Exercise 14-11 (20 minutes)
2015
Jan. 1 Cash……………………………………………………………………100,000
2015
Dec. 31 Interest Expense…………………………………………………..7,000
2016
Dec. 31 Interest Expense…………………………………………………..5,423
2017
Dec. 31 Interest Expense…………………………………………………..3,736
2018
Dec. 31 Interest Expense…………………………………………………..1,933
Exercise 14-12 (15 minutes)
2. Montclair’s risk will increase because it will have more debt. That debt
Exercise 14-13B (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $22,500*…………………. $135,000
Par value at maturity………………………… 500,000
or
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $500,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$500,000 – (D)]
1/01/2015 $36,860 $463,140
6/30/2015 $ 22,500 $ 27,788 $ 5,288 31,572 468,428
12/31/2015 22,500 28,106 5,606 25,966 474,034
*Adjusted for rounding.
Exercise 14-14B (30 minutes)
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
or
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $400,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[400,000 + (D)]
1/01/2015 $9,850 $409,850
6/30/2015 $ 26,000 $ 24,591 $1,409 8,441 408,441
*Adjusted for rounding.
Exercise 14-15 (40 minutes)
1. Straight-line amortization table (($100,000-$95,948)/8 = $506.5)
Semiannual
Period-End
Unamortized
Discount †
Carrying
Value
6/01/2015………………… $4,052 $95,948
11/30/2015………………… 3,546 96,454
* Adjusted for rounding difference.
† Supporting computations
Eight payments of $3,500**………………… $ 28,000
Par value at maturity………………………….. 100,000
or
Exercise 14-15 (Concluded)
2.
2015
Nov. 30 Bond Interest Expense………………………………………….4,006
Dec. 31 Bond Interest Expense…………………………………………. 668
2016
May 31 Interest Payable…………………………………………………… 584
Exercise 14-16C (20 minutes)
2. Journal entries
2015
May 1 Cash……………………………………………………………………3,502,000
June 30 Interest Payable……………………………………………………102,000
Dec. 31 Bond Interest Expense………………………………………….153,000
Exercise 14-17D (10 minutes)
1. Operating 2. Capital 3. Capital
Exercise 14-18D (20 minutes)
1. Leased Asset—Office Equipment………………………………………41,000
2. Depreciation Expense—Leased Asset, Office Equip……………8,200
Exercise 14-19D (15 minutes)
Analysis: Option 2 has the lowest present value at $38,035 and, thus, is the
best lease deal for the customer.
Exercise 14-20 (20 minutes)
(amounts in euros millions)
1. Cash…………………………………………………………………… 1,663
2. Loans and Borrowings…………………………………………. 2,400
3. Heineken’s Loans and Borrowings carried a premium of €112 as of
4. The contract rate was higher than the market rate at issuance. This is
PROBLEM SET A
Problem 14-1A (50 minutes)
Part 1
a.
Cash Flow Table Table Value* Amount Present Value
Par value…………………. B.1 0.4564 $40,000 $18,256
b.
2015
Jan. 1 Cash……………………………………………………………………45,437
Part 2
a.
Cash Flow Table Table Value* Amount Present Value
Par value…………………. B.1 0.3769 $40,000 $15,076
* Table values are based on a discount rate of 5% (half the annual market rate) and 20
b.
2015
Jan. 1 Cash……………………………………………………………………40,000
Problem 14-1A (Concluded)
Part 3
a.
Cash Flow Table Table Value* Amount Present Value
Par value……………….. B.1 0.3118 $40,000 $12,472
b.
2015
Jan. 1 Cash……………………………………………………………………35,412
Discount on Bonds Payable…………………………………..4,588