Reference no: EM132881045
On December 31, 2016, Moses Company issued P5,000,000 face value, 5-year bonds at 109. Each P1,000 bond was issued with 50 detachable share warrants, each of which entitled the bondholder to purchase one ordinary share of P5 par value at P25. Immediately after issuance, the market value of each warrant was P5.
- The stated interest rate on the bonds is 11% payable annually every December 31. However, the prevailing market rate interest for similar bonds without warrant is 12%.
- The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1 at 12% for 5 periods is 3.60.
Problem 1: What is the carrying amount of the bonds payable on December 31, 2016?
a. 5,450,000
b. 4,830,000
c. 5,000,000
d. 4,380,000
Problem 2: On December 31, 2016, what amount should be recorded as discount or premium on bonds payable?
a. 170,000 discount
b. 450,000 premium
c. 450,000 discount
d. 800,000 discount
Problem 3: What is the equity component arising from the issuance of bonds payable?
a. 450,000
b. 500,000
c. 620,000
d. 0
Problem 4: What is the share premium if all of the warrants are exercised?
a. 1,250,000
b. 2,500,000
c. 5,000,000
d. 5,620,000
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