Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
