Interm 3
Quiz 1
1. Salp Company
On May 1, 2022, the SALP Company purchased a special of equipment from AMEN
Corporation by issuing a 9% interest bearing note for P8,000,000 due April 30, 2023.
There is no established cash price for this equipment. The market rate of interest for a
note of this type is 5%.
(Premium)
Principal 8,000,000
Stated Interest (8,000,000 * 9%) 720,000
Total Future Cash Outflow 8,720,000
PV Factor at 5% for 1 period 0.9524
Present Value of the Note 8,304,928
SJFS
Interm 3
On May 1, 2022, the SALP Company purchased a special of equipment from AMEN
Corporation by issuing a 9% interest bearing note for P8,000,000 due April 30, 2023.
There is no established cash price for this equipment. The market rate of interest for a
note of this type is 12%.
(Discount)
Principal 8,000,000
Stated Interest (8,000,000 * 9%) 720,000
Total Future Cash Outflow 8,720,000
PV Factor at 12% for 1 period 0.8929
Present Value of the Note 7,786,088
SJFS
Interm 3
2. Kayamoto Corporation
On January 1, 2022, the Kayamoto Corporation issued a three-year, non-interest-bearing
note with face value of 3,000,000 for a piece of land purchased from Dong Corporation.
The note is payable in annual installment of P1,000,000 every December 31, 2022. The
land has an equivalent cash price of P2,400,000, a price that provides the note an
effective interest rate of 12%.
Amortization Table
Periodic Balance of
Date Interest Principal
Payment Principal
January 1, 2022 2,400,000
January 1, 2023 1,000,000 288,000 712,000 1,688,000
January 1, 2024 1,000,000 202,560 797,440 890,560
January 1, 2025 1,000,000 109,440* 890,560 -
3. Perfect-Mo-Nato Corporation
On April 1, 2018, the Perfect-Mo-Nato Corporation issued a four-year non-interest-
bearing note for a piece of land purchased from Please-Naman Corporation. The note is
payable in annual payment of P900,000 every April 1, 2019. The land has an equivalent
cash price of P2,733,570.
SJFS
Interm 3
Quiz 2
1. Ruby Corp.
Ruby Corp. is authorized to issue P5,000,000 of 5-year bonds dated June 30, 2022 with
a stated interest rate of 8%. Interest on the bonds is payable semi-annually on June 30
and December 31. The company uses the effective interest method of amortization. The
bonds were sold to yield 10%.
SJFS
Interm 3
2. Fire Company
On March 1, 2022, Fire Company issued P4,000,000 of 10% bonds to yield 12%. Interest
is payable semi-annually on February 28 and August 31. The bonds mature in 5 years.
Fire Company is a calendar-year corporation.
3. Ohio Company
On January 2, 2022, Ohio Company issued P10 million of 12% bonds for P12,734,120
due December 31, 2028. Legal and other costs of P50,000 were incurred in connection
with the issue. Interest on the bonds is payable annually every December 31.
Using a financial calculator, the effective interest rate on these bonds was computed to
be 8%, after considering the bond issue cost of P50,000.
The bonds are callable at 110 and on December 31, 2025, after paying the periodic
interest. Ohio called P4,000,000 face amount of the bonds and retired them.
SJFS
Interm 3
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Interm 3
4. Jim Company
Jim Company issued P4,000,000 of 8 1#2%, 5-year bonds on March 1, 2022. Interest
payment dates are March 1 and September 1. With a market interest rate of 9%, the
bonds were sold for P3,926,000. Jim Company retired all of the contract on September
30, 2025 at 101 plus accrued interest.
Amortization Table
What is the amount of interest expense for 2023?
SJFS
Interm 3
What is the amount of premium/discount at December 31, 2023?
What is the bond carrying value at December 31, 2023?
Prepare entries for retirement of bonds on September 30, 2025.
SJFS
Interm 3
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