Reference no: EM132554126
Question -
PROBLEM A: Pacito Corp. issued 10% bonds with face amount of P9,000,000 on June 1, 2020. The bond contract requires the face amount to be paid in six equal semi-annual installments together with interest on the unpaid balance every November 30 and May 31 starting November 30, 2020. The effective interest rate on June 1, 2020 is 8%. (Round off present value factors to four decimal places)
1. At what amount should the bonds be initially recognized on June 1, 2020?
2. How much is the interest expense for the year 2021?
3. At what amount should the bonds be presented on December 31, 2021?
PROBLEM B: On August 1, 2020, the Mambo Corp. issued P5,000,000, 8% bonds dated March 1, 2020 and maturing on February 28, 2030 for a total consideration for P4,458,429 which includes accrued interest. The bonds pay interest annually every February 28. The issue price provides a yield of 10%. The company uses a calendar year.
On September 30, 2025, the company decided to retire the bonds for a total payment of P4,600,000 which includes the accrued interest.
4. How much is the interest expense for the year 2020?
5. At what amount should the bonds payable be presented on December 31, 2021?
6. How much is the interest expense for the year 2025?
7. How much should be recognized as gain or loss on early retirement of bonds on September 30, 2025?
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