Reference no: EM132799182
Question - Xavier Corp. reported the following financial liabilities in its December 31, 2019 statement of financial position:
10%, Serial notes payable P5,000,000
10%, Bonds payable 3,000,000
9%, Convertible bonds payable 4,000,000
Additional information and audit notes:
The 10% Serial notes payable was as a result of a P5,000,000 loan from BPI on June 30, 2019. The loan proceeds amounting to P5,000,000 was debited to cash and credited to Notes payable. The loan is payable at the rate of P1,000,000 plus interest every June 30 starting 2020. The first principal and interest payment was made in June 30 of the current year.
The 10% bonds payable were issued on January 1, 2019 at an 8% yield rate. Interest on the bonds which shall mature on December 31, 2022 is payable annually every December 31. The company credited bonds payable at face value. Any difference between the proceeds and the face value was charged to interest expense. Interst paid on December 31, 2019 was appropriately recorded.
On September 30, 2020, half of the bonds were retired at P1,750,000.
The 9% convertible bonds payable were issued on December 31, 2019 at its face value. The prevailing market rate of interest on similar securities without conversion option was at 10%. The issuance was recorded as debit to cash and credit to bonds payable at P4M. Interest on the bonds which shall mature on December 31, 2022 is payable semi-annually every December 31 and June 30. Each P1,000 face value bonds is convertible to 30, P30 par value ordinary shares.
On December 31, 2020, P2M face value bonds were converted to ordinary shares.
1. What is the correct interest expense on the serial notes payable for 2020?
a. 400,000
b. 450,000
c. 500,000
d. 550,000
2. What is the retroactive adjustment to retained earnings beginning as a result of your audit of the 10% bonds payable?
a. None
b. 154,626
c. 198,728
d. 255,898
3. What is the gain or loss on the retirement of half of the bonds payable on September 30?
a. 190,548
b. 60,187
c. 78,048
d. 34,452
4. What is the equity component of the 9% convertible bonds payable?
a. None
b. 99,474
c. 70,919
d. 101,514
5. How much is credited to the share premium account as a result of the conversion of P2M out of P4M convertible bonds?
a. 215,297
b. 266,054
c. 250,757
d. 301,514
6. What is the correct carrying value of remaining bonds as of December 31, 2020?
a. None
b. 2,000,000
c. 1,964,540
d. 1,946,450