Reference no: EM132820207

The following excerpt of Gvadinii Inc.'s trial balance as of December 31, 2020:

10% Notes payable - Bank, 5 years P 3,000,000

12% Bonds payable, 5 years 5,000,000

9% Bonds payable, 3 years 2,000,000

Additional Information:

a. The Notes payable - bank which was dated April 1, 2016 pays interest annually every April 1. As of December 31, 2020, Gvadinii Inc. has the right to refinance the said loan by issuing bonds the proceeds shall be used to settle the obligation. On March 1, 2021 the company issued P4,000,000 Bonds at face value and used one-half of the proceeds too settle the notes on April 1, 2021. The balance of the maturing obligation was settled out of working capital. The 2020 financial statement were approved for issuance by the BOD on April 15, 2021.

b. The 12% bonds payable were issued on January 1, 2019 at P5,386,087 when the prevailing market rate for bonds was at 10%. The company recorded the transaction as a debit to cash for the bond proceeds, credit to the bonds payable account at face value, charging any difference to interest expense. Interest on the bonds is payable semiannually every June 30 and December 31. The payment of interests were recorded properly by the company.

c. The 9% bonds payable were issued at P2,150,000 on January 1, 2019. The bonds which pay annual interest every December 31, matures in December 31, 2022. The bonds are convertible into 20,000, P100 par value ordinary shares at the option of the holder. The prevailing market rate of interest for similar debt security without the conversion option on the issuance date was 10%. The company recorded the transaction as a debit to cash for the cash consideration received, credit to bonds payable at its face value with the difference being charged to interest expense. The only other entry made by the company in relation to the bonds was the periodic payment of interest.

Problem 1. How much from the 10% Notes payable should be presented as non-current liability as of December 31, 2016?

Problem 2. What is the correct carrying value of the 12% Bonds payable as of December 31, 2020?

Problem 3. What is the equity component of the 9% bonds payable?

Problem 4. Assuming that the 9% bonds payable were converted into ordinary share on December 31, 2020, what is the credit to share premium as a result of equity conversion?

Problem 5. Assuming that the 9% bonds were retired at P2,100,000 on December 31, 2021, when the prevailing market rate of interest on similar securities without the conversion option is at 8%, what is the gain or loss to be recognized in the profit or loss as a result of retirement of securities?