Requirement 2
January 1, 2015
Cash 214,877
June 30, 2015
Interest Expense 6,446
Bonds Payable (difference) 554
December 31, 2015
Interest Expense 6,430
Bonds Payable (difference) 570
January 1, 2015
Cash 200,000
December 31, 2015
Interest Expense 14,000
December 31, 2016
Interest Expense 14,000
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Exercise 9-11
Exercise 9-12
Face Amount
x Stated Rate
Carrying Value
x Market Rate (3) – (2)
Prior Carrying
Value + (4)
1/ 1 /15 $ 186,580
Requirement 2
January 1, 2015
Cash 186,580
December 31, 2015
Interest Expense 14,926
Bonds Payable (difference) 926
December 31, 2016
Interest Expense 15,000
Bonds Payable (difference) 1,000
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate (2) – (3)
Prior Carrying
Value – (4)
1/ 1 /15 $ 214,720
Requirement 2
Exercise 9-13
January 1, 2015
Cash 214,720
December 31, 2015
Interest Expense 12,883
Bonds Payable (difference) 1,117
December 31, 2016
Interest Expense 12,816
Bonds Payable (difference) 1,184
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate (3) – (2)
Prior Carrying
Value + (4)
1/ 1 /15 $ 466,024
6/30/15 $ 17,500 $ 18,641 $ 1,141 467,165
If the market rate drops to 6%, it will cost $531,403 to retire the
bonds.
Exercise 9-14
Requirement 2
Calculator Input
Bond
characteristics Key Amount
1. Face amount FV $500,000
2. Interest payment each period PMT $17,500 = $500,000 x 7% x ½ year
Calculator Output
Issue price PV $531,403
December 31, 2016
Bonds Payable 470,869
Loss 60,534
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate (2) – (3)
Prior Carrying
Value – (4)
1/ 1 /15 $ 214,877
6/30/15 $ 7,000 $ 6,446 $ 554 214,323
12/31/15 7,000 6,430 570 213,753
6/30/16 7,000 6,413 587 213,166
If the market rate increases to 8%, it will cost $189,437 to retire the
bonds.
Exercise 9-15
Requirement 2
Calculator Input
Bond
Characteristics Key Amount
1. Face amount FV $200,000
2. Interest payment each period PMT $7,000 = $200,000 x 7% x ½ year
Calculator Output
Issue price PV $189,437
December 31, 2015
Bonds Payable 211,296
Gain 21,859
Exercise 9-16
January 1, 2015
Cash 50,000
January 31, 2015
Interest Expense ($50,000 x 7% x 1/12) 291.67
Notes Payable (difference) 698.39
February 28, 2015
Interest Expense ([$50,000-698.39] x 7% x 1/12) 287.59
Notes Payable (difference) 702.47
Requirement 1
Assets = Liabilities +
Stockholders’
Equity
Total
Liabilities ÷
Stockholders’
Equity =
Debt to Equity
Ratio
Total
Liabilities ÷
Stockholders’
Equity =
Debt to Equity
Ratio
$20 + $5 =
Exercise 9-18
($ in thousands)
Total
Liabilities ÷
Stockholders’
Equity =
Debt to Equity
Ratio
E-Travel has a higher debt to equity ratio than Pricecheck.
Requirement 2
($ in thousands)
Net Income +
Interest + Taxes ÷ Interest =
Times Interest
Earned Ratio
Exercise 9-17 (LO 9-6)
Stockholders’ equity must be $30 million ($50 million – $20 million).
Requirement 2
Requirement 3
Requirement 4
Under an operating lease, Coney Island reports a more favorable (lower) debt to equity
ratio.
Requirement 1
Pricecheck, with a times interest earned ratio of 25.9, is better able to meet interest