20
Corporations and
2. Secured bonds pledge assets as security, while debenture bonds pledge no specific
assets.
4. False. Buyer pays more.
6. It has to be adjusted to prorate the increase in interest expense over the life of the
bond.
8. Disagree; it will result in an even amount.
10. The interest method is used so that interest is a constant percentage of the carrying
value; thus the need to use the market rate in the calculation.
11. Amortization of discount or premium must be up to date. When a bond is retired, the
unamortized premium or discount as well as the liability must be removed. Cash is
13. One stock show does not guarantee success in the stock market. Both husband and
SOLUTIONS TO CONCEPT CHECKS
1.
a.
Sep. 1
Cash
50
0
0
00
Bonds Payable
50
0
0
0
00
b.
Feb. 28
Bond Interest Expense
2
2
0
00
Cash
2
2
5
0
00
c.
Sep. 1
Bonds Payable
50
0
0
00
Cash
50
0
0
0
00
Date Accounts Dr. Cr.
2.
Oct. 1
Cash
42,750
Discount on Bonds Payable
2,250
Bonds Payable
45,000
3.
Mar. 31 Bond Interest Expense
1,687.50
Discount on Bonds Payable
112.50
Cash
1,575.00
4.
Oct. 1
Cash
46,800
Premium on Bonds Payable
1,800
Bonds Payable
45,000
5.
Mar.
31
Bond Interest Expense
1,485.00
Premium on Bonds Payable
90.00
Bonds Payable
1,575.00
6.
a.
The carrying value of the bond at the beginning of the period is $129,569.
b.
The interest payment to the bondholders every six months is $6,750.
c.
The interest expense for the first semiannual period is $7,126.30.
d.
The discount to be amortized for the first semiannual period is $376.30.
e.
The carrying value at the end of the first semiannual period is $129,945.30.
Copyright © 2016 Pearson Education, Inc.
20-3
CONCEPT CHECKS (CONTINUED)
8.
a.
The carrying value of the bond at the beginning of the period is $191,805.
b.
The interest paid to the bondholders every six months is $6,175.
c.
Interest expense for the first semiannual period is $5,754.15.
d.
The premium to be amortized for the first semiannual period is $420.85.
e.
The carrying value at the end of the first semiannual period is $191,384.15.
9.
Oct 1
Bond Interest Expense
5,754.15
Premium on Bonds Payable
420.85
Cash
6,175
10.
a.
Bond Sinking Fund
6,200
Cash
6,200
b.
Bond Sinking Fund
160
Bond Sinking Fund Interest
Earned
160
c.
Bonds Payable
23,000
Bond Sinking Fund
23,000
SOLUTIONS TO SET A EXERCISES
20A-1.
(After-tax
earnings
– Dividends for
preferred)
/ Common shares
outstanding
= EPS
Evans
($58,400
– $0)
/ 29,000
= $2.01
Hayes
($80,000
– $27,000)
/ 29,000
= $1.83
EXERCISES (CONTINUED)
20A-4.
a. May
1
Cash
326
4
0
0
00
Premium on Bonds Payable
6
4
0
0
00
Bonds Payable
320
0
0
0
00
b. Nov.
1
Bond Interest Expense
19
0
7
2
00
Premium on Bonds Payable
1
2
8
00
Cash
19
2
0
0
00
c. May
1
Bonds Payable
320
0
0
0
00
Cash
320
0
0
0
00
20A-5.
a. July
1
Cash
96
5
2
0
00
Discount on Bonds Payable
12
4
8
0
00
Bonds Payable
109
0
0
0
00
b. Dec.
31
Bond Interest Expense
5
7
9
1
00
Discount on Bonds Payable
3
4
1
00
Cash
5
4
5
0
00
c. June
30
Bond Interest Expense
5
8
1
2
00
Discount on Bonds Payable
3
6
2
00
Cash
5
4
5
0
00
EXERCISES (CONTINUED)
20A-6.
a.
Bond Sinking Fund
23
6
0
8
00
Cash
23
6
0
8
00
b.
Bond Sinking Fund
1
1
8
0
00
Bond Sinking Fund Interest Earned
1
1
8
0
00
c.
Cash
4
0
0
00
Bonds Payable
340
0
0
0
00
Bond Sinking Fund
340
4
0
0
00
20A-7.
Long-Term Liabilities
12% Bonds Payable
$575,000
Add: Premium on Bonds Payable
10,000
$585,000
13% Bonds Payable
180,000
Deduct: Discount on Bonds Payable
11,000
169,000
Total Long-Term Liabilities
$754,000
SOLUTIONS TO SET B EXERCISES
20B-1.
(After-tax
earnings
– Dividends for
preferred)
/ Common shares
outstanding
= EPS
Moniz
($110,045
– $0)
/ 31,500
= $3.49
Hackley
($123,500
– $20,700)
/ 31,500
= $3.26
EXERCISES (CONTINUED)
20B-4.
a. Nov.
1
Cash
342
4
0
0
00
Premium on Bonds Payable
22
4
0
0
00
Bonds Payable
320
0
0
0
00
b. May
1
Bond Interest Expense
5
9
5
2
00
Premium on Bonds Payable
4
4
8
00
Cash
6
4
0
0
00
c. Nov.
1
Bonds Payable
320
0
0
0
00
Cash
320
0
0
0
00
20B-5.
a. July
1
Cash
94
7
4
9
00
Discount on Bonds Payable
12
2
5
1
00
Bonds Payable
107
0
0
0
00
b. Dec.
31
Bond Interest Expense
5
6
8
5
00
Discount on Bonds Payable
3
3
5
00
Cash
5
3
5
0
00
c. July
1
Bond Interest Expense
5
7
0
5
00
Discount on Bonds Payable
3
5
5
00
Cash
5
3
5
0
00
EXERCISES (CONTINUED)
20B-6.
a.
Bond Sinking Fund
23
6
1
5
00
Cash
23
6
1
5
00
b.
Bond Sinking Fund
2
3
6
2
00
Bond Sinking Fund Interest Earned
2
3
6
2
00
c.
Cash
4
5
0
00
Bonds Payable
370
0
0
0
00
Bond Sinking Fund
370
4
5
0
00
20B-7.
Long-Term Liabilities
14% Bonds Payable
$460,000
Add: Premium on Bonds Payable
4,000
$464,000
15% Bonds Payable
210,000
Deduct: Discount on Bonds Payable
10,000
200,000
Total Long-Term Liabilities
$664,000