Problem 10-2A (40 minutes)
Part 1
2015
Jan. 1 Cash………………………………………………………………………3,456,448
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds’
life because this company uses straight-line amortization.]
(a) Cash Payment = $4,000,000 x 6% x 6/12 year = $120,000
(b) Discount = $4,000,000 – $3,456,448 = $543,552
Part 3
Thirty payments of $120,000 …………..…...$3,600,000
Par value at maturity…………….……………… 4,000,000
or:
Thirty payments of $120,000…….………………..$ 3,600,000
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2015….….............. $543,552 $3,456,448
6/30/2015….….............. 525,434 3,474,566
6/30/2016….….............. 489,198 3,510,802
Problem 10-2A (Concluded)
Part 5
2015
June 30 Bond Interest Expense……………....….….….…….….……..138,118
Discount on Bonds Payable…………….…………..…... 18,118
2015
Dec. 31 Bond Interest Expense……………....….….…….….…….…..138,118
Problem 10-3A (40 minutes)
Part 1
2015
Jan. 1 Cash………………………………………………………………………4,895,980
Part 2
(a) Cash Payment = $4,000,000 x 6% x 6/12 = $120,000
(b) Premium = $4,895,980 – $4,000,000 = $895,980
Part 3
Thirty payments of $120,000 …………..…...$3,600,000
Par value at maturity…………….……………… 4,000,000
Total repaid……………………………..……..…... 7,600,000
Less premium………………..…………..………..…… (895,980 )
Problem 10-3A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2015….….............. $895,980 $4,895,980
6/30/2015….….............. 866,114 4,866,114
12/31/2016….….............. 776,516 4,776,516
Part 5
2015
June 30 Bond Interest Expense……………....….….….…….….……..90,134
premium amortization.
2015
Dec. 31 Bond Interest Expense……………....….….…….….…….…..90,134
Premium on Bonds Payable……………………………..….…29,866
Problem 10-4A (45 minutes)
Part 1
Ten payments of $8,125* …..…….….…….... $ 81,250
Par value at maturity…………….……………… 250,000
Less amount borrowed….…….….…….….... (255,333 )
Total bond interest expense….................. $ 75,917
*$250,000 x 0.065 x ½ = $8,125
or:
Ten payments of $8,125…………………..…... $ 81,250
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2015 $5,333 $255,333
6/30/2015 4,800 254,800
6/30/2017 2,668 252,668
12/31/2017 2,135 252,135
12/31/2019 0 250,000
* Rounded to nearest dollar. ** Adjusted for rounding.
Problem 10-4A (Concluded)
Part 3
2015
June 30 Bond Interest Expense……………....….….….…….….……..7,592
premium amortization.
2015
Dec. 31 Bond Interest Expense……………....….….…….….…….…..7,592
premium amortization.
Problem 10-5A (60 minutes)
Part 1
2015
Jan. 1 Cash………………………………………………………………………292,181
Sold bonds on stated issue date.
Part 2
Eight payments of $8,125* ………………. $ 65,000
Par value at maturity…………….…………. 325,000
Total bond interest expense…............. $ 97,819
*$325,000 x 0.05 x ½ = $8,125
or:
Eight payments of $8,125…………..….… $ 65,000
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2015 $32,819 $292,181
6/30/2015 28,717 296,283
12/31/2016 16,411 308,589
*(rounded to nearest dollar)
Problem 10-5A (Concluded)
Part 4
2015
June 30 Bond Interest Expense……………....….….….…….….……..12,227
2015
Dec. 31 Bond Interest Expense……………....….….…….….…….…..12,227
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
bonds would have sold at a premium because the contract rate of 5%
would have been greater than the market rate.
This change would affect the balance sheet because the bond liability
if the bonds had been issued at a discount.
The statement of cash flows would show a larger amount of cash received
from borrowing. However, the cash flow statements presented over the life
Problem 10-6A (45 minutes)
Part 1 Amount of Payment
Note balance………………….…………………………….….…….$200,000
Number of periods…………………….…….…..…….….……...5
Part 2
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[8% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
10/31/2016….….…..$200,000 $ 16,000 $ 34,091 $ 50,091 $165,909
10/31/2017….….…..165,909 13,273 36,818 50,091 129,091
$ 50,455 $200,000 $250,455
* Adjusted for rounding
Part 3
2015
Dec. 31 Interest Expense………………..…………………………………..2,667
2016
Oct. 31 Interest Expense………………..…………………………………..13,333
Interest Payable………………….…………………………….……2,667
Notes Payable……………..……………………………….…….….34,091