Reference no: EM132956915
Question - On January 1 of the current year, a company issued 5-year 10% bonds with a face amount of P10,000,000 at 109. The following costs were also incurred related to the issuance:
Legal and accounting fees for registration 25,000
Commission fees 40,000
Cost of printing and engraving bond certificates 30,000
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 10,500,000. All changes in fair value are attributable to market risk.
(1) If the bonds were designated at fair value, determine:
(a) Determine the Carrying amount of the bonds as of January 1.
(b) Determine the Net effect to profit or loss owing to transactions related to the bonds (if your answer is a net loss, enclose in parentheses or add a negative sign)
(2) If the bonds were measured at amortized cost:
(a) Determine the Interest expense for the current year.
(b) Determine the Carrying amount of the bonds as of December 31.
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