Reference no: EM132958970

Question - On January 1 of the current year, a company issued 5-year 10% bonds with a face amount of P15,000,000 at 109. The following costs were also incurred related to the issuance:

-Legal and accounting fees for registration 30,000

-Commission fees 50,000

-Cost of printing and engraving bond certificates 40,000

-Cost of promotion 15,000

At the date of issuance, the effective rate is determined to be 8%. The bonds are payable as follows: the principal is payable at the end of 5 years and interest is payable annually every December 31.

As of December 31 of the same year, the bonds were found to have a fair value of 10,000,000. All changes in fair value are attributable to market risk.

(1) If the bonds were designated at fair value, determine:

(a) Carrying amount of the bonds as of January 1

(b) Net effect to profit or loss owing to transactions related to the bonds

(2) If the bonds were measured at amortized cost:

(a) Interest expense for the current year

(b) Carrying amount of the bonds as of December 31