

2,000,00
0

Cash

2,000,00
0

2-13. (KFC Delivery Service)
(a)

6,949,800/9,000,000 = 0.7722
This present value factor for
three periods is under the rate of 9% (Table II, Present Value of a
Single Payment). Hence, effective yield for this transaction is
9%.
(b)

Date
09/01/09
08/31/10
08/31/11
08/31/12

Amortization
9% x 6,949,800 = 625,482
9% x 7,575,282 = 681,775
9% x 8,257,057 = 742,943*

*Adjusted; difference is due to rounding off.

(c)

Carrying Value of
Note
6,949,800
7,575,282
8,257,057
9,000,000

Interest expense for 2009 (625,482 x 4/12)

208,494

Carrying value, September 1, 2009

6,949,80
0
280,494
7,158,29
4

Amortization through December 31, 2009
Carrying value, December 31, 2009
(d)
09/01/09

Land

6,949,80
0
2,050,20
0

Discount on Notes Payable
Notes Payable

9,000,00
0

12/31/09

Interest Expense
Discount on Notes Payable

208,494

09/01/10

Interest Expense (625,482 -208,494)
Discount on Notes Payable

416,988

12/31/10

Interest Expense (681,775 x 4/12)
Discount on Notes Payable

227,258

09/01/11

Interest
Expense
(681,775
227,258)
Discount on Notes Payable

12/31/11
09/01/12

–

19

416,988
227,258

454,517
454,517

Interest Expense (742,943 x 4/12)
Discount on Notes Payable
Interest
Expense
(742,943
247,648)
Discount on Notes Payable

208,494

247,648
247,648
–

495,295
495,295


Chapter 2 - Non-Current Liabilities

2-14. (JFC)
(a)

2009
6,949,800 x 9%= 625,482
625,482 x 4/12
625,482 x 8/12
6,949,800
x
1.09
=
7,575,282
7,575,282 x 9%= 681,775
681,775 x 4/12
681,775 x 8/12
7,575,282
x
1.09
=
8,253,057
8,257,057 x 9%= 743,135
743,135 x 4/12
Totals

2010

2011

208,494

416,988

227,258
454,517

_______
208,494

_______
644,246

247,712
702,229

(b)

Notes Payable
Accrued interest (208,494 + 644,246)
Total, December 31, 2010

6,949,800
852,740
7,802,540

(c)

Non-current Liabilities
Notes Payable
Accrued interest (208,494 + 644,246)
December 31, 2010

6,949,800
852,740
7,802,540

Current Liabilities
Accrued interest
Total, December 31, 2011

6,949,800
1,554,969
8,504,769

(d)

09/01/09

Land

6,949,80
0

Notes Payable

6,949,80
0

12/31/09

Interest Expense

Interest Payable

208,494

12/31/10

Interest Expense
Interest Payable

644,246

12/31/11

Interest Expense
Interest Payable

702,229

8/31/12

208,494
644,246
702,229

Interest Expense (adjusted)
Interest Payable
Notes Payable

495,231
1,554,96

9
6,949,80
0

Cash

9,000,00
0

2-15. (Wendy’s Catering Service)
(a)
Present value of note (800,000 x 3.2397)
2,591,760
(b)
Date
Principal Due
Carrying Value of Note
4/01/09

20

Amortization
2,591,760


Chapter 2 - Non-Current Liabilities

3/31/10
3/31/11
3/31/12

3/31/13

800,000
800,000
800,000
800,000

233,258
182,252
126,654
66,076*

2,025,018
1,407,270
733,924
-0-

*Adjusted; difference is due to rounding off.
(c)

04/01/09

Equipment

2,591,76
0
608,240

Discount on Notes Payable
Notes Payable

12/31/09

Interest Expense (233,258 x 9/12)
Discount on Notes Payable

174,944

Notes Payable
Interest Expense
Cash

800,000
58,314

12/31/10

Interest Expense (182,252 x 9/12)
Discount on Notes Payable

136,689

03/31/11

Notes Payable
Interest Expense
Cash

800,000
45,563

03/31/10

174,944

Discount on Notes Payable (233,258174,944)

03/31/12

Interest Expense (126,654 x 9/12)
Discount on Notes Payable

94,991
800,000
31,663

Discount on Notes Payable (126,65494,991)

Interest Expense (66,076 x 9/12)
Discount on Notes Payable

03/31/13

Notes Payable
Interest Expense
Cash

49,557

2-16. (Burgee’s Food Corporation)
(a)

04/01/09
03/31/10
03/31/11

800,000
31,663

49,557

800,000
16,519

Discount on Notes Payable (66,07649,557)

Date

136,689

94,991

Notes Payable
Interest Expense
Cash

12/31/12

800,000
58,314

800,000
45,563

Discount on Notes Payable (182,252136,689)

12/31/11

3,200,00
0

800,000
16,519

Annual
Payment

Interest

Principal
Payment

Carrying Value

800,000
800,000

233,258
182,252

566,742

617,748

2,591,760
2,025,018
1,407,270

21


Chapter 2 - Non-Current Liabilities

03/31/12
03/31/13

800,000
800,000

126,654
66,053

673,346
733,947*

*Adjusted
(b)
04/01/09 Equipment

2,591,76
0

Notes Payable
12/31/09
04/01/10

12/31/10
04/01/11

12/31/11
04/01/12

12/31/12
04/01/13

(c)

733,924
-0-

Interest Expense (233,258 x 9/12)
Interest Payable

174,944

Interest Payable
Interest Expense (233,258 – 174,944)
Notes Payable
Cash

174,944
58,314

566,748

Interest Expense (182,252 x 9/12)
Interest Payable

136,689

Interest Payable
Interest Expense (182,252 – 136,689)
Notes Payable
Cash

136,689
45,563
617,748

174,944

800,000
94,991
94,991

Interest Payable
Interest Expense (126,654 – 94,991)
Notes Payable
Cash
Interest Expense (66,053 x 9/12)
Interest Payable

94,991

31,663
673,346
800,000
49,540
49,540

Interest Payable
Interest Expense (66,053 – 49,540)
Notes Payable
Cash
December

800,000
136,689

Interest Expense (126,654 x 9/12)
Interest Payable

Current portion at
2010
Notes Payable
Interest Payable

49,540
16,513
733,947
800,000

31,
617,748

136,689

Noncurrent portion at December 31,
2010
Notes Payable

1,407,27
0

2-17.
(a)

(South Company
Notes Payable
Interest Payable
Cost of Sales
Inventory of Machine Parts
Sales

22

2,591,76
0

900,000
90,000
650,000
650,000
800,000

Chapter 2 - Non-Current Liabilities

Gain on Debt Restructuring
(b)

190,000

(Jay Company)
Bonds Payable

10,000,00
0
900,000

Interest Payable
Ordinary Share

7,500,00
0
3,400,00
0

Share Premium
(c)

(Capshell Company)
Notes Payable

10,000,00

0
1,200,000

Interest Payable
Restructured Notes Payable

7,459,26
4
3,740,73
6

Gain on Debt Restructuring
Present value of future payments
8,000,000 x 0.7972
= 6,377,600
8,000,000 x 8% x 1.6901 = 1,081,664
Total
7,459,264
Carrying value of liability
11,200,000
Gain on debt restructuring
3,740,736

Alternatively, the
recorded as:
Notes Payable

entry

may

be

Interest Payable
Discount
on
Restructured
Notes
Payable
Restructured Notes Payable

10,000,00
0
1,200,000
540,736
8,000,00
0
3,740,73
6

Gain on Debt Restructuring
(d)

(Solid Company)
Notes Payable
Interest Payable
Restructured Notes Payable

3,000,000
330,000

Gain on Debt Restructuring
Present value of future payments
3,000,000 x 0.5935
=
1,780,500
3,000,000 x 12% x 3.6959 = 1,330,524
Total
3,111,024
Carrying
value
of
liability
3,330,000
Gain
on
debt
restructuring
218,976

Alternatively, the entry may be recorded

23

3,111,02
4
218,976


Chapter 2 - Non-Current Liabilities

as:
Notes Payable
Interest Payable

Premium on Restructured Notes
Payable

Restructured Notes Payable
Gain on Debt Restructuring
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10

3,000,000
330,000
111,024
3,000,00
0
218,976

MULTIPLE CHOICE QUESTIONS

D
D
D
C
D
D
D
C
D
C

MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

C
B
B
D
A
A
D
B

A
C

Problems
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28

D
B
A
B
B
C
A
D

MC29
MC30
MC31
MC32
MC33

D
C

A
A
B

MC34
MC35

C
A

MC36
MC37

C
D

MC38
MC39

B
D

MC40
MC41
MC42

B
C

MC43

(1,000,000 x 0.38554) + (80,000 x 6.14457) = 877,106
(1,000 x 0.31) + (40 x 11.47) = 768.80
(2,000,000 x 97%) + (2,000,000 x 10% x 3/12) = 1,990,000
(2,000 X 1,040) - 2,000,000 = 80,000
(4,000,000 x 97%) + (4,000,000 x 12% x 3/12) = 4,000,000
1,070,000 - (96% x 1,000,000) = 110,000
1,000,000 x 12% x 1/12 = 10,000
1,000,000 - 30,000 + 50,000 = 1,020,000;
1,020,000 - (40,000 x 20) - 10,000 = 210,000
Using the book value method, no gain or loss is recorded upon conversion
1,032,880 x 10% x 6/12 = 51,644
1,032,880 - {(1,000,000 x 6%) - 51,644}= 1,024,524
1,878,000 - {(10% x 1,878,000) -(2,000,000 x 9%) = 1,885,800
10,000,000 – 1,145,000 = 8,855,000;
(8,855,000 x 6%) - (10,000,000 x 5%) = 31,300
5,680,000 x 8% x 6/12 = 227,200
(2,100,000 x 6%) – (2,000,000 x 7%) = 14,000; 2,100,000 – 14,000 =
2,086,000 BCV;
BCV of P2,086,000 – face value of P2,000,000 = P86,000 premium
1,032,880 x 10% = 103,288
1,902,800 x 10% = 190,280 effective interest; 190,280 effective interest –
nominal interest of 160,000=30,280 discount amortization; carrying value =
1,902,800 + 30,280 – principal payment of 400,000 = 1,533,080
2,400,000 X 12% = 288,000
2,400,000 – 1,000,000 + 288,000 = 1,688,000
1,688,000 X 12% = 202,560; 1,000,000 – 202,560 = 797,440
3,000,000 – 2,400,000 = 600,000; 600,000 – 288,000 = 312,000
4,500,000 – 3,000,000 = 1,500,000
6,000,000 + 600,000 = 6,600,000

(6000,000 x 0.6209) +(6000,000 x 8% x 3.7908) = 5,544,984
6,600,000 – 5,544,984= 1,055,016
6,600,000 – [(5,000,000 x .6209) +(5,000,000 x .12 x 3.7908)] =1,221,020

24


Chapter 2 - Non-Current Liabilities

MC44

B

8,000,000 + 640,000 = 8,640,000
(6,000,000 x 0.8573) + (6,000,000 x 10% x 1.7833) = 6,213,780
8,640,000 – 6,213,780 = 2,426,220

25