EXERCISES
Exercise 14-1 (15 minutes)
2. Journal entries
2015
(a)
Jan. 1 Cash……………………………………………………………………3,400,000
(b)
June 30 Bond Interest Expense………………………………………….153,000
(c)
Dec. 31 Bond Interest Expense………………………………………….153,000
3.
2015
(a)
Jan. 1 Cash*…………………………………………………………………..3,332,000
(b)
Jan. 1 Cash*…………………………………………………………………..3,468,000
Exercise 14-2 (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
or:
Six payments of $7,200……………………….. $ 43,200
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
(1) 6/30/2015…………………… 7,615 172,385
Exercise 14-3 (25 minutes)
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
* Table values are based on a discount rate of 4% (half the annual market rate) and
20 periods (semiannual payments).
Exercise 14-4 (20 minutes)
2015
(a)
Dec. 31 Cash……………………………………………………………………186,534
2016
(b)
June 30 Bond Interest Expense………………………………………….7,684
(c)
Dec. 31 Bond Interest Expense………………………………………….7,684
Discount on Bonds Payable**………………………….. 1,684
Exercise 14-5 (35 minutes)
2015
(a)
Dec. 31 Cash……………………………………………………………………188,000
(b)
2016
June 30 Bond Interest Expense………………………………………….8,000
Discount on Bonds Payable*…………………………… 3,000
Dec. 31 Bond Interest Expense………………………………………….8,000
Discount on Bonds Payable*…………………………… 3,000
2017
June 30 Bond Interest Expense………………………………………….8,000
Discount on Bonds Payable*…………………………… 3,000
Dec. 31 Bond Interest Expense………………………………………….8,000
Discount on Bonds Payable*…………………………… 3,000
½
(c)
Dec. 31 Bonds Payable……………………………………………………..200,000
Exercise 14-6 (20 minutes)
2014
(a)
Dec. 31 Cash……………………………………………………………………216,222
2015
(b)
June 30 Bond Interest Expense………………………………………….8,378
(c)
Dec. 31 Bond Interest Expense…………………………………………………8,378
Premium on Bonds Payable*………………………………………..1,622
Exercise 14-7 (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000*…………… $156,000
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
*Adjusted for rounding.
Exercise 14-8 (25 minutes)
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
* Table values are based on a discount rate of 4% (half the annual market rate) and
10 periods (semiannual payments).
5. Cash……………………………………………………………………162,172
Exercise 14-9 (20 minutes)
1. Cash proceeds from sale of bonds at issuance
2. Discount at issuance
Par value……………………………………….. $700,000
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-year life. Therefore, the total amortization equals 40% of the total
discount (since straight-line amortization is being used), which is
4. Carrying value of the bonds at 12/31/2020
Discount at issuance (from part 2)……
$ 15,750
Entire Group
Retired 20%
Par value…………………………………………
Remaining discount…………………………
Carrying value…………………………………
5. Cash purchase price
6. Loss on retirement
7. Journal entry at retirement for 20% of bonds
2021
Jan. 1 Bonds Payable……………………………………………………..140,000
Exercise 14-10 (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
*Adjusted for rounding.