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
14-769
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
14-770
14-771
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
14-772
14-773
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)
14-774
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.
14-775
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
14-776
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
14-777
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.
14-778