CHAPTER 2
NON-CURRENT LIABILITIES
PROBLEMS
2-1.
(Ruby Corporation)
At 8%
Bond issue price
Nominal interest for 2012
Interest expense for 2012
Premium/discount amortization in 2012
Bond carrying value at December 31, 2012
Nominal interest for 2013
Interest expense for 2013
Premium/discount amortization in 2013
Bond carrying value at December 31, 2013
1,081,145
50,000
43,246
6,754
1,074,391
100,000
85,671
14,059
1,060,332
At 12%
926,405
50,000
55,584
5,584
931,989
100,000
112,193
12,193
944,182
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
06/30/12
12/31/12
06/30/13
12/31/13
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 12%
Issue price = (1,000,000 x 0.5584) + (50,000 x 7.3601)
= 558,400 + 368,005 = 926,405
Date
A
Interest
Paid
B
Interest
Expense
C
Discount
Amortization
D
Bond
Carrying Value
06/30/12
12/31/12
06/30/13
12/31/13
50,000
50,000
50,000
55,584
55,919
56,274
5,584
5,919
6,274
926,405
931,989
937,908
944,182
2-2. (Fire Company)
Correction to the text:
A = 5% x face value
B = 4% of previous carrying value
(a)
Issue price
Present value of face value
(4,000,000 x 0.6756)
Present value of interest payments (200,000 x 8.1109)
Issue price
P2,702,400
1,622,180
P4,324,580
Chapter 2 - Non-Current Liabilities
(b)
Amortization Table
Date
3/01/12
8/31/12
2/28/13
8/31/13
2/28/14
(c)
03/01/12
08/31/12
12/31/12
02/28/13
2-3.
Interest
Expense
172,983
171,903
170,779
169,610
Premium
Amortization
27,017
28,097
29,221
30,390
Cash
Bonds Payable
Premium on Bonds Payable
Bond Carrying
Value
4,324,580
4,297,563
4,269,466
4,240,245
4,209,855
4,324,580
4,000,000
324,580
Interest Expense
Premium on Bonds Payable
Cash
172,983
27,017
Interest Expense (171,903 x 4/6)
Premium on Bonds Payable
Interest Payable (320,000 x 4/6)
114,602
18,731
Interest Expense (171,903 – 114,602)
Premium on Bonds Payable (28,097 –
18,731)
Interest Payable
Cash
200,000
133,333
57,301
9,366
133,333
200,000
(Metal Corporation)
Issue price of bonds and warrants 5,000,000 x 1.08
MV of bonds without warrants
5,000,000 x 1.02
Value assigned to warrants
(a)
(b)
2-4.
Interest
Paid
200,000
200,000
200,000
200,000
(Onyx)
(a)
5,400,000
5,100,000
P 300,000
Cash
Premium on Bonds Payable
Bonds Payable
Share Warrants Outstanding
5,400,000
Cash (5,000 x 2 x 140)
Share Warrants Outstanding
Ordinary Shares (5,000 x 2 x 100)
Share Premium
1,400,000
300,000
100,000
5,000,000
300,000
1,000,000
700,000
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
12
322,000
565,020
1,030,000
887,020
142,980
Chapter 2 - Non-Current Liabilities
(b)
Interest Expense for 2012 (887,020 x 12% x 10/12
(c)
Bond carrying value, March 1, 2012
Amortization through December 31, 2012
887,020 x 12% x 10/12
1,000,000 x 12% x 10/12
Bond carrying value, December 31, 2012
(d)
2-5.
887,020
88,702
83,333
Cash (1,000 x 30 x 50)
Share Warrants Outstanding
Ordinary Share (30,000 x 25)
Share Premium
5,369
892,389
1,500,000
142,980
750,000
892,980
(Celeron Company)
(a)
Issue price of convertible bonds
Issue price of bonds without conversion privilege
2,000,000 x 0.5674
1,134,800
200,000 x 3.6048
720,960
Allocation to equity
(b)
88,702
2,000,000
1,855,760
144,240
Amortization Table
Interest
Interest
Date
Paid
Expense
07/01/12
06/30/13
200,000
222,691
06/30/14
200,000
225,414
06/30/14
06/30/14
06/30/15
80,000
91,386
06/30/16
80,000
92,572
06/30/17
80,000
94,316*
*Adjusted; difference is due to rounding off.
(c)
07/01/12
Premium
Amortization
22,691
25,414
Cash
Discount on Bonds Payable
Bonds Payable
11,386
12,752
14,316
2,000,000
144,240
2,000,000
144,240
PIC Arising from Bond Conversion Privilege
06/30/13
06/30/14
06/30/14
Interest Expense
Discount on Bonds Payable
Cash
222,691
Interest Expense
Discount on Bonds Payable
Cash
225,414
Bonds Payable
PIC Arising from Conversion Privilege
Discount on Bonds Payable
Ordinary Share
Share Premium
13
Bond Carrying
Value
1,855,760
1,878,451
1,903,865
(1,142,319)
761,546
772,932
785,684
800,000
22,691
200,000
25,414
200,000
1,200,000
86,544
57,681
960,000
268,863
Chapter 2 - Non-Current Liabilities
Carrying value,bonds converted (1,903,865 x 120/200
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)
06/30/15
06/30/16
06/30/17
06/30/17
Interest Expense
Discount on Bonds Payable
Cash
91,386
Interest Expense
Discount on Bonds Payable
Cash
92,752
Interest Expense
Discount on Bonds Payable
Cash
94,316
1,142,319
1,200,000
57,681
86,544
960,000
11,386
80,000
12,752
80,000
14,316
80,000
Bonds Payable
800,000
57,696
PIC Arising from Bond Conversion Privilege
Cash
PIC from Unexercised Bond Conversion Privilege
800,000
57,696
(144,240 – 86,544)
2-6.
(Iron Company)
Bonds Payable
Premium on Bonds Payable (450,000 x 2/20)
PIC Arising from Bond Conversion Privilege(320,000 x 2/20)
2,000,000
45,000
32,000
Ordinary Shares (1,000 x 60 x 20)
Share Premium
2-7.
1,200,000
877,000
(Lim Corporation)
(a)
Cash
Bonds Payable
Premium on Bonds Payable
5,500,000
5,000,000
200,000
300,000
PIC Arising from Bond Conversion Privilege
(b)
Bonds Payable
Premium on Bonds Payable (5,000 x 1/5)
PIC Arising from Bond Conversion Privilege
1,000,000
10,000
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 from Bond Conversion Privilege
Cash (2,000,000 x 1.04)
Gain on Retirement of Bonds
PIC from Unexercised Bond Conversion Privilege
14
800,000
270,000
2,000,000
20,000
120,000
2,080,000
10,000
50,000
Chapter 2 - Non-Current Liabilities
Retirement price
2,080,000
Retirement price on account of liability
2,000,000 x 1.005
Retirement price on account of equity
Carrying value of bonds retired
Face value
Unamortized premium (50,000 x 2/5)
Retirement price of bonds (2M x 1.005)
Gain on retirement of bonds
2,010,000
70,000
2,000,000
___20,000
2,020,000
2,010,000
10,000
Carrying value of equity cancelled
Retirement price on account of equity
Gain on cancellation taken to equity
2-8.
120,000
70,000
50,000
(Emerald Corporation)
The following table may facilitate the computations required in this problem.
Date
12/01/12
06/01/13
12/01/13
06/01/14
12/01/14
06/01/15
12/01/15
06/01/16
12/01/16
06/01/17
12/01/17
Interest
Paid
300,000
300,000
300,000
300,000
300,000
180,000
180,000
180,000
180,000
180,000
Interest
Expense
269,304
267,769
266,157
264,465
262,688
156,494
155,318
154,084
152,788
151,443*
Premium
Amortization
30,696
32,231
33,843
35,535
37,312
23,506
24,682
25,916
27,212
28,557
Bond
Carrying Value
5,386,072
5,355,376
5,323,145
5,289,302
5,253,767
5,216,455
3,106,367
3,081,685
3,055,769
3,028,557
3,000,000
*Adjusted; difference is due to rounding off.
(a)
Carrying value, December 1, 2013 (see, table)
Amortization for one month (33,843 x 1/6)
Carrying value, December 31, 2013
(b)
(c)
Interest Expense for year 2013
January 1-June 1, 2013 (269,304 x 5/6)
June 1-December 1, 2013
December 1-31, 2013 (266,157 x 1/6)
Total
224,420
267,769
_44,360
536,549
Carrying value of bonds retired on December 1, 2014
5,253,767 x 2/5
Amortization through April 1, 2015 (37,312 x 4/6 x 2/5)
Carrying value of bonds retired on April 1, 2015
(d)
5,323,145
____5,640
5,317,505
Carrying value of bonds retired
Redemption price (2,000,000 x 1.04)
Gain on redemption of bonds
15
2,101,507
____9,950
2,091,557
2,091,557
2,080,000
11,557
Chapter 2 - Non-Current Liabilities
(e)
Carrying value of remaining bonds, December 1, 2015
Amortization through December 31, 2015 (24,682 x 1/6)
Carrying value of remaining bonds, December 31, 2015
(f)
On bonds redeemed:
January 1-April 1, 2013 (262,688 x 2/5 x 3/6)
3,106,367
4,114
3,102,253
2015
52,538
2016
On remaining bonds
January 1-June 1, 2013 (262,688 x 3/5 x 5/6)
June 1-December 1, 2015
December 1-31, 2015 (155,318 x 1/6)
January 1-June 1, 2016 (155,318 x 5/6)
June 1-December 1, 2016
December 1-31, 2016 (152,788 x 1/6)
Interest Expense
2-9.
(Ohio Company)
Date
01/02/12
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
131,344
156,494
25,886
______
366,262
129,432
154,084
25,465
308,981
Partial Amortization Table
Interest
Paid
1,200,000
1,200,000
1,200,000
1,200,000
600,000
600,000
Interest
Expense
1,014,730
999,908
983,901
966,613
473,971
463,889
Premium
Amortization
185,270
200,092
216,099
233,387
126,029
136,111
Bond Carrying
Value
12,684,120
12,498,850
12,298,758
12,082,659
11,849,272
5,798,607
5,662,496
(a)
Effective interest (12,734,120 – 50,000) x 8%
Nominal interest (10,000,000 x 12%)
Amortization of premium for 2012
(b)
Carrying value of bonds on December 31, 2015 (see table)
(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
(d)
Interest Expense for year 2016 (see table)
(e)
Unamortized premium on bonds payable, Dec. 31, 2016
5,798,605 – 5,000,000
1,014,730
1,200,000
185,270
11,849,272
5,924,636
5,500,000
424,636
473,971
798,605
2-10. (Sim Company)
Partial Amortization Table
Date
03/01/12
09/01/12
03/01/13
09/01/13
03/01/14
09/01/14
03/01/15
09/01/15
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
16
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
Chapter 2 - Non-Current Liabilities
(a)
Interest expense recorded on September 1, 2012
Discount amortization recorded on September 1, 2012
(b)
Carrying amount of the bonds, September 1, 2012
88,335
3,335
Carrying amount of the bonds, December 31, 2012
1,966,335
2,323
1,968,658
(c)
Retirement price (at face value)
Accrued interest (2,000,000 x 8.5% x 4/12)
Amount of cash paid on June 30, 2015
2,000,000
56,667
2,056,667
(d)
Carrying value, March 1, 2015 (see table)
Amortization through June 30, 2015 (4,343 x 4/6)
Carrying value, June 30, 2015
Retirement price (at face value)
Loss on retirement of bonds
1,985,401
2,895
1,988,296
2,000,000
11,704
Amortization through December 31, 2010 (3,485 x 4/6)
2-11. (Kim Company)
(a)
Issue price of the bonds
Principal
Due Date
Due
12/31/13
2,000,000
12/31/14
2,000,000
12/31/15
2,000,000
12/31/16
2,000,000
12/31/17
2,000,000
Selling price of bonds
(b)
Principal
Due
Interest
Due
800,000
640,000
480,000
320,000
160,000
Amount
Due
2,800,000
2,640,000
2,480,000
2,320,000
2,160,000
Amortization Table
Interest
Effective
Due
Interest
Due Date
12/31/12
12/31/13
2,000,000
800,000
1,088,392
12/31/14
2,000,000
640,000
882,999
12/31/15
2,000,000
480,000
672,159
12/31/16
2,000,000
320,000
455,218
12/31/17
2,000,000
160,000
231,296
*Adjusted; difference is due to rounding off.
PV Factor
0.8929
0.7972
0.7118
0.6355
0.5674
Present
Value
2,500,120
2,104,608
1,765,264
1,474,360
1,225,584
P9,069,936
Discount
Amortization
288,392
242,999
192,159
135,218
71,296*
Carrying
Value, end
P9,069,936
7,358,328
5,601,327
3,793,486
1,928,704
-0-
(c)
12/31/12
12/31/13
12/31/14
Cash
Discount on Bonds Payable
Bonds Payable
9,069,936
930,064
Interest Expense
Discount on Bonds Payable
Cash
1,088,392
Bonds Payable
Cash
2,000,000
10,000,000
288,392
800,000
2,000,000
Interest Expense
Discount on Bonds Payable
Cash
Bonds Payable
Cash
882,999
242,999
640,000
2,000,000
2,000,000
17
Chapter 2 - Non-Current Liabilities
2-12. (Blue Sapphire Corporation)
(a) Issue price of the bonds
Due Date
12/31/12
12/31/13
12/31/14
12/31/15
Selling price
Principal
Due
2,000,000
2,000,000
2,000,000
2,000,000
of bonds
(b)
Principal
Due
Interest
Due
960,000
720,000
480,000
240,000
Amount
Due
2,960,000
2,720,000
2,480,000
2,240,000
Amortization Table
Interest
Effective
Due
Interest
Due Date
01/01/12
12/31/12
2,000,000
960,000
12/31/13
2,000,000
720,000
12/31/14
2,000,000
480,000
12/31/15
2,000,000
240,000
*Adjusted; difference is due to rounding off.
PV Factor
0.9259
0.8573
0.7938
0.7355
Present
Value
2,740,664
2,331,856
1,968,624
1,646,400
P8,687,544
Discount
Amortization
695,004
513,804
337,308
166,340*
264,996
206,196
142,692
73,660
Carrying
Value, end
8,687,544
6,422,548
4,216,352
2,073,660
-0-
(c)
01/01/12
12/31/12
Cash
Bonds Payable
Premium on Bonds Payable
Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable
Cash
12/31/13
8,687,544
8,000,000
687,544
695,004
264,996
960,000
2,000,000
2,000,000
Interest Expense
Premium on Bonds Payable
Cash
Bonds Payable
Cash
513,804
206,196
720,000
2,000,000
2,000,000
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 interest for this transaction is 9%.
(b)
Date
09/01/12
08/31/13
08/31/14
08/31/15
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.
18
Carrying Value of Note
6,949,800
7,575,282
8,257,057
9,000,000
Chapter 2 - Non-Current Liabilities
(c)
Interest expense for 2012 (625,482 x 4/12)
208,494
Carrying value, September 1, 2012
Amortization through December 31, 2012
Carrying value, December 31, 2012
(d)
09/01/12
12/31/12
09/01/13
12/31/13
09/01/14
12/31/14
08/31/15
Land
Discount on Notes Payable
Notes Payable
6,949,800
208,494
7,158,294
6,949,800
2,050,200
9,000,000
Interest Expense
Discount on Notes Payable
208,494
Interest Expense (625,482 -208,494)
Discount on Notes Payable
416,988
Interest Expense (681,775 x 4/12)
Discount on Notes Payable
227,258
Interest Expense (681,775 – 227,258)
Discount on Notes Payable
454,517
Interest Expense (742,943 x 4/12)
Discount on Notes Payable
247,648
Interest Expense (742,943 – 247,648)
Discount on Notes Payable
495,295
208,494
Notes Payable
Cash
416,988
227,258
454,517
247,648
495,295
9,000,000
9,000,000
2-14. (JFC)
(a)
2012
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 = 8,257,057
8,257,057 x 9%= 743,135
743,135 x 4/12
Totals
2013
2014
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, 2013
6,949,800
852,740
7,802,540
(c)
Non-current Liabilities
Notes Payable
Accrued interest (208,494 + 644,246)
December 31, 2013
6,949,800
852,740
7,802,540
19
Chapter 2 - Non-Current Liabilities
Current Liabilities
Notes Payable
Accrued interest
Total, December 31, 2014
6,949,800
1,554,969
8,504,769
(d)
09/01/12
12/31/12
12/31/13
12/31/14
12/31/15
Land
Notes Payable
6,949,800
6,949,800
Interest Expense
Interest Payable
208,494
Interest Expense
Interest Payable
644,246
Interest Expense
Interest Payable
702,229
208,494
644,246
702,229
Interest Expense (adjusted)
Interest Payable
Notes Payable
Cash
2-15. (Wendy’s Catering Service)
(a)
Present value of note (800,000 x 3.2397)
(b)
Date
Principal Due
4/01/12
3/31/13
3/31/14
3/31/15
3/31/16
*Adjusted;
Amortization
800,000
233,258
800,000
182,252
800,000
126,654
800,000
66,076*
difference is due to rounding off.
495,423
1,554,969
6,949,800
9,000,192
2,591,760
Carrying Value of Note
2,591,760
2,025,018
1,407,270
733,924
-0-
(c)
04/01/12
12/31/12
03/31/13
Equipment
Discount on Notes Payable
Notes Payable
2,591,760
608,240
3,200,000
Interest Expense (233,258 x 9/12)
Discount on Notes Payable
174,944
Notes Payable
Interest Expense
Cash
800,000
58,314
174,944
800,000
58,314
Discount on Notes Payable (233,258-174,944)
12/31/13
03/31/14
Interest Expense (182,252 x 9/12)
Discount on Notes Payable
136,689
Notes Payable
Interest Expense
Cash
800,000
45,463
Discount on Notes Payable (182,252-136,689)
20
136,689
800,000
45,563
Chapter 2 - Non-Current Liabilities
12/31/14
03/31/15
Interest Expense (126,654 x 9/12)
Discount on Notes Payable
94,991
94,991
Notes Payable
Interest Expense
Cash
800,000
31,663
800,000
31,663
Discount on Notes Payable (126,654-94,991)
12/31/15
03/31/16
Interest Expense (66,076 x 9/12)
Discount on Notes Payable
49,557
49,557
Notes Payable
Interest Expense
Cash
800,000
16,519
800,000
16,519
Discount on Notes Payable (66,076-49,557)
2-16. (Burgee’s Food Corporation)
(a)
Date
04/01/12
03/31/13
03/31/14
03/31/15
03/31/16
Annual Payment
Interest
Principal
Payment
800,000
800,000
800,000
800,000
233,258
182,252
126,654
66,076*
566,742
617,748
673,346
733,924
*Adjusted
(b)
04/01/12 Equipment
Notes Payable
12/31/12
04/01/13
12/31/13
04/01/14
12/31/14
04/01/15
12/31/15
Carrying Value
2,591,760
2,025,018
1,407,270
733,924
-0-
2,591,760
2,591,760
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
Interest Expense (126,654 x 9/12)
Interest Payable
Interest Payable
Interest Expense (126,654 – 94,991)
Notes Payable
Cash
Interest Expense (66,076 x 9/12)
Interest Payable
21
174,944
800,000
136,689
800,000
94,991
94,991
94,991
31,663
673,346
800,000
49,557
49,557
Chapter 2 - Non-Current Liabilities
04/01/14
(c)
Interest Payable
Interest Expense (66,076 – 49,557)
Notes Payable
Cash
49,557
16,519
733,924
800,000
Current portion at December 31, 2013
Notes Payable
Interest Payable
617,748
136,689
Noncurrent portion at December 31, 2013
Notes Payable
1,407,270
2-17.
(a)
(b)
(c)
(South Company)
Notes Payable
Interest Payable
Cost of Sales
Inventory of Machine Parts
Sales
Gain on Debt Restructuring
(Joy Company)
Bonds Payable
Interest Payable
Ordinary Share
Share Premium 30,000 x (30-25)
Gain on Debt Restructuring
(Capshell Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Gain on Debt Restructuring
(see computations and explanation below)
Present value of future payments at historical
rate:
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
Difference
3,740,736
3,740,736/11,200,000 = 33%, thus the
restructuring qualifies as a derecognition
of the old liability and creation of a new
liability.
The old liability shall be cancelled; the new
liability shall be measured based on the
discounted cash flow of the future
payments
based
on
the
entity’s
incremental borrowing rate considering its
credit rating:
22
900,000
90,000
650,000
650,000
800,000
190,000
10,000,000
900,000
7,500,000
150,000
3,250,000
10,000,000
1,200,000
7,332,384
3,867,616
Chapter 2 - Non-Current Liabilities
Present
value
of
future
payments
at
incremental borrowing rate, considering its
credit rating:
8,000,000 x 0.7831
= 6,264,800
8,000,000 x 8% x 1.6681
= 1,067,584
Total
7,332,384
Carrying value of the old
11,200,000
Gain on debt restructuring
3,867,616
(d)
Alternatively, the entry may be recorded as:
Notes Payable
10,000,000
Interest Payable
1,200,000
Discount on Restructured Notes Payable
667,616
Restructured Notes Payable
Gain on Debt Restructuring
8,000,000
3,867,616
(Solid Company)
Notes Payable
Interest Payable
Restructured Notes Payable
Deferred Gain on Debt Restructuring
3,111,024
218,976
3,000,000
330,000
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
Difference
218,976
218,976/3,330,000 < 10% of 3,330,000.
Thus, the debt restructuring does not
qualify for derecognition of the old
obligation. No gain shall be recognized
and a new effective interest rate shall be
computed.
Alternatively, the restructuring may
recorded as:
Notes Payable
Interest Payable
Premium on Restructured Notes Payable
Restructured Notes Payable
Deferred Gain on Debt Restructuring
23
be
3,000,000
330,000
111,024
3,000,000
218,976
Chapter 2 - Non-Current Liabilities
MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
D
D
D
C
D
D
D
C
MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC9
D
MC10
C
Problems
MC19
MC20
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
B
D
B
A
B
B
C
A
B
D
MC31
D
MC32
MC33
MC34
MC35
C
A
A
B
MC36
MC37
C
A
MC38
MC39
C
D
MC40
MC41
B
D
MC42
MC43
MC44
MC45
B
A
D
D
MC46
MC47
C
B
MC48
B
C
B
B
D
B
D
D
B plus the PV of all..at
effective rate
(supposedly A)
A
D
(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 x 1.02) – 50,000 = 970,000
1,000,000 - 30,000 + 50,000 = 1,020,000;
1,020,000 - (40,000 x 20) - 10,000 = 210,000
Use the book value method; no gain or loss is recorded upon conversion; the
conversion is in accordance with the original terms of the bond; thus, IFRIC 19 does
not apply.
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
(1) 49,737 X 10%= 4,974; 49,737 – (20,000 – 4,974) = 34,711
5,500,000 – 3,000,000 = 2,500,000
6,000,000 + 600,000 = 6,600,000
(6000,000 x 0.621) +(6000,000 x 12% x 3.791) = 6,455,520
6,600,000 – 6455,520= 144,480, which is less than 10% of 6,600,000; no gain is
recognized.
6,600,000 – [(5,000,000 x .6209) +(5,000,000 x .12 x 3.7908)] =1,221,020
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
150,000 x 65 = 9,750,000; 11,000,000 – 9,750,000 = 1,250,000
24
Chapter 2 - Non-Current Liabilities
25