Problem 14-5AB (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)
Total bond interest expense …………..……..
$ 75,917
*$250,000 x 0.065 x ½ =$8,125
or:
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………..…….
(5,333)
Total bond interest expense …………..…….
$ 75,917
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2013
$5,333
$255,333
6/30/2013
$ 8,125
$ 7,660
$ 465
4,868
254,868
12/31/2013
8,125
7,646
479
4,389
254,389
6/30/2014
8,125
7,632
493
3,896
253,896
12/31/2014
8,125
7,617
508
3,388
253,388
6/30/2015
8,125
7,602
523
2,865
252,865
12/31/2015
8,125
7,586
539
2,326
252,326
6/30/2016
8,125
7,570
555
1,771
251,771
12/31/2016
8,125
7,553
572
1,199
251,199
6/30/2017
8,125
7,536
589
610
250,610
12/31/2017
8,125
7,515*
610
0
250,000
$81,250
$75,917
$5,333
*Adjusted for rounding.
Problem 14-5AB (Concluded)
Part 3
2013
June 30
Bond Interest Expense …………………………..
7,660
Premium on Bonds Payable ………………….……….
465
Cash ……………………………………………….………
8,125
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense …………………………..
7,646
Premium on Bonds Payable ………………….……….
479
Cash ……………………………………………….………
8,125
To record six months’ interest and
premium amortization.
Part 4
As of December 31, 2015
Cash Flow
Table
Table Value*
Amount
Present Value
Par value …………………
B.1
0.8885
$250,000
$222,125
Interest (annuity) …..…
B.3
3.7171
8,125
30,201
Price of bonds …………
$252,326
* Table values are based on a discount rate of 3% (half the annual original market
rate) and 4 periods (semiannual payments).
Comparison to Part 2 Table
This present value ($252,326) equals the carrying value of the bonds in
Problem 14-6A (60 minutes)
Part 1
2013
Jan. 1
Cash …………………………………………………….…
292,181
Discount on Bonds Payable ………………….……….
32,819
Bonds Payable ………………………………..……………….
325,000
Sold bonds on stated issue date.
Part 2
Eight payments of $8,125* ……………....
$ 65,000
Par value at maturity ……………………....
325,000
Total repaid ……………………………………..
390,000
Less amount borrowed …………………...
(292,181)
Total bond interest expense …………....
$ 97,819
*$325,000 x 0.05 x ½ = $8,125
or:
Eight payments of $8,125 ………………...
$ 65,000
Plus discount ………………………………....
32,819
Total bond interest expense …………....
$ 97,819
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2013
$32,819
$292,181
6/30/2013
28,717
296,283
12/31/2013
24,615
300,385
6/30/2014
20,513
304,487
12/31/2014
16,411
308,589
*(rounded to nearest dollar)
Problem 14-6A (Concluded)
Part 4
2013
June 30
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………….…………….
4,102
Cash ……………………………………………….………
8,125
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………….…………….
4,102
Cash ……………………………………………….………
8,125
To record six months’ interest and
discount amortization.
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
bonds would have sold at a premium because the contract rate of 5%
would have been greater than the market rate.
The statement of cash flows would show a larger amount of cash received
from borrowing. However, the cash flow statements presented over the life
change in the market rate.
Problem 14-7AB (60 minutes)
Part 1
2013
Jan. 1
Cash …………………………………………………….…
292,181
Discount on Bonds Payable ………………….……….
32,819
Bonds Payable ………………………………..……………….
325,000
Sold bonds on stated issue date.
Part 2
Eight payments of $8,125* ……………....
$ 65,000
Par value at maturity ……………………....
325,000
Total repaid ……………………………………..
390,000
Less amount borrowed …………………...
(292,181)
Total bond interest expense …………....
$ 97,819
*$325,000 x 0.05 x ½ = $8,125
or:
Eight payments of $8,125 ………………...
$ 65,000
Plus discount ………………………………....
32,819
Total bond interest expense …………....
$ 97,819
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[2.5% x $325,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$325,000 – (D)]
1/01/2013
$32,819
$292,181
6/30/2013
$8,125
$11,687
$3,562
29,257
295,743
12/31/2013
8,125
11,830
3,705
25,552
299,448
6/30/2014
8,125
11,978
3,853
21,699
303,301
12/31/2014
8,125
12,132
4,007
17,692
307,308
Fundamental Accounting Principles, 21st Edition
832
Problem 14-7AB (Concluded)
Part 4
2013
June 30
Bond Interest Expense …………………………..
11,687
Discount on Bonds Payable …………….…………….
3,562
Cash ……………………………………………….………
8,125
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense …………………………..
11,830
Discount on Bonds Payable …………….…………….
3,705
Cash ……………………………………………….………
8,125
To record six months’ interest and
discount amortization.
Problem 14-8AB (60 minutes)
Part 1
2013
Jan. 1
Cash …………………………………………………….…
184,566
Premium on Bonds Payable …………….…………….
4,566
Bonds Payable ………………………………..……………….
180,000
Sold bonds on stated issue date.
Part 2
Six payments of $9,900 ……………………….
$ 59,400
Par value at maturity ……………………..……
180,000
Total repaid ………………………………………….
239,400
Less amount borrowed ………………….…….
(184,566)
Total bond interest expense …………..…….
$ 54,834
*$180,000 x 0.11 x ½ = $9,900
or:
Six payments of $9,900 ………………….…….
$ 59,400
Less premium………………………………..…….
(4,566)
Total bond interest expense …………..…….
$ 54,834
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[5.5% x $180,000]
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$180,000 + (D)]
1/01/2013
$4,566
$184,566
6/30/2013
$9,900
$9,228
$672
3,894
183,894
12/31/2013
9,900
9,195
705
3,189
183,189
6/30/2014
9,900
9,159
741
2,448
182,448
12/31/2014
9,900
9,122
778
1,670
181,670
Problem 14-8AB (Concluded)
Part 4
2013
June 30
Bond Interest Expense …………………………..
9,228
Premium on Bonds Payable ………………….……….
672
Cash ……………………………………………….………
9,900
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense …………………………..
9,195
Premium on Bonds Payable ………………….……….
705
Cash ……………………………………………….………
9,900
To record six months’ interest and
premium amortization.
Part 5
2015
Jan. 1
Bonds Payable …………………………………….……………….
180,000
Premium on Bonds Payable ………………….……….
1,670
Cash*……………………………………………………….
176,400
Gain on Retirement of Bonds …………..………………
5,270
To record the retirement of bonds.
*($180,000 x 98%)
Part 6
If the market rate on the issue date had been 12% instead of 10%, the bonds
would have sold at a discount because the contract rate of 11% would have been
lower than the market rate.
been issued at a premium.
The statement of cash flows would show a smaller amount of cash received from
borrowing. However, the cash flow statements presented over the life of the
Problem 14-9A (45 minutes)
Part 1 Amount of Payment
Note balance ………………………………………..……………..
$200,000
Number of periods ………………………………..……………….
5
Interest rate ………………………………………….……………
8%
Value from Table B.3 …………………………….……………….
3.9927
Payment ($200,000 / 3.9927) ………………….……….
$ 50,091
rounded to nearest dollar
Part 2
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[8% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
10/31/2014 …..…….
$200,000
$ 16,000
$ 34,091
$ 50,091
$165,909
10/31/2015 …..…….
165,909
13,273
36,818
50,091
129,091
10/31/2016 …..…….
129,091
10,327
39,764
50,091
89,327
10/31/2017 …..…….
89,327
7,146
42,945
50,091
46,382
10/31/2018 …..…….
46,382
3,709*
46,382
50,091
0
$ 50,455
$200,000
$250,455
* Adjusted for rounding
Part 3
2013
Dec. 31
Interest Expense …………………………………………….……..
2,667
Interest Payable …………………………..…………………..
2,667
Accrued interest on the installment
note payable ($16,000 x 2/12) (rounded).
2014
Oct. 31
Interest Expense …………………………………………….……..
13,333
Interest Payable ……………………………………………..……..
2,667
Notes Payable ………………………………………………..……..
34,091
Cash ………………………………………………………………..
50,091
Record first payment on installment note
(interest expense = $16,000 – $2,667).
Fundamental Accounting Principles, 21st Edition
836
Problem 14-10A (20 minutes)
Part 1
Pulaski Company debt-to-equity = $360,000 / $540,000 = 0.67
Part 2
Scott’s debt–to–equity ratio is higher than Pulaski’s. This implies that Scott
Problem 14-11AD (35 minutes)
Part 1
Present Value of the Lease Payments
$10,000 x 3.9927 (from Table B.3) = $39,927
Part 2
Leased Asset—Office Equipment ……………………….….
39,927
Lease Liability ………………………………………………….
39,927
To record capital lease of office equipment.
Part 3
Capital Lease Liability Payment (Amortization) Schedule
Period
Ending
Date
Beginning
Balance of
Lease
Liability
Interest on
Lease
Liability
(8%)
Reduction
of Lease
Liability
Cash
Lease
Payment
Ending
Balance of
Lease
Liability
Year 1
$39,927
$ 3,194*
$ 6,806
$ 10,000
$33,121
Year 2
33,121
2,650
7,350
10,000
25,771
Year 3
25,771
2,062
7,938
10,000
17,883
Year 4
17,833
1,427
8,573
10,000
9,260
Year 5
9,260
740**
9,260
10,000
0
$10,073
$39,927
$ 50,000
* Rounded to nearest dollar.
** Difference due to rounding.
Part 4
Depreciation Expense—Office Equipment …………..….
7,985
Accum. Depreciation—Office Equipment ……….….
7,985
To record depreciation ($39,927 / 5 years).
Fundamental Accounting Principles, 21st Edition
838
PROBLEM SET B
Problem 14-1B (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.6139
$90,000
$55,251
Interest (annuity) ….
B.3
7.7217
5,400**
41,697
Price of bonds ……..
$96,948
Bond Premium ……..
$ 6,948
* Table values are based on a discount rate of 5% (half the annual market rate) and 10
periods (semiannual payments).
** $90,000 x 0.12 x ½ = $5,400
b.
2013
Jan. 1
Cash ……………………………………………………....
96,948
Premium on Bonds Payable ……………..……………
6,948
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.5584
$90,000
$50,256
Interest (annuity) ….
B.3
7.3601
5,400
39,745
Price of bonds ……..
$90,001**
* Table values are based on a discount rate of 6% (half the annual market rate) and
10 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.)
**Difference due to rounding
b.
2013
Jan. 1
Cash ……………………………………………………....
90,000
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
Problem 14-1B (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.5083
$90,000
$45,747
Interest (annuity) ….
B.3
7.0236
5,400
37,927
Price of bonds ……..
$83,674
Bond discount ……..
$ 6,326
* Table values are based on a discount rate of 7% (half the annual market rate)
and 10 periods (semiannual payments).
b.
2013
Jan. 1
Cash ……………………………………………………....
83,674
Discount on Bonds Payable …………………..………
6,326
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
Problem 14-2B (40 minutes)
Part 1
2013
Jan. 1
Cash ……………………………………………………....
3,010,000
Discount on Bonds Payable …………………..………
390,000
Bonds Payable …………………………………………………
3,400,000
Sold bonds on stated issue date.
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout
the bonds’ life because the company uses straight-line amortization.]
(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000
Problem 14-2B (Concluded)
Part 3
Twenty payments of $170,000 ………..…….
$3,400,000
Par value at maturity ……………………..……
3,400,000
Total repaid ………………………………………….
6,800,000
Less amount borrowed ………………….…….
(3,010,000)
Total bond interest expense …………..…….
$3,790,000
or:
Twenty payments of $170,000 ……….…….
$3,400,000
Plus discount ………………………………..…….
390,000
Total bond interest expense …………..…….
$3,790,000
Part 4 (Semiannual amortization: $390,000/20 = $19,500)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2013 …………………
$390,000
$3,010,000
6/30/2013 …………………
370,500
3,029,500
12/31/2013 …………………
351,000
3,049,000
6/30/2014 …………………
331,500
3,068,500
12/31/2014 …………………
312,000
3,088,000
Part 5
2013
June 30
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable ……………..……………
19,500
Cash ………………………………………………..……..
170,000
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable ……………..……………
19,500
Cash ………………………………………………..……..
170,000
To record six months’ interest and
discount amortization.
Problem 14-3B (40 minutes)
Part 1
2013
Jan. 1
Cash …………………………………………………….…
4,192,932
Premium on Bonds Payable …………….…………….
792,932
Bonds Payable ………………………………..……………….
3,400,000
Sold bonds on issue date at a premium.
Part 2
(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000
(b) Premium = $4,192,932 – $3,400,000 = $792,932
Part 3
Twenty payments of $170,000 ………..…….
$3,400,000
Par value at maturity ……………………..……
3,400,000
Total repaid ………………………………………….
6,800,000
Less amount borrowed ………………….…….
(4,192,932)
Total bond interest expense …………..…….
$2,607,068
or:
Twenty payments of $170,000 ………..…….
$3,400,000
Less premium………………………………..…….
(792,932)
Total bond interest expense …………..…….
$2,607,068