Bond issue price and premium amortization

On January 1, 2011, Placido Co. issued ten-year bonds with a face value of P1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are: Present value of 1 for 10 periods at 10% ......................................... .386 Present value of 1 for 10 periods at 12% ......................................... .322 Present value of 1 for 20 periods at 5% .......................................... .377 Present value of 1 for 20 periods at 6% .......................................... .312 Present value of annuity for 10 periods at 10% ............................... 6.145 Present value of annuity for 10 periods at 12% ............................... 5.650 Present value of annuity for 20 periods at 5% ................................. 12.462 Present value of annuity for 20 periods at 6% ................................. 11.470

Instructions

(a) Calculate the issue price of the bonds.

(b) Without prejudice to your solution in part (a), assume that the issue price was P884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.

Solution 14-122

(a) .312 × P1,000,000 = P312,000 11.470 × P50,000 = 573,500 P885,500

Cash Interest Discount (b) Date Paid Expense Amortized Carrying Amount 1/1/11 ...

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