P10–13.
When a bond is sold for a premium, the amount of cash collected is greater than the
P10–14.
1. Financing, inflow
2. It is reported as an operating activity.
3. Financing, outflow
4. It is reported as an operating activity.
5. Financing, outflow
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ALTERNATE PROBLEMS
AP10–1.
Req. 1
Interest:
$2,000,000 x 10%
=
$ 200,000 ÷ 2 = $100,000
Present value
$ 2,000,000 x .6139
=
1,227,800
$ 100,000 x 7.7217
=
772,170
Issue price
$1,999,970
The exact present value is $2,000,000. The $30 difference is due to rounding the
present value factors at four digits.
Req. 2
June 30
2014
Dec. 31
2014
Interest expense ……………………………….
$100,000
$100,000
Req. 3
June 30
2014
Dec. 31
2014
Cash paid ………………………………………..
$100,000
$100,000
Req. 4
2014
2015
Bonds payable …………………………………
$2,000,000
$2,000,000
AP10–2.
(000’s):
At
End
of 2014
At
End
of 2015
At
End
of 2016
At
End
of 2017
Case A: Sold at Par
Interest expense on the
income statement
10
10
10
10
Net liability on balance sheet
100
100
100
100
Case B: Sold at a discount
Interest expense on the
income statement
11
11
11
11
Net liability on balance sheet
96
97
98
99
Case C: Sold at a premium
Interest expense on the
income statement
8
8
8
8
Net liability on balance sheet
108
106
104
102
AP10–3.
Req. 1
Computations:
Interest:
$1,000,000 x 7%
=
$ 70,000
=
=
$937,743
AP10–4.
Req. 1
Computations:
Interest:
$2,000,000 x 6%
=
$ 120,000
=
=
$1,947,546*
AP10–5.
Req. 1
Computations:
Interest:
$900,000 x 10%
=
$ 90,000
=
=
AP10–6.
Req. 1
Computations:
Interest:
$4,000,000 x 9%
=
$ 360,000
=
=
2015
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CASES AND PROJECTS
FINANCIAL REPORTING AND ANALYSIS CASES
CP10–1.
Req. 1
The company repaid $30,000,000 for its note payable. See the Statement of Cash
CP10–2.
Req. 1
Companies are not required to report immaterial amounts. Most likely, the amount of
CP10–3.
Req. 1
The primary source of cash flow for both companies is from their operating activities.
From examining the financing activities section of the statement of cash flows, it is
CP10–4.
Req. 1
Most bond indentures specify two types of cash outflows during the life of a bond issue:
(1) periodic interest payments, and (2) payment of par value at maturity. When the
stated interest rate is less than the effective-interest rate, bonds will sell at a discount.
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CRITICAL THINKING CASES
CP10–5.
People invest in different securities for a variety of reasons. Bondholders are
CP10–6.
Obviously, there is no right answer to this question. We have found that some
students approach this question from the perspective that people’s jobs are more
important than people’s money. We try to point out that both the current workers
CONTINUING CASE
CC10–1. (Dollar amounts in thousands)
Req. 1
Interest:
$750,000 x 4%
=
$ 30,000 ÷ 2 = $15,000
Present value
$ 750,000 x .6730
=
504,750
$ 15,000 x 16.3514
=
245,271
Issue price
$750,021
The exact present value is $750,000. The $21 difference is due to rounding the
present value factors at four digits.
Req. 2
June 30
2011
Dec. 31
2011
Interest expense ……………………………….
$15,000
$15,000
Req. 3
June 30
2011
Dec. 31
2011
Cash paid ………………………………………..
$15,000
$15,000
Req. 4
2011
2012
Bonds payable …………………………………
$750,000
$750,000
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.