Problem No. 6: Questions
Problem No. 6: Questions
6
On January 2, 2004, the Suns, Inc. issued P2,000,000 of 8% convertible bonds at
par. The bonds will mature on January 1, 2008 and interest is payable annually
every January
1. The bond contract entitles the bondholders to receive 6 shares of P100 par value
common stock in exchange for each P1,000 bond. On the date of issue, the
prevailing market interest rate for similar debt without the conversion option is 10%.
On December 31, 2005, the holders of the bonds with total face value of
P1,000,000 exercised their conversion privilege. In addition, the company
reacquired at 110, bonds with a face value of P500,000.
500,000
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much of the proceeds from the issuance of convertible bonds should be
allocated to equity?
a. P634,000 b. P126,816 c. P221,664 d. P0
2. How much is the carrying value of the bonds payable as of December 31,
2004? a. P2,000,000 b. P1,389,400 c.
P1,796,170 d. P1,900,502
3. How much is the interest expense for the year 2005?
a. P160,000 b. P138,940 c. P179,617 d. P190,050
4. The entry to record the conversion on December 31, 2005 will include a credit to
APIC of
a. P365,276 b. P400,000 c. P307,893 d. P0
5. How much is the loss on bond reacquisition on December 31, 2005?
a. P50,000 b. P96,053 c. P67,362 d. P0