Problem 10-7A (20 minutes)
Part 1
Pulaski Company debt-to-equity = $360,000 / $500,000 = 0.72
Part 2
Scott’s debt-to-equity ratio is higher than Pulaski’s. This implies that Scott
Problem 10-8AB (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
*$325,000 x 0.05 x ½ = $8,125
or:
Eight payments of $8,125…………..……. $ 65,000
Total bond interest expense....…......... $ 97,819
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[2.5% x $325,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$325,000 – (D)]
1/01/2015 $32,819 $292,181
6/30/2016 8,125 11,978 3,853 21,699 303,301
12/31/2016 8,125 12,132 4,007 17,692 307,308
Problem 10-8AB (Concluded)
Part 4
2015
June 30 Bond Interest Expense……………....………..…..…..…..…..11,687
Discount on Bonds Payable…………….…………..…... 3,562
2015
Dec. 31 Bond Interest Expense……………....………..…..…..…..…..11,830
discount amortization.
Problem 10-9AB (45 minutes)
Part 1
Ten payments of $8,125* ………………….…… $ 81,250
Par value at maturity…………….…..………..… 250,000
*$250,000 x 0.065 x ½ =$8,125
or:
Ten payments of $8,125………………....….... $ 81,250
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2015 $5,333 $255,333
6/30/2015 $ 8,125 $ 7,660 $ 465 4,868 254,868
6/30/2017 8,125 7,602 523 2,865 252,865
12/31/2017 8,125 7,586 539 2,326 252,326
6/30/2018 8,125 7,570 555 1,771 251,771
Problem 10-9AB (Concluded)
Part 3
2015
June 30 Bond Interest Expense……………....………..…..…..…..…..7,660
Premium on Bonds Payable……………………………..…....465
premium amortization.
2015
Dec. 31 Bond Interest Expense……………....………..…..…..…..…..7,646
Premium on Bonds Payable……………………………..…....479
Part 4
As of December 31, 2017
Cash Flow Table Table Value* Amount Present Value
Par value….…..…..….…. B.1 0.8885 $250,000 $222,125
rate) and 4 periods (semiannual payments).
Comparison to Part 2 Table
This present value ($252,326) equals the carrying value of the bonds in
column (E) of the amortization table ($252,326). This shows a general rule:
Problem 10-10AB (60 minutes)
Part 1
2015
Jan. 1 Cash………………………………………………………………………184,566
Part 2
Six payments of $9,900 …..…..…..…..…….. $ 59,400
Par value at maturity…………….……………… 180,000
*$180,000 x 0.11 x ½ = $9,900
or:
Six payments of $9,900….………..…..….….. $ 59,400
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[5.5% x $180,000]
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$180,000 + (D)]
1/01/2015 $4,566 $184,566
6/30/2015 $9,900 $9,228 $672 3,894 183,894
Problem 10-10AB (Concluded)
Part 4
2015
June 30 Bond Interest Expense……………....………..…..…..…..…..9,228
2015
Dec. 31 Bond Interest Expense……………....………..…..…..…..…..9,195
Premium on Bonds Payable……………………………..…....705
premium amortization.
Part 5
2017
Jan. 1 Bonds Payable ……………………………………………………...180,000
Premium on Bonds Payable……………………………..…....1,670
Part 6
If the market rate on the issue date had been 12% instead of 10%, the bonds
would have sold at a discount because the contract rate of 11% would have been
lower than the market rate.
been issued at a premium.
The statement of cash flows would show a smaller amount of cash received from
borrowing. However, the cash flow statements presented over the life of the
value of the bonds and is unaffected by the change in the market rate.
Problem 10-11AD (35 minutes)
Part 1
Present Value of the Lease Payments
Part 2
Part 3
Capital Lease Liability Payment (Amortization) Schedule
Period
Ending
Date
Beginning
Balance of
Lease
Liability
Interest on
Lease
Liability
(8%)
Reduction
of Lease
Liability
Cash
Lease
Payment
Ending
Balance of
Lease
Liability
Year 1 $39,927 $ 3,194* $ 6,806 $ 10,000 $33,121
Year 2 33,121 2,650 7,350 10,000 25,771
$10,073 $39,927 $ 50,000
* Rounded to nearest dollar.
** Difference due to rounding.
Part 4
Depreciation Expense—Leased Asset, Off. Equip…..…....…....7,985
PROBLEM SET B
Problem 10-1B (50 minutes)
Part 1
a.
Cash Flow Table Table Value* Amount Present Value
Par value....…..…..... B.1 0.6139 $90,000 $55,251
Interest (annuity).... B.3 7.7217 5,400** 41,697
b.
2015
Jan. 1 Cash…………………………..……………………………………..…..96,948
Part 2
a.
Cash Flow Table Table Value* Amount Present Value
Par value....…..…..... B.1 0.5584 $90,000 $50,256
Interest (annuity).... B.3 7.3601 5,400 39,745
b.
2015
Jan. 1 Cash…………………………..……………………………………..…..90,000
Problem 10-1B (Concluded)
Part 3
a.
Cash Flow Table Table Value* Amount Present Value
Par value....…..…..... B.1 0.5083 $90,000 $45,747
Interest (annuity).... B.3 7.0236 5,400 37,927
10 periods (semiannual payments).
b.
2015
Jan. 1 Cash…………………………..……………………………………..…..83,674
Sold bonds on stated issue date.
Problem 10-2B (40 minutes)
Part 1
2015
Jan. 1 Cash…………………………..……………………………………..…..3,010,000
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout
the bonds’ life because the company uses straight–line amortization.]
(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000
(b) Discount = $3,400,000 – $3,010,000 = $390,000