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Sample Problem in Bonds Issuance Between Interest Dates

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285 views8 pages

Sample Problem in Bonds Issuance Between Interest Dates

Uploaded by

aicelleg.redondo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Computation of unamortized discount, 12/31/2020

Discount on bonds payable, Jan 1 ₱ 250,000


Less: Amortization from Jan to Dec 31 - 25,000
Discount on bonds payable, Dec 31, 2020 ₱ 225,000
Original life in months 120
Expired life from original date to Sept 1 20
Remaining yerm of bonds, Sept 1 100

Computation of unamortized premium, 12/31/2021


Premium on bonds payable, Jan 1, 2021 ₱ 60,000
Less: Amortization from Sept 1 to Dec 31, 2021 - 2,400
Premium on bonds payable, Dec 31, 2021 ₱ 57,600

Computation of unamortized discount, 12/31/2021


Discount on bonds payable, Jan 1, 2021 ₱ 225,000
Less: Amortization from Jan to Dec 31, 2021 - 25,000
Discount on bonds payable, Dec 31, 2021 ₱ 200,000
Computation of unamortized premium, 12/31/2022
Premium on bonds payable, Jan 1, 2022 ₱ 57,600
Less: Amortization from Jan 1 to Dec 31, 2022 - 7,200
Premium on bonds payable, Dec 31, 2022 ₱ 50,400

Computation of unamortized discount, 12/31/2022


Discount on bonds payable, Jan 1, 2022 ₱ 200,000
Less: Amortization from Jan to Dec 31, 2022 - 25,000
Discount on bonds payable, Dec 31, 2022 ₱ 175,000
Memorandum approach

Date Account Title & Explanation Debit Credit


2020
On January 1, 2020, the Company is authorized to issue P8,000,000 face amount,
10-year, 12% bonds, interest payable every June 30 and Dcember 31.

Jan 1 Cash ₱ 4,750,000


Discount on bonds payable 250,000
Bonds payable ₱ 5,000,000
Issuance of P5M bonds at a discount

June 30 Interest expense 300,000


Cash 300,000
Payment of interest incurred from Jan 1 to June 30

Dec 31 Interest expense 300,000


Cash 300,000
Payment of interest incurred from July 1 to Dec 31

/ Interest expense 25,000


Discount on bonds payable 25,000
Amortization of discount from Jan 1 to Dec 31

Presentation in the financial statements

Interlink Company
Statement of Financial Position
December 31, 2020

Noncurrent Liabilities
Bonds payable ₱ 5,000,000
Less: Discount on bonds payable 225,000
Carrying value of bonds payable ₱ 4,775,000

Interlink Company
Statement of Income
For the year ended December 31, 2020

Interest expense ₱ 625,000

OR SHORT COMPUTATION
Interest from Jan to Dec 31, 2020 ₱ 600,000
Amortization of discount from Jan 1 to Dec 31, 2020 25,000
Total interest expense for 2020 ₱ 625,000

Date Account Title & Explanation Debit Credit


2021
June 30 Interest expense 300,000
Cash 300,000
Payment of interest from Jan 1 to June 30, 2021

Sept 1 Cash 2,100,000


Interest expense 40,000
Bonds payable 2,000,000
Premium on bonds payable 60,000
Issuance of P2M bonds at a premium plus accrued interest

Cash computation
Issue price ₱ 2,060,000
Accrued interest -July 1 to Sept 1, 2021 40,000
Total cash received ₱ 2,100,000

Dec 31 Interest expense 300,000


Cash 300,000
Payment of the interest for the P5M bonds
from July 1 to Dec 31, 2021

/ Interest expense 120,000


Cash 120,000
Payment of the interest for the P2M bonds
from July 1 to Dec 31, 2021

/ Interest expense 25,000


Discount on bonds payable 25,000
Amortization of discount from Jan 1 to Dec 31, 2021

Premium on bonds payable 2,400


Interest expense 2,400
Amortization of premium from Sept 1 to Dec 31, 2021
over the remaining term of the bonds of 100 months

Presentation in the financial statements

Interlink Company
Statement of Financial Position
December 31, 2021

Noncurrent Liabilities
Bonds payable ₱ 7,000,000
Premium on bonds payable 57,600
Discount on bonds payable - 200,000
Carrying value of bonds payable ₱ 6,857,600

Interlink Company
Statement of Income
For the year ended December 31, 2021

Interest expense ₱ 702,600

OR COMPUTATION
Annual interest for the P5M bonds from Jan 1 to Dec 31 ₱ 600,000
Interest for the P2M bonds from Sept 1 to Dec 31, 2021 80,000
Amortization of discount from Jan 1 to Dec 31, 2021 25,000
Amortization of premium - 2,400
Total interest expense for 2021 ₱ 702,600
Date Account Title & Explanation Debit Credit
2022
June 30 Interest expense ₱ 420,000
Cash ₱ 420,000
Payment of the interest for the P7M bonds
from Jan 1 to June 30, 2022

Dec 31 Interest expense 420,000


Cash 420,000
Payment of the interest for the P7M bonds
from July 1 to Dec 31, 2022

/ Interest expense 25,000


Discount on bonds payable 25,000
Amortization of discount from Jan 1 to Dec 31, 2022

/ Premium on bonds payable 7,200


Interest expense 7,200
Amortization of premium from Jan 1 to Dec 31, 2022
over the remaining term of the bonds of 100 months

Presentation in the financial statements

Interlink Company
Statement of Financial Position
December 31, 2022

Noncurrent Liabilities
Bonds payable ₱ 7,000,000
Premium on bonds payable 50,400
Discount on bonds payable - 175,000
Carrying value of bonds payable ₱ 6,875,400

Interlink Company
Statement of Income
For the year ended December 31, 2022

Interest expense ₱ 857,800

OR COMPUTATION
Annual interest for the P7M bonds from Jan 1 to Dec 31 ₱ 840,000
Amortization of discount from Jan 1 to Dec 31, 2021 25,000
Amortization of premium from Jan 1 to Dec 31, 2022 - 7,200
Total interest expense for 2021 ₱ 857,800
OR ANOTHER ENTRY
Cash ₱ 2,100,000
Accrued interest payable ₱ 40,000
Bonds payable 2,000,000
Premium on bonds payable 60,000

Accrued interest payable 40,000


Interest expense 80,000
Cash 120,000

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