Problem 14-2A (40 minutes)
Part 1
2015
Jan. 1 Cash……………………………………………………………………3,456,448
Sold bonds on stated issue date.
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds’
life because this company uses straight-line amortization.]
Part 3
Thirty payments of $120,000 ………………. $3,600,000
Par value at maturity…………………………… 4,000,000
or:
Thirty payments of $120,000……………………..$ 3,600,000
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2015………………… $543,552 $3,456,448
Problem 14-2A (Concluded)
Part 5
2015
June 30 Bond Interest Expense………………………………………….138,118
2015
Dec. 31 Bond Interest Expense………………………………………….138,118
Problem 14-3A (40 minutes)
Part 1
2015
Jan. 1 Cash……………………………………………………………………4,895,980
Part 2
(a) Cash Payment = $4,000,000 x 6% x 6/12 = $120,000
Part 3
Thirty payments of $120,000 ………………. $3,600,000
or:
Problem 14-3A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2015………………… $895,980 $4,895,980
6/30/2015………………… 866,114 4,866,114
Part 5
2015
June 30 Bond Interest Expense………………………………………….90,134
2015
Dec. 31 Bond Interest Expense………………………………………….90,134
Premium on Bonds Payable…………………………………..29,866
Problem 14-4A (45 minutes)
Part 1
Ten payments of $8,125* …………………….. $ 81,250
Par value at maturity…………………………… 250,000
or:
Ten payments of $8,125………………………. $ 81,250
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2015 $5,333 $255,333
6/30/2015 4,800 254,800
* Rounded to nearest dollar. ** Adjusted for rounding.
Problem 14-4A (Concluded)
Part 3
2015
June 30 Bond Interest Expense………………………………………….7,592
2015
Dec. 31 Bond Interest Expense………………………………………….7,592
Problem 14-5A (60 minutes)
Part 1
2015
Jan. 1 Cash……………………………………………………………………292,181
Part 2
Eight payments of $8,125* ……………… $ 65,000
Par value at maturity………………………. 325,000
or:
Eight payments of $8,125……………….. $ 65,000
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2015 $32,819 $292,181
6/30/2015 28,717 296,283
*(rounded to nearest dollar)
Problem 14-5A (Concluded)
Part 4
2015
June 30 Bond Interest Expense………………………………………….12,227
2015
Dec. 31 Bond Interest Expense………………………………………….12,227
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
This change would affect the balance sheet because the bond liability
would be larger (par value plus a premium instead of par value minus a
The income statement would show smaller amounts of bond interest
expense over the life of the bonds discount.
The statement of cash flows would show a larger amount of cash received
Problem 14-6A (45 minutes)
Part 1 Amount of Payment
Note balance………………………………………………………..$200,000
Part 2
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[8% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
10/31/2016………….$200,000 $ 16,000 $ 34,091 $ 50,091 $165,909
10/31/2017………….165,909 13,273 36,818 50,091 129,091
* Adjusted for rounding
Part 3
2015
Dec. 31 Interest Expense…………………………………………………..2,667
2016
Oct. 31 Interest Expense…………………………………………………..13,333
Record first payment on installment note
Problem 14-7A (20 minutes)
Part 1
Part 2
Scott’s debt-to-equity ratio is higher than Pulaski’s. This implies that Scott
Problem 14-8AB (60 minutes)
Part 1
2015
Jan. 1 Cash……………………………………………………………………292,181
Part 2
Eight payments of $8,125* ……………… $ 65,000
Par value at maturity………………………. 325,000
or:
Eight payments of $8,125……………….. $ 65,000
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
6/30/2015 $8,125 $11,687 $3,562 29,257 295,743