PROBLEM NO.

5 - Wizards Company
Computation of amortization rate
Period covered Amount Percent
 Bond year From To Outstanding to total

1st 10.02.03 09.30.04 5,000,000 25%

2nd 10.01.04 09.30.05 5,000,000 25%
3rd 10.01.05 09.30.06 4,000,000 20%
4th 10.01.06 09.30.07 3,000,000 15%
5th 10.01.07 09.30.08 2,000,000 10%
6th 10.01.08 09.30.09 1,000,000 5%
20,000,000 100%

Computation of amortization amount

2003 October to December (P100,000 x 25% x 3/12) 6,250
2004 January to September (P100,000 x 25% X 9/12) 18,750
October to December (P100,000 x 25% x 3/12) 6,250 25,000
2005 January to September (P100,000 x 25% X 9/12) 18,750
October to December (P100,000 x 20% x 3/12) 5,000 23,750
2006 January to September (P100,000 x 20% X 9/12) 15,000
October to December (P100,000 x 15% x 3/12) 3,750 18,750
2007 January to September (P100,000 x 15% X 9/12) 11,250
October to December (P100,000 x 10% x 3/12) 2,500 13,750
2008 January to September (P100,000 x 10% X 9/12) 7,500
October to December (P100,000 x 5% x 3/12) 1,250 8,750
2009 January to September (P100,000 x 5% X 9/12) 3,750
100,000
Requirement no. 1
a) Bonds payable (P5,000,000 - P1,000,000) 4,000,000
b) Bond discount
Original amount

100,000
Amortization : Prior years (2003 and 2004) 31,250
Current year (2005) 23,750 55,000
45,000
c) Accrued interest (P4,000,000 x 5% x 3/12) 50,000
e) Interest expense
P4,000,000 x 5% 200,000
P1,000,000 x 5% x 9/12 37,500
Bond discount amortization (see letter b above) 23,750
261,250

Requirement no. 2
1) Discount on bonds payable 100,000
Bond payable 100,000

2) Retained earnings 31,250

 Bond interest expense 23,750
Discount on bonds payable 55,000

3) Accrued interest payable 62,500

Bond interest expense 62,500

4) Bond interest expense 50,000

Accrued interest payable 50,000