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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
0.6756
$150,000
$101,340
5.
Cash ................................................................................
162,172
Premium on Bonds Payable................................
12,172
Exercise 14-11 (20 minutes)
1. Cash proceeds from sale of bonds at issuance
2. Discount at issuance
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
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
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
June 30
Interest Payable .............................................................
102,000
Bond Interest Expense ..................................................
51,000
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
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
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.
2014
May 31
Interest Payable .............................................................
584
Bond Interest Expense ..................................................
3,338
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
*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
2015
Dec. 31
Interest Expense ............................................................
3,736
Notes Payable ................................................................
25,787
Cash ..........................................................................
29,523
To record third 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.
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
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
Table Value*
Amount
Present Value
Par value .....................
B.1
0.4564
$40,000
$18,256
* 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
Table Value*
Amount
Present Value
Par value .....................
B.1
0.3769
$40,000
$15,076
* 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
0.3118
$40,000
$12,472
Interest (annuity) .......
B.3
11.4699
2,000
22,940
b.
2013
Jan. 1
Cash ................................................................
35,412
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
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
Problem 14-3A (40 minutes)
Part 1
2013
Jan. 1
Cash ................................................................................
4,895,980
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
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
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)
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
6/30/2017
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
2013
Dec. 31
Bond Interest Expense ................................
7,592
Premium on Bonds Payable ................................
533
