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Problem 14-9BB (45 minutes)
Part 1
Ten payments of $14,400.......................... $144,000
Par value at maturity................................. 320 ,000
or:
Ten payments of $14,400.......................... $144,000
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $320,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Premium
Amortization
[(A) - (B)]
(D)
Unamortized
Premium
[Prior (D) - (C)]
(E)
Carrying
Value
[$320,000 + (D)]
1/01/2015 $12,988 $332,988
6/30/2015 $ 14,400 $ 13,320 $ 1,080 11,908 331,908
12/31/2015 14,400 13,276 1,124 10,784 330,784
*Adjusted for rounding.
Problem 14-9BB (Concluded)
Part 3
2015
June 30 Bond Interest Expense.................................................13,320
2015
Dec. 31 Bond Interest Expense.................................................13,276
Part 4
As of December 31, 2017
Cash Flow Table Table Value* Amount Present Value
Par value................. B.1 0.8548 $320,000 $273,536
* Table values are based on a discount rate of 4% (half the annual original market
rate) and 4 periods (semiannual payments).
Comparison to Part 2 Table
Except for a small rounding difference, this present value ($325,807) equals
Problem 14-10BB (70 minutes)
Part 1
2015
Jan. 1 Cash..............................................................................493,608
Part 2
Eight payments of $29,250*...................... $ 234,000
Par value at maturity................................. 450 ,000
or:
Eight payments of $29,250....................... $ 234,000
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $450,000]
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) - (B)]
(D)
Unamortized
Premium
[Prior (D) - (C)]
(E)
Carrying
Value
[$450,000 + (D)]
1/01/2015 $43,608 $493,608
6/30/2015 $29,250 $24,680 $4,570 39,038 489,038
Problem 14-10BB (Concluded)
Part 4
2015
June 30 Bond Interest Expense.................................................24,680
2015
Dec. 31 Bond Interest Expense.................................................24,452
Part 5
2017
Jan. 1 Bonds Payable .............................................................450,000
Part 6
If the market rate on the issue date had been 14% instead of 10%, the bonds
This change would affect the balance sheet because the bond liability would be
The income statement would show larger amounts of bond interest expense over
The statement of cash flows would show a smaller amount of cash received from
Problem 14-11BD (35 minutes)
Part 1
Present Value of the Lease Payments
Part 2
Leased Asset—Office Equipment................................75,816
Part 3
Capital Lease Liability Payment (Amortization) Schedule
Period
Endin
g
Date
Beginning
Balance of
Lease
Liability
Interest on
Lease
Liability
(10%)
Reduction
of Lease
Liability
Cash
Lease
Payment
Ending
Balance of
Lease
Liability
Year 1 $75,816 $ 7,582* $12,418 $ 20,000 $63,398
Year 2 63,398 6,340 13,660 20,000 49,738
* Rounded to nearest dollar.
** Adjusted for prior period rounding errors.
Part 4
To record depreciation ($75,816 / 5 years).
SERIAL PROBLEM — SP 14
Serial Problem — SP 14, Business Solutions (75 minutes)
Part 1
Thus, total liabilities can be no more than its total equity x 0.8, or
This implies that:
Max. total liabilities – Present liability balance = Max. that can be borrowed
Part 2
Assume the secured loan is taken, then the percent of assets financed by:
a. Debt
b. Equity
Part 3
Santana Rey should understand the risks she is taking by borrowing funds
from the bank. She currently has no interest-bearing debt (per prior chapter
In addition, and probably more important, Santana Rey should understand
Reporting in Action — BTN 14-1
1. Apple reported long-term debt of $16,960 million as of September 28,
2013.
2. The interest that Apple must pay on $100 million of 4.25% convertible
3. Assuming that Apple had $100 million carrying value of convertible
Instructor note: Apple’s stock is no par stock and therefore there is no
entry required to credit Paid-in-Capital in Excess of Par Value upon
conversion.
4. Answer depends on the financial statement information obtained.
Comparative Analysis — BTN 14-2
1. Apple’s current year debt-to-equity ratio = $83,451 / $123,549 = 0.68
2. For both years, Apple’s debt-to-equity ratio is above that of the industry
average of 0.44. This implies that its debt levels are more risky than that
