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Chapter 14 - Long-Term Liabilities
Problem 14-2A (40 minutes)
Part 1
2015
Jan. 1 Cash.................................................................................3,456,448
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.]
(a) Cash Payment = $4,000,000 x 6% x 6/12 year = $120,000
Part 3
Thirty payments of $120,000 .................... $3,600,000
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
6/30/2015..................... 525,434 3,474,566
14-769
12/31/2016..................... 471,080 3,528,920
14-770
Chapter 14 - Long-Term Liabilities
Problem 14-2A (Concluded)
Part 5
2015
June 30 Bond Interest Expense..................................................138,118
Discount on Bonds Payable.................................... 18,118
Cash........................................................................... 120,000
To record six months’ interest and
discount amortization.
2015
Problem 14-3A (40 minutes)
Part 1
2015
Jan. 1 Cash.................................................................................4,895,980
Premium on Bonds Payable.................................... 895,980
Bonds Payable.......................................................... 4,000,000
Sold bonds on issue date at a premium.
14-771
14-772
Chapter 14 - Long-Term Liabilities
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
12/31/2016..................... 776,516 4,776,516
Part 5
2015
June 30 Bond Interest Expense..................................................90,134
2015
Dec. 31 Bond Interest Expense..................................................90,134
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Chapter 14 - Long-Term Liabilities
Problem 14-4A (45 minutes)
Part 1
Ten payments of $8,125* .......................... $ 81,250
Par value at maturity.................................. 250,000
Less premium............................................. (5,333)
Total bond interest expense..................... $ 75,917
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
12/31/2015 4,267 254,267
12/31/2018 1,069 261,069
6/30/2019 533** 250,533
12/31/2019 0 250,000
* Rounded to nearest dollar. ** Adjusted for rounding.
14-774
Chapter 14 - Long-Term Liabilities
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
Discount on Bonds Payable..........................................32,819
Bonds Payable.......................................................... 325,000
Sold bonds on stated issue date.
Part 2
14-775
Chapter 14 - Long-Term Liabilities
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2015 $32,819 $292,181
12/31/2016 16,411 308,589
*(rounded to nearest dollar)
14-776
Chapter 14 - Long-Term Liabilities
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
bonds would have sold at a premium because the contract rate of 5%
would have been greater than the market rate.
if the bonds had been issued at a discount.
The statement of cash flows would show a larger amount of cash received
from borrowing. However, the cash flow statements presented over the life
14-777
Chapter 14 - Long-Term Liabilities
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
$ 50 ,455 $200 ,000 $250,455
* Adjusted for rounding
Part 3
2015
Dec. 31 Interest Expense.............................................................2,667
2016
Oct. 31 Interest Expense.............................................................13,333
14-778
Chapter 14 - Long-Term Liabilities
Problem 14-7A (20 minutes)
Part 1
Pulaski Company debt-to-equity = $360,000 / $500,000 = 0.72
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
Discount on Bonds Payable..........................................32,819
Bonds Payable.......................................................... 325,000
Sold bonds on stated issue date.
Part 2
14-779
Chapter 14 - Long-Term Liabilities
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
12/31/2016 8,125 12,132 4,007 17,692 307,308
14-780
