Exercise 14-10 (25 minutes)
1. Semiannual cash interest payment = $150,000 x 10% x ½ year = $7,500
4. Estimation of the market price at the issue date
Cash Flow
Table
Table Value*
Amount
Present Value
Par (maturity) value …..…
B.1
$150,000
$101,340
5.
Cash ………………………………………………………………..……
162,172
Premium on Bonds Payable…………………………..
12,172
Bonds Payable …………………………..……………….……
Exercise 14-11 (20 minutes)
1. Cash proceeds from sale of bonds at issuance
2. Discount at issuance
Par value ………………………………………...
$700,000
Cash issue price (from part 1) ………....
3. Total amortization for first 6 years
The first six years (from 1/1/13 to 12/31/18) equals 40% of the bonds’ 15–
4. Carrying value of the bonds at 12/31/2018
Discount at issuance (from part 2) …...
$ 15,750
Less amortization (from part 3) ………..
Entire Group
Retired 20%
Par value ……………………………………….…
$700,000
$140,000
5. Cash purchase price
($700,000 x 20%) x 104.5% = $146,300
6. Loss on retirement
Cash paid (from part 5) ………………….
$ 146,300
Carrying value (from part 4) ……………
7. Journal entry at retirement for 20% of bonds
2019
Jan. 1
Bonds Payable ………………………………………………………
140,000
Loss on Retirement of Bonds Payable ……………………
8,190
Exercise 14-12C (20 minutes)
1. Semiannual cash interest payment = $3,400,000 x 9% x ½ year = $153,000
2. Journal entries
2013
May 1
Cash ………………………………………………………..……………
3,502,000
Interest Payable …………………………..……..……………
Bonds Payable …………………………………………………
June 30
Interest Payable ……………………………………….……………
102,000
Bond Interest Expense ……………………………..……………
51,000
Cash …………………………………………………..…..
Dec. 31
Bond Interest Expense ……………………………..……………
153,000
Cash …………………………………………………..…..
Exercise 14-13 (40 minutes)
1. Straight-line amortization table (($100,000-$95,948)/8 = $506.5)
Semiannual
Period-End
Unamortized
Discount †
Carrying
Value
6/01/2013 ……………..….
$4,052
$95,948
11/30/2013 ……………..….
3,546
96,454
5/31/2014 ……………..….
3,040
96,960
2,534
97,466
5/31/2015 ……………..….
2,028
97,972
11/30/2015 ……………..….
1,522
98,478
5/31/2016 ……………..….
1,016
98,984
11/30/2016 ……………..….
506*
99,494
5/31/2017 ……………..….
0
100,000
* Adjusted for rounding difference.
Exercise 14-13 (Concluded)
† Supporting computations
Eight payments of $3,500** ……………..…
$ 28,000
Par value at maturity ……………………….…
100,000
Total repaid ………………………………………
128,000
Less amount borrowed …………………..…
(95,948)
Eight payments of $3,500 ………………..…
Plus discount ……………………………………
2.
2013
Nov. 30
Bond Interest Expense …………………………………………..
4,006
Discount on Bonds Payable …………………………..
506
Cash ……………………………………………………….…..…..
3,500
To record 6 months’ interest and discount amortization.
Dec. 31
Bond Interest Expense …………………………………………..
Discount on Bonds Payable …………………………..
Interest Payable …………………………..…………………..
584
2014
May 31
Interest Payable ………………………………………………..…..
584
Bond Interest Expense …………………………………………..
3,338
Discount on Bonds Payable …………………………..
422
Cash ……………………………………………………….…..…..
3,500
Exercise 14-14 (20 minutes)
2. Amortization table for the loan
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[7% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
2013 …….
$100,000
$ 7,000
$ 22,523
$ 29,523
$77,477
2014 …….
77,477
5,423
24,100
29,523
53,377
2015 …….
2016 …….
27,590
$18,092
$100,000
$118,092
*Adjusted for rounding.
Exercise 14-15 (20 minutes)
2013
Jan. 1
Cash ……………………………………………………….……..……..
100,000
Notes Payable …………………………..……………………..
100,000
Borrowed $100,000 by signing a 7%
installment note.
2013
Dec. 31
Interest Expense …………………………………………….……..
7,000
Notes Payable …………………………..…………………………..
22,523
Cash ………………………………………………………...……..
29,523
To record first installment payment.
2014
Dec. 31
Interest Expense …………………………………………….……..
5,423
Notes Payable …………………………..…………………………..
24,100
Cash ………………………………………………………...……..
29,523
To record second installment payment.
2015
Dec. 31
Interest Expense …………………………………………….……..
3,736
Notes Payable …………………………..…………………………..
25,787
Cash ………………………………………………………...……..
29,523
To record third installment payment.
2016
Dec. 31
Interest Expense …………………………………………….……..
1,933
Notes Payable …………………………..…………………………..
27,590
Cash ………………………………………………………...……..
29,523
To record fourth installment payment.
Exercise 14-16 (15 minutes)
1a. Current debt-to-equity ratio = $220,000 / $390,000* = 0.564
*Total equity = $610,000 – $220,000 = $390,000
Exercise 14-17D (10 minutes)
Exercise 14-18D (20 minutes)
1.
Leased Asset—Office Equipment ……………………….….
41,000
Lease Liability ………………………………………………….
41,000
To record capital lease of office equipment.
2.
Depreciation Expense—Office Equipment …………..….
Accum. Depreciation—Office Equipment ……….….
To record depreciation ($41,000 / 5 years).
Exercise 14-19D (15 minutes)
[Note: 12% / 12 months = 1% per month as the relevant interest rate.]
Option 1: $1,750 per month for 25 months = $1,750 x 22.0232 = $38,541
Exercise 14-20 (20 minutes)
1.
Cash………………………………………………………………………
1,920
2.
Loans and Borrowings ………………………………………..…
3,000
Premium on Loans and Borrowings …………………….…
32
95
3. Heineken’s Loans and Borrowings carried a premium of € 78 as of
4. The contract rate was higher than the market rate at issuance. This is
PROBLEM SET A
Problem 14-1A (50 minutes)
Part 1
Instructor note: The first printing of the textbook has an erroneous marginal
check figure of $4,537 that should correctly read $5,437.
a.
Cash Flow
Table
Amount
Present Value
Par value …………………
B.1
$40,000
$18,256
B.3
* Table values are based on a discount rate of 4% (half the annual market rate) and 20
periods (semiannual payments).
** $40,000 x 0.10 x ½ = $2,000
b.
2013
Jan. 1
Cash ……………………………………………………....
45,437
Part 2
a.
Cash Flow
Table
Amount
Present Value
Par value …………………
B.1
$40,000
$15,076
B.3
* Table values are based on a discount rate of 5% (half the annual market rate) and 20
periods (semiannual payments). (Note: When the contract rate and market rate are the
same, the bonds sell at par and there is no discount or premium.)
b.
2013
Jan. 1
Cash ……………………………………………………....
4,000
Problem 14-1A (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ………………..
B.1
$40,000
$12,472
Interest (annuity) …....
B.3
2,000
22,940
b.
2013
Jan. 1
Cash ……………………………………………………....
35,412
Bonds Payable …………………………………………………
Problem 14-2A (40 minutes)
Part 1
2013
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
Par value at maturity ……………………..……
4,000,000
Total repaid ………………………………………….
7,600,000
Less amount borrowed ………………….…….
(3,456,448)
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2013 …………………
$543,552
$3,456,448
6/30/2013 …………………
525,434
3,474,566
3,492,684
6/30/2014 …………………
489,198
Problem 14-2A (Concluded)
Part 5
2013
June 30
Bond Interest Expense ………………………………..…………
138,118
Discount on Bonds Payable …………………..………
18,118
Cash ……………………………………………………....
120,000
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense ………………………………..…………
138,118
Discount on Bonds Payable …………………..………
18,118
Cash ……………………………………………………....
120,000
To record six months’ interest and
Problem 14-3A (40 minutes)
Part 1
2013
Jan. 1
Cash ………………………………………………………...…………..
4,895,980
Premium on Bonds Payable …………………………..
Bonds Payable …………………………………….…………..
4,000,000
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
Par value at maturity ……………………..……
4,000,000
Total repaid ………………………………………….
7,600,000
Less amount borrowed ………………….…….
Thirty payments of $120,000 ……………………..
Less premium …………………………………………..
Fundamental Accounting Principles, 21st Edition
824
Problem 14-3A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2013 …………………
$895,980
$4,895,980
Part 5
2013
June 30
Bond Interest Expense …………………………..
90,134
29,866
2013
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
Total repaid ………………………………………….
331,250
Less amount borrowed ………………….…….
(255,333)
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………..…….
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2013
$5,333
$255,333
6/30/2013
4,800
254,800
12/31/2013
4,267
254,267
6/30/2014
12/31/2014
3,201
253,201
6/30/2015
2,668
252,668
12/31/2015
12/31/2016
1,069
261,069
6/30/2017
533**
250,533
12/31/2017
0
250,000
* Rounded to nearest dollar. ** Adjusted for rounding.
Problem 14-4A (Concluded)
Part 3
2013
June 30
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable ………………….……….
533
8,125
2013
Dec. 31
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable ………………….……….
533
8,125