This Study Resource Was: Bonds Payable

ELEANOR CORP.
has been producing quality disposable diapers for

more than two decades. The company’s fiscal year runs from April
1 to March 31. The following information relates to the
obligations of Eleanor as of March 31,2010.
BONDS PAYABLE
Eleanor issued P10,000,000 of 10% bonds on July 1,2008. The

prevailing market rate of interest for these bonds was 12% on the
date of issue. The bonds will mature on July 1, 2018. Interest is
paid semiannually on July 1 and January 1. Eleanor uses the
effective interest rate method to amortize bond premium or
discount.
The following present value factors are taken from the present
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value tables:
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Present value of 1 at 12% for 10 periods
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0.32917
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Present value of 1 at 6% for 20 periods
0.31180 rs e
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Present value of an ordinary annuity of 1 at 12%
for 10 periods
5.65022
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Present value of an ordinary annuity of 1 at 6%

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for 20 periods
11.46992
NOTES PAYABLE
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Eleanor has signed several long-term notes with financial

institutions. The maturities of these notes are given in the
schedule below. The total unpaid interest for all of these notes
amounts to P600,000 on March 31,2010.
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Due Date Amount Due

April 1, 2010 P400,000
July 1, 2010 600,000
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October 1, 2010 300,000

January 1, 2011 300,000
April 1, 2011 – March 31,2012 1,200,000
April 1, 2012 – March 31,2013 1,000,000
April 1, 2013 – March 31,2014 1,400,000
April 1, 2014 – March 31,2015 800,000
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April 1, 2015 – March 31,2016 1,000,000
P7,000,000
ESTIMATED WARRANTIES
Eleanor has a one-year product warranty on some selected items in

its product line. The estimated liability on sales made during
the 2008-2009 fiscal year and still outstanding as of March 31,
2009 amounted to P180,000. The warranty costs on sales made from
April 1, 2009, through March 31, 2010, are estimated at P520,000.
The actual warranty costs incurred during the current 2009-2010
fiscal year are as follows:
Warranty claims honored on 2008-2009 sales P180,000

Warranty claims honored on 2009-2010 sales 178,000
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Total warranty claims honored P358,000
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OTHER INFORMATION
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1. TRADE PAYABLES
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Accounts payable for supplies, goods and services purchased
on openaccount amount to P740,000 as of March 31, 2010.
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2. PAYROLL RELATED ITEMS

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Accrued salaries and wages P300,000

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Withholding taxes payable 94,0000

Other payroll deductions 10,000
Total P404,000
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3. MISCELLANEOUS ACCRUALS
Other accounts not separately classified amount to P150,000

as of March 31, 2010.
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4. DIVIDENDS
On March 15,2010, Eleanor’s board of directors declared a

cash dividend of P0.20 per ordinary share and a 10% stock
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dividend. Both dividends were to be distributed on April 12,

2010, to the shareholders of record at the close of business
on March 31,2010. Data regarding Eleanor ordinary share
capital are as follows:
Par value P5.00 per share
Number of shares issued and outstanding 6,000,000shares
Market values of ordinary shares:

March 15,2010 P22.00 per share
March 31,2010 21.50per share
April 12,2010 22.50 per share
1. How much was received by Eleanor from the sale of the bonds
on July1,2008?
A. P8,852,960 C. P10,500,000
B. P10,000,000 D. P10,647,040
2. What is the current portion of Eleanor’s notes payable at

March 31, 2010?
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A. P2,800,000 C. P1,300,000
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B. P1,600,000 D. P3,800,000
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3. The balance of the estimated warranties payable at March
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31,2010?
A. P342,000 rs e
C. P520,000
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B. 18,000 D. P180,000
4. On March 31,2010, Eleanor’s statement of financial position

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would report total current liabilities of

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A. P5,286,000 C. P5,336,000
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B. P4,386,000 D. P5,642,000
5. On March 31,2010, Eleanor’s statement of financial position

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would report total noncurrent liabilities of

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A. P14,289,350 C. P14,370,783
B. P14,352,217 D. P14,252,960
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1. Present value of principal (P10,000,000 x 0.31180) P3,118,000

Present value of interest payments
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(P10,000,000 x 5% = P500,000 x 11.46992) 5,734,960

Issue price/Proceeds P8,852,960
Answer:A
2. Notes payable – current portion:
April 1, 2010 P400,000
July 1,2010 600,000
October 1,2010 300,000
January 1,2011 300,000
Total P1,600,000
Answer: B
3. Estimated warranties payable:

Balance, April 1,2009 P180,000
Add: Warranty expense for current year 520,000
Total 700,000
Less: Actual warranty costs 358,000
Balance, March 31,2010 P342,000
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Answer: A
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4. Notes payable – current portion (see no.2) P1,600,000
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Estimated warranties payable (see no.3) 342,000
Accounts payable rs e 740,000
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Payroll-related accruals and deductions withheld 404,000
Miscellaneous accruals 150,000
Cash dividends payable 1,200,000
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Accrued interest on:

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Bonds payable (P10,000,000 x 10% x 3/12) 250,000

Notes payable 600,000
Total current liabilities P5,286,000
Answer: A
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5. AMORTIZATION SCHEDULE (PARTIAL)
Interest Interest Discount Carrying

Date Paid Expense Amortization Value
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07/01/08 -- -- -- P8,852,960
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12/31/08 P500,000 P531,178 P31,178 8,884,138

07/01/09500,000 533,048 35,031 8,917,186
12/31/09 500,000 535,031 35,031 8,952,217
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07/01/10 500,000 537,133 37,133 8,989,350
Bonds payable
Carrying value, Jan. 1,2010 P8,952,217
Add: Discount amortization
Jan. 1 – Mar. 31 (P37,133 x 3/6) 18,566 P8,970,783
Notes payable– noncurrent portion:
(P7,000,000 – P1,600,000 current portion) 5,400,000

Total noncurrent liabilities P14,370,783
Answer: C
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The following data were obtained from the initial audit of
HANSTEEN COMPANY:
15%, 10-year, Bonds payable, dated January 1,2009
Debit Credit Balance

Cash proceeds from issue on
January 1,2009 of 1,000,
P1,000 bonds. The market rate
of interest on the date of issue
was 12%. P1,172,044
P1,172,044
Bond Interest Expense
Cash paid, 1/2/10 P75,000 P75,000
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Cash paid, 7/1/10 75,000 150,000
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Accrual, 12/31/10 75,000 225,000
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Accrued Interest on Bonds
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Balance, 1/1/10 rs e P75,000
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P75,000
Accrual, 12/31/10 75,000
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150,000
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Treasury Bonds
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Redemption price and interest to

date on 200 bonds permanently
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retired on Dec.31,2010 P265,000 P265,000

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Based on the preceding information, determine the following:

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1. Carrying value of bonds payable at December 31,2010

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A. P831,110 B. P1,151,583
B. P800,000 D. P921,266
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2. Loss on bond redemption

A. P4,683 B. P15,000
B. P19,683 D. P34,683
3. Accrued interest on bond at December 31,2010
A. P75,000 B. P60,000
B. P135,000 D. P52,000
4. Bond interest expense for the year ended December 31,2010

A. P150,000 C. P69,745
B. P139,174 D. P160,826
1. AMORTIZATION SCHEDULE (PARTIAL)
Interest Interest Premium Carrying

Date Paid Expense Amortization Value
01/01/09 -- -- -- P1,172,044
07/01/09 P75,000 P70,323 P4,677 1,167,367
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01/01/10 75,000 70,042 4,958 1,162,409
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07/01/10 75,000 69,745 5,255 1,157,154
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01/01/11 75,000 69,429 5,571 1,151,583
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Carrying value of bonds, Dec. 31,2010
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(P1,151,583 x 800/1,000) P921,266
Answer: D
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2. Cash paid P265,000

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Less: Interest (P200,000 x 15% x 6/12) 15,000

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Redemption price 250,000

Carrying value of bonds redeemed
(P1,151,583 x 200/1,000) 230,317
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Loss on bond redemption P19,683

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Answer: B
3. Accrued interest, Dec. 31,2010

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(P800,000 x 15% x 6/12) P60,000

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Answer: C
4. Interest expense for the year ended Dec.31,2010

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(see amortization schedule):
Jan. 1 – July 1 P69,745

July 1 – Dec.31 69,429
Total P139,174
Answer: B
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ELEANOR CORP.

has been producing quality disposable diapers for

Eleanor issued P10,000,000 of 10% bonds on July 1,2008. The

Present value of an ordinary annuity of 1 at 6%

Eleanor has signed several long-term notes with financial

Due Date Amount Due

October 1, 2010 300,000

Eleanor has a one-year product warranty on some selected items in

Warranty claims honored on 2008-2009 sales P180,000

2. PAYROLL RELATED ITEMS

Accrued salaries and wages P300,000

Withholding taxes payable 94,0000

Other accounts not separately classified amount to P150,000

On March 15,2010, Eleanor’s board of directors declared a

dividend. Both dividends were to be distributed on April 12,

Market values of ordinary shares:

2. What is the current portion of Eleanor’s notes payable at

4. On March 31,2010, Eleanor’s statement of financial position

would report total current liabilities of

5. On March 31,2010, Eleanor’s statement of financial position

would report total noncurrent liabilities of

1. Present value of principal (P10,000,000 x 0.31180) P3,118,000

(P10,000,000 x 5% = P500,000 x 11.46992) 5,734,960

3. Estimated warranties payable:

Accrued interest on:

Bonds payable (P10,000,000 x 10% x 3/12) 250,000

5. AMORTIZATION SCHEDULE (PARTIAL)

Interest Interest Discount Carrying

12/31/08 P500,000 P531,178 P31,178 8,884,138

07/01/10 500,000 537,133 37,133 8,989,350

Notes payable– noncurrent portion:

(P7,000,000 – P1,600,000 current portion) 5,400,000

15%, 10-year, Bonds payable, dated January 1,2009

Debit Credit Balance

Bond Interest Expense

Cash paid, 1/2/10 P75,000 P75,000

Redemption price and interest to

retired on Dec.31,2010 P265,000 P265,000

Based on the preceding information, determine the following:

1. Carrying value of bonds payable at December 31,2010

2. Loss on bond redemption

4. Bond interest expense for the year ended December 31,2010

1. AMORTIZATION SCHEDULE (PARTIAL)

Interest Interest Premium Carrying

2. Cash paid P265,000

Less: Interest (P200,000 x 15% x 6/12) 15,000

Redemption price 250,000

Loss on bond redemption P19,683

3. Accrued interest, Dec. 31,2010

(P800,000 x 15% x 6/12) P60,000

4. Interest expense for the year ended Dec.31,2010

(see amortization schedule):

Jan. 1 – July 1 P69,745

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