Question

On January 1, 2019, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11% bonds
date January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31.
Wizards uses the effective interest method of amortization. On December 31, 2020. The 2,000 bonds were
extinguished early through acquisition on the Open Market by Wizard for P1,980,000 plus accrued interest.
On July 1, 2019, Wizards issued 5,000 of its P1,000 face value, 10% convertible bonds at par. Interest is
payable every June 30 and December 31.
On the date of issue, the prevailing market interest rate for similar debt without the conversion option is
12%. On July 1, 2020, an investor in Wizards convertible bonds tendered 1,500 bonds for conversion into
15,000 shares of Wizards common stock, which had a fair value of P105 and a par value of P1 at the date
of conversion.
Based on the above and the result of your audit, determine the following: (Round off present value factors
to four decimal places.)
1. The issue price on the 2,000 5-year, P1,000 face value bonds in January 1, 2019 is
2. The carrying value of the 2,000 5-year, P1,000 face value bonds on December 31, 2019 is
3. The gain on early retirement of bonds on December 31, 2020 is
4. The carrying value of the 5,000 6 year, P1,000 face value bonds on December 31, 2019 is
5. The conversion of the 1,500 6-years, P1,000 face value bonds on July 1, 2020 will increase APIC by

Answer 1

1.The issue price of 2,000 5-year, P1,000 face value bonds on jan 1 2012 is = 2,155,560

2. The carrying value of the 2,000 5-year, P1,000 face value bonds on December 31, 2019 is = 2129500

3. The gain on early retirement of bonds on December 31, 2020 is = 121200

4. The carrying value of the 5,000 6 year, P1,000 face value bonds on December 31, 2019 is = 4605800

5. The conversion of the 1,500 6-years, P1,000 face value bonds on July 1, 2020 will increase APIC by =1374600