1.

Bonds maturing on a single date are called

2. Bonds payable are initially recognized at

3. For accounting purposes, interest expense recognized on bonds payable should be based on
the
A. effective interest rate, considering the issue price and the transaction costs.
B. nominal interest rate.
C. rate stated on the face of the bonds.
D. market rate of interest on the reporting date.

4. Bonds bearing an interest rate of 8% were issued above their face value. This implies that the
market rate of interest
A. at date of issue is equal to 8%.
B. at date of issue is higher than 8%.
C. at date of issue is lower than 8%
D. at the reporting date is higher than 8%.

5. How should the issue price of the bonds with non-detachable share warrants be accounted
for?
A. The proceeds are fully assigned to the bonds.
B. the proceeds shall ne assigned first to the warrants, at their market value and the
remained to the bonds.
C. The proceeds shall be assigned first to the bonds at their market value if sold without
he warrants; then the remained of the issue price is assigned to the warrants as part of
equity.
D. The proceeds shall be allocated to the bonds and to the warrants based on the relative
fair values.

6. Sun Corp. markets a 10-year bond issue dated January 1, 2018. The bonds pay interest semi-
annually on January 1 and July 1. If these bonds are sold on August 1, 2018, how many months
accrued interest must be paid by the purchaser and over how many months would any discount
on the bonds be amortized?
A. Accrued interest- 7 month; Amortization period- 120 months
B. Accrued interest- 7 month; Amortization period- 113 months
C. Accrued interest- 1 month; Amortization period- 120 months
D. Accrued interest- 1 month; Amortization period- 113 months

7. Under the effective interest method of amortizing bond premium on term bonds,
A. interest expense remains the same for each period.
B. interest rate varies from period to period.
C. interest expense increases each period.
D. interest expense decreases each period.

8. The proceeds from a bond issued with detachable share warrants should be accounted for
A. entirely as bonds payable
B. entirely as shareholders’ equity
C. partly as unearned revenue and partly as bonds payable
D. partly as liability for bonds payable and partly as shareholders’ equity for the warrants.
9. Bond premium should be reported in the statement of financial position
 A. along with other premium accounts such as those resulting from stock transactions.
B. as deferred credit.
C. as a direct addition to the face amount of the bonds.
D. as a deduction from the face of the bonds.

10. How would the carrying amount of the bonds be affected by the amortization of discount and
premium, respectively?
A. No effect; No effect
B. Increase; No effect
C. Increase; Decrease
D. Decrease; Increase

11. Bonds with face value of P5,000,000 carrying a stated interest rate of 12% payable
semiannually on March 1 and September 1 were issued on July 1. The total proceeds from the
issue amounted to P5,200,000. The best explanation for the excess amount received over the
face value is that
A. the bonds were sold at a premium.
B. the bonds bear an interest rate lower than the market rate of interest at the date of bond
issuance.
C. the bonds were issued at face value plus accrued interest.
D. the bonds were sold at a discount plus accrued interest.

12. BTS Company failed to amortize discount on outstanding 10-year bonds payable. What is the
effect of the failure to record amortization on interest expense, profit and bond carrying value,
respectively?
A. understate, overstate, understate
B. overstate, understate, overstate
C. understate, overstate, overstate
D. overstate, understate, understate

13. The market price of a bond issued at a premium is the present value of its principal amount
at the effective interest
A. plus the present value of all future interest payments at the effective interest rate.
B. plus the present value of all future interest payments at the stated interest rate on bond.
C. minus the present value of all future interest payments at the effective interest rate.
D. plus total amount of all future interest payment.

14. When corporation issues a callable bond, this means that the
A. investors may convert bonds held to cash at his or her option.
B. issuer may retire the bond by paying a specified call price during a specified period.
C. issuer may retire the bonds by paying a specified market price at the open market at
any point in the life of the bond
D. issuer may convert the bonds to some form of equity security during a specified period.

15. Which of the following statements is incorrect regarding troubled debt restructuring?
A. In modification of terms, when the total discounted cash flows under the new terms
exceed the carrying value of the debt, a gain on debt restructuring is recognized in profit
or loss if the discounted present value of the new terms is at least 10% different from the
carrying value of the old obligation.
B. Any difference between the carrying value of the debt settled and the carrying value of
the asset transferred shall be taken to the profit or loss during the period of the debt
settlement.
C. In debt restructuring where shares of equity instruments are granted to settle an
obligation, the excess of the carrying value of the debt settle over the fair value of the
shares issued shall be taken to the profit or loss during the period of debt settlement.
D. In modification of terms, the debtor recognizes interest expense after the debt
restructuring based on the interest rate of the old debt.
16. The statement of financial position of Denver Company at December 31, 2019 showed,
among others, the following under the liabilities section:
• 10% mortgage bond due P500,000 annually beginning October 1, 2020- P2,000,000
• 12% convertible bonds, due on June 30, 2022 (each P1,000 bond is convertible into 10,
P100 par ordinary shares)- P1,500,000
• 10% collateral trust bonds due on July 16, 2021- P3,000,000
How much are Denver Company’s total debenture bonds and serial bonds, respectively?
A. P4,500,000 and P2,000,000
B. P1,500,000 and P2,000,000
C. P1,500,000 and P3,000,000
D. P0 and P2,000,000

17. On January 1, 2019, Albama Inc. issued 10-year bonds with a face amount of P1,000,000
and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield
10%. Using five decimal places for the present value factors, how much is the total issue price of
bonds (rounded to nearest P100)?
A. P1,000,000
B. P980,000
C. P965,800
D. P877,100

18. The following information pertains to San Francisco issuance of bonds on July 1, 2019. Face
amount- P10,000,000; Terms- 10 years; Stated interest rate- 8%; Interest payment dates- July 1
and January 1; Effective yield- 12%. Using two decimal places for the present value factors, how
much is the issue price of each P1,000 bonds?
A. P659.60
B. P768.80
C. P1,229.40
D. P1,340.40

19. On July 1, 2019, Florida Corporation issued at 97 plus accrued interest, 2,000 of its 10%,
P1,000 bonds. The bonds were dated January 1, 2019 and mature on April 1, 2027. Interest is
payable semi-annually on April 1 and October 1. From the bond issuance, Florida would receive
net cash of
A. P1,990,000
B. P1,965,000
C. P1,940,000
D. P1,890,000

20. On May 1, 2019, Manny Company issued P2,000,000, 20-year, 10% bonds at P2,120,000.
Each P1,000 bonds had a detachable warrant eligible for the purchase of one share of Manny’s
P50 par ordinary share of P60. At the time of issuance, Manny’s securities had the following unit
fair values: 10% Bond without warrant- P1,040; Warrant- P20; Ordinary share, P50 par- P56.
What amount should Manny credit to premium on bonds payable on May 1, 2019?
A. P120,000
B. P80,000
C. P40,000
D. P0

21. On December 31, 2019, the liability section of Texas Company’s statement of financial
position included bonds payable of P10,000,000 and unamortized premium on bonds payable of
P180,000. Further verification revealed that these bonds were issued on December 31, 2017 and
will become due on December 31, 2027. Interest at 12% is payable every June 30 and December
31. On April 1, 2020, Texas retired P4,000,000 of these bonds at 97 plus accrued interest. How
much was the amount of total cash paid for the retirement of the bonds on April 1, 2020?
A. P3,950,000
B. P4,000,000
 C. P4,040,000
D. P4,180,000

22. In the statement of financial position of Magnolia Inc. as of December 31, 2019, the following
accounts appear: 18% Bonds Payable, due January 1, 2021- P1,000,000; Premium on Bonds
Payable- P70,000; Accrued interest on bonds payable- P90,000. Interest is payable semi-
annually on January 1 and July 1. On January 1, 2020, Magnolia Inc. redeemed the bonds at 96
plus accrued interest. How much is the gain (or loss) on the redemption of the bonds?
A. P40,000
B. P(40,000)
C. P110,000
D. P(110,000)

23. Michigan, Inc. issued P1,000,000, 12%, 20-year bonds at 102 plus accrued interest on
February 1, 2019. The bonds are dated January 1, 2019 and pay interest semi-annually every
June 30 and December 31. Transaction costs totaled P50,000. How much accrued interest on
the bonds shall Michigan collect from the investor on February 1?
A. P10,000
B. P20,000
C. P30,000
D. P50,000

24. Using the same data in no. 23, what is the initial carrying value amount of the bonds on
February 1, 2019?
A. P950,000
B. P970,000
C. P1,000,000
D. P1,020,000

25. California Inc. had outstanding 10%, P1,000,000 face value, convertible bonds maturing on
December 31, 2021 on which interest is paid on June 30 and December 31.

After amortization through June 30, 2019, the unamortized balance in the bond discount account
was P30,000. The share premium from bond conversion privilege had a balance of P50,000. On
that date, all of these bonds were converted into 40,000 ordinary shares with P20 par value. At
that time, each share of California ordinary share capital sells for P23. California incurred
expenses of P10,000 in connection with the conversion.

The conversion of bonds to ordinary shares shall result to an increase in share premium by
A. P160,000
B. P170,000
C. P180,000
D. P210,000

26. Use the same information in 25. Recording the conversion in accordance with current financial
reporting standards, California should record gain on conversion of
A. P60,000
B. P50,000
C. P40,000
D. P0

27. On July 1, 2019, Madison Company received P1,032,880 for P1,000,000 face amount, 12%
bonds a price that yields 10%. How much is the interest expense for the six months ended
December 31, 2019?
A. P61,973
B. P60,000
C. P51,644
D. P50,000
28. Using the same information with 27, what amount should be reported as bond liability at
December 31, 2019?
A. P1,024,524
B. P1,031,236
C. P1,032,880
D. P1,041,236

29. Fresh Company has outstanding 7%, 10-year, P2,000,000 face value bond. The bond was
originally sold to yield 6% annual interest. On June 30, 2018, the carrying amount of the
outstanding bond was P2,100,000. What amount of unamortized premium on bond should Fresh
report in its June 30, 2019 statement of financial position?
A. P86,000
B. P114,000
C. P126,000
D. P140,000

30. On January 1, 2019, Gell Company received P1,032,880 for P1,000,000 face amount, 12%
bonds, a price that yields 10%. Interest is payable semi-annually every June 30 and December
31. Interest expense for the year ended December 31, 2019 is:
A. P123,946
B. P120,000
C. P103,288
D. P102,870

31. On December 31, 2019, Columbia Company shows the following data with respect to its
matured obligation: Notes payable- P5,000,000; Accrued interest- P500,000. The company is
threatened with a court suit if it could not pay its maturing debt. Accordingly, the company enters
into an agreement with the creditor for the transfer of non-cash asset in full settlement of the
mortgage. The agreement provides for the transfer of real estate carried in the books of Columbia
at P3,000,000. The real estate has a current fair value of P4,500,000. What total amount should
Columbia recognize in profit or loss for the year 2019 as a result of this transaction?
A. P500,000
B. P1,000,000
C. P1,500,000
D. P2,500,000

32. On December 31, 2019, Guimaras Corporation is experiencing extreme financial pressure
and is in default in meeting interest payment on its long-term note of P6,000,000 due on
December 31, 2019. The interest is 10% payable every December 31. In an agreement with the
creditor, Guimaras obtained the following changes in the terms of the note:
• The accrued interest of P600,000 on December 31, 2019 is condoned.
• The new interest rate is 12% which approximates the prevailing rate of interest for similar
obligation at the time of restructuring.
• The new date of maturity is December 31, 2024.
What is Guimaras Corporation’s gain on debt restructuring? (Use three decimal places for the
present value factor)
A. P1,032,720
B. P602,400
C. P151,200
D. P0

33. On December 31, 2019, Guimary Corporation is experiencing extreme financial pressure and
is in default in meeting interest payment on its long-term note of P6,000,000 due on December
31, 2019. The interest is 10% payable every December 31. In an agreement with the creditor,
Guimary obtained the following changes in the terms of the note:
• The accrued interest of P600,000 on December 31, 2019 is condoned.
• The principal is reduced by P1,000,000.
 • The new interest rate is 12%.
• The new date of maturity is December 31, 2024.
• At the time of restructuring, the market rate was 10%.
What is Guimary Corporation’s gain on debt restructuring?
A. P1,979,180
B. P1,600,000
C. P1,221,020
D. P0

34. Down Company has an overdue Notes Payable to City Bank of P8,000,000 and recorded
accrued interest of P640,000 based on 8% interest (This rate is presumed to be the market rate
at the time of debt restructuring). As a result of settlement on December 31, 2019, City Bank
agreed to the following restructuring agreement:
• Reduced the principal obligation to P6,000,000
• Forgave the P640,000 accrued interest.
• Extended the maturity date to December 31, 2021.
• Annual interest of 10% is to be paid on December 31, 2020 and 2021.
The market rate for similar debt on December 31, 2019 is 8%. How much is the gain on debt
restructuring? (use four decimal places for the present value factor.

35. Distress Corporation has an overdue Notes Payable to Country Finance with face amount of
P10,000,000 and accrued interest on December 31, 2019 of P1,000,000 based on 10% interest
rate. Because of financial difficulty, Distress offered Country Finance to settle the obligation by
issuing 150,000 shares of its ordinary share capital. The par value of each share is P50 and the
market value on this date is P65. Country Finance accepted the offer. Following the interpretations
of IFRIC 19, what amount should Distress include in profit or loss for the year 2019 as a result of
the settlement of obligation?
A. P0
B. P1,250,000
C. P2,500,000
D. P3,500,000