Exercise 10-2 (30 minutes)
1. Discount = Par value – Issue price = $180,000 – $170,862 = $9,138
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $7,200*……………… $ 43,200
Par value at maturity….….…….…..... 180,000
Total repaid………………………………… 223,200
3. Straight-line amortization table ($9,138/6 = $1,523)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
(0) 1/01/2015………….….….….$9,138 $170,862
(5) 6/30/2017………….….….…. 1,523 178,477
(6) 12/31/2017………………….… 0 180,000
Exercise 10-3 (25 minutes)
1. Semiannual cash interest payment = $800,000 x 6% x ½ year = $24,000
3. The 6% contract rate is less than the 8% market rate; therefore, the
4. Estimation of the market price at the issue date
Cash Flow Table Table Value* Amount Present Value
Par (maturity) value........B.1 0.4564 $800,000 $365,120
Interest (annuity)………….B.3 13.5903 24,000 326,167
20 periods (semiannual payments).
5. Cash………….…………………………………………………………..691,287
Exercise 10-4 (20 minutes)
2015
(a)
Dec. 31 Cash………………………………………………..…………………….186,534
2016
(b)
June 30 Bond Interest Expense……………..…..….….…….….….…..7,684
tization. *$200,000 x6% x1/2 **13,466 – $11,782
(c)
Dec. 31 Bond Interest Expense……………..…..….….…….….….…..7,684
Discount on Bonds Payable**…………..……..…….…. 1,684
tization. *$200,000 x6% x1/2 **$11,782 – $10,098
Exercise 10-5 (35 minutes)
2015
(a)
Dec. 31 Cash………………………………………………..…………………….188,000
Discount on Bonds Payable………………….…………….….12,000
Bonds Payable……………..……………..…………………… 200,000
Sold bonds at discount.
(b)
2016
June 30 Bond Interest Expense……………..…..….….…….….….…..8,000
Discount on Bonds Payable*……..…….…..…….….… 3,000
Dec. 31 Bond Interest Expense……………..…..….….…….….….…..8,000
5% x ½
2017
June 30 Bond Interest Expense……………..…..….….…….….….…..8,000
Discount on Bonds Payable*……..…….…..…….….… 3,000
Cash**…………….…………………..……………..……….…… 5,000
Paid semiannual interest and record
amor-tization. *$6,000-$3,000 **$200,000 x
5% x ½
Dec. 31 Bond Interest Expense……………..…..….….…….….….…..8,000
Exercise 10-6 (20 minutes)
2014
(a)
Dec. 31 Cash………………………………………………..…………………….216,222
2015
(b)
June 30 Bond Interest Expense……………..…..….….…….….….…..8,378
Premium on Bonds Payable*……………….……..….……...1,622
tization. *$16,222- $14,600 **$200,000x 10% x ½
(c)
Dec. 31 Bond Interest Expense……..…….……..……………………………..8,378
Exercise 10-7 (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000*……………. $156,000
Par value at maturity….….…….…..... 400,000
Total repaid………………………………… 556,000
Total bond interest expense…........... $146,150
3. Straight-line amortization table ($9,850/6 = $1,642)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2015 $9,850 $409,850
6/30/2015 8,208 408,208
12/31/2017 0 400,000
*Adjusted for rounding.
Exercise 10-8 (25 minutes)
1. Semiannual cash interest payment = $150,000 x 10% x ½ year = $7,500
3. The 10% contract rate is greater than the 8% market rate; therefore, the
bonds are issued at a premium.
4. Estimation of the market price at the issue date
Cash Flow Table Table Value* Amount Present Value
Par (maturity) value........B.1 0.6756 $150,000 $101,340
5. Cash………….…………………………………………………………..162,172
Premium on Bonds Payable…………..……………….… 12,172
Exercise 10-9 (20 minutes)
1. Cash proceeds from sale of bonds at issuance
2. Discount at issuance
3. Total amortization for first 6 years
The first six years (from 1/1/15 to 12/31/20) equals 40% of the bonds’ 15-
4. Carrying value of the bonds at 12/31/2020
Discount at issuance (from part 2)…... $ 15,750
Entire Group Retired 20%
Par value……………………….….…….…..….. $700,000 $140,000
5. Cash purchase price
($700,000 x 20%) x 104.5% = $146,300
6. Loss on retirement
Loss on retirement….….…….….….….... $ 8,190
7. Journal entry at retirement for 20% of bonds
2021
Jan. 1 Bonds Payable…………………………..…………………………..140,000
Exercise 10-10 (20 minutes)
1. Amount of each payment = Initial note balance / Table B.3 value
2. Amortization table for the loan
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[7% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
2015....... $100,000 $ 7,000 $ 22,523 $ 29,523 $77,477
$18,092 $100,000 $118,092
*Adjusted for rounding.