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Chapter 14 - Long-Term Liabilities
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
Par value at maturity....................... 180,000
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
(2) 12/31/2015......................... 6,092 173,908
(6) 12/31/2017......................... 0 180,000
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Chapter 14 - Long-Term Liabilities
Exercise 14-3 (25 minutes)
1. Semiannual cash interest payment = $800,000 x 6% x ½ year = $24,000
bonds are issued at a discount.
4. Estimation of the market price at the issue date
Cash Flow Table Table Value* Amount Present Value
* Table values are based on a discount rate of 4% (half the annual market rate) and
20 periods (semiannual payments).
5. Cash.................................................................................691,287
Discount on Bonds Payable..........................................108,713
2015
(a)
Dec. 31 Cash.................................................................................186,534
2016
(b)
June 30 Bond Interest Expense..................................................7,684
Discount on Bonds Payable**................................. 1,684
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Chapter 14 - Long-Term Liabilities
Exercise 14-5 (35 minutes)
2015
(a)
Dec. 31 Cash.................................................................................188,000
2016
June 30 Bond Interest Expense..................................................8,000
Discount on Bonds Payable*.................................. 3,000
Cash**........................................................................ 5,000
Paid semiannual interest and record
amor-tization. *$12,000-$9,000 **$200,000x
5% x ½
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
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Chapter 14 - Long-Term Liabilities
Exercise 14-6 (20 minutes)
2014
(a)
Dec. 31 Cash.................................................................................216,222
2015
(b)
June 30 Bond Interest Expense..................................................8,378
Premium on Bonds Payable*........................................1,622
Cash**........................................................................ 10,000
1. Premium = Issue price - Par value = $409,850 - $400,000 = $9,850
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
3. Straight-line amortization table ($9,850/6 = $1,642)
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Chapter 14 - Long-Term Liabilities
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.
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Chapter 14 - Long-Term Liabilities
Exercise 14-8 (25 minutes)
1. Semiannual cash interest payment = $150,000 x 10% x ½ year = $7,500
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
Sold bonds at a premium on the stated issue date.
Exercise 14-9 (20 minutes)
1. Cash proceeds from sale of bonds at issuance
2. Discount at issuance
3. Total amortization for first 6 years
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4. Carrying value of the bonds at 12/31/2020
Discount at issuance (from part 2)......
$ 15,750
Less amortization (from part 3)...........
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
7. Journal entry at retirement for 20% of bonds
2021
Jan. 1 Bonds Payable................................................................140,000
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Chapter 14 - Long-Term Liabilities
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
2016....... 77,477 5,423 24,100 29,523 53,377
*Adjusted for rounding.
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