AUDIT IN CIS ENVIRONMENT (REVIEW IN FAR TOPICS)

Accounting for Notes and Bonds Payable

A. At December 31, 2016, GOLDIE Corp. had the following liability account balances:
11% Bonds payable, at face value P2,500,000
Premium on bonds payable 177,400
Notes payable to Emmy – due December 31, 2019 1,000,000
Transactions during 2017 and other information affecting these accounts were as follows:
a. The bonds were issued to yield 10%. Interest is payable every December 31.
b. The note payable to Emmy was issued on December 31, 2016 in exchange for a land
with a market value of P750,000. The nominal rate for a note of this type is 10%.
c. On October 2, 2017, GOLDIE borrowed P2,000,000 at 10% evidenced by a note payable
to BPI. The note is payable in 5 equal annual installments of P527,600. The first
installment payment is due on October 2, 2018.
REQUIRED:
1) How much is the interest expense on bonds payable in 2017?
2) How much is the bond premium amortization in 2017?
3) What is the carrying value of Bonds payable on December 31, 2017?
4) How much is the current portion of notes payable – BPI on December 31, 2017?
5) How much is the total interest expense in 2017?
6) How much is the accrued interest payable at the end of 2017?

B. On September 1, 2016, Fine Company issued a note payable to National Bank in the amount of
P1,800,000, bearing interest at 12% and payable in three equal annual principal payments of
P600,000. On this date, the bank’s prime rate was 11%. The first interest and principal payment
was made on September 1, 2017. On December 31, 2017, what amount should be reported as
accrued interest payable?

C. On December 31, 2016, Ruth Company issued a P1,000,000 face value note payable to Jake
Company in exchange for services rendered to Ruth. The note, made at usual trade terms, is due
in nine months and bears interest, payable at maturity, at the annual rate of 3%. The market interest
rate is 8%. The compound interest factor of 1 due in nine months at 8% is .944. At what amount
should the note payable be reported on December 31, 2016?

D. Chiu Company had the following loans at 12% interest payable at maturity. Chiu repaid each loan
on scheduled maturity date.
Date Amount Maturity date Term
11/1/2016 500,000 10/31/2017 1 year
2/1/2017 1,500,000 7/31/2017 6 months
5/1/2017 800,000 1/31/2018 9 months
The entity recorded interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2013. If no correction is made, by what amount would 2017
interest expense be understated?

E. On January 1, 2016, Bo Company issued 4,000 of 8% P2,000 face value bonds at 97 plus accrued
interest. The bonds are dated October 1, 2015 and mature on October 1, 2025. Interest is payable
semiannually on April 1 and October 1. Accrued interest for the period October 1, 2015 to January
1, 2016 amounted to P160,000. On January 1, 2016, what is the carrying amount of bonds
payable?

F. On January 1, 2016, East Company issued 9% bonds in the face amount of P5,000,000 which
mature on January 1, 2026. The bonds were issued for P4,695,000 to yield 10%. Interest is payable
annually on December 31. The entity used the interest method of amortizing bond discount. On
December 31, 2018, what is the carrying amount of the bonds payable?