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Fundamental Accounting Principles, 21st Edition
842
Problem 14-3B (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2013 .....................
$792,932
$4,192,932
6/30/2013 .....................
753,285
4,153,285
12/31/2013 .....................
713,638
4,113,638
6/30/2014 .....................
673,991
4,073,991
12/31/2014 .....................
634,344
4,034,344
Part 5
2013
June 30
Bond Interest Expense ................................
130,353
Premium on Bonds Payable ................................
39,647
Cash ................................................................
170,000
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense ................................
130,353
Premium on Bonds Payable ................................
39,647
Cash ................................................................
170,000
To record six months’ interest and
premium amortization.
Problem 14-4B (45 minutes)
Part 1
Ten payments of $14,400* .........................
$ 144,000
Par value at maturity ................................
320,000
Total repaid .................................................
464,000
Less amount borrowed .............................
(332,988)
Total bond interest expense .....................
$ 131,012
*$320,000 x 0.09 x ½ = $14,400
or:
Ten payments of $14,400 ..........................
$ 144,000
Less premium.............................................
(12,988)
Total bond interest expense .....................
$ 131,012
Part 2
Straight-line amortization table ($12,988/10 = $1,299**)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2013
$12,988
$332,988
6/30/2013
11,689
331,689
12/31/2013
10,390
330,390
6/30/2014
9,091
329,091
12/31/2014
7,792
327,792
6/30/2015
6,493
326,493
12/31/2015
5,194
325,194
6/30/2016
3,895
323,895
12/31/2016
2,596
322,596
6/30/2017
1,299*
321,299
12/31/2017
0
320,000
* Adjusted for rounding.
**Rounded to nearest dollar.
Fundamental Accounting Principles, 21st Edition
844
Problem 14-4B (Concluded)
Part 3
2013
June 30
Bond Interest Expense ................................
13,101
Premium on Bonds Payable ................................
1,299
Cash ................................................................
14,400
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense ................................
13,101
Premium on Bonds Payable ................................
1,299
Cash ................................................................
14,400
To record six months’ interest and
premium amortization.
Problem 14-5BB (45 minutes)
Part 1
Ten payments of $14,400 ..........................
$144,000
Par value at maturity ................................
320,000
Total repaid .................................................
464,000
Less amount borrowed .............................
(332,988)
Total bond interest expense .....................
$131,012
or:
Ten payments of $14,400 ..........................
$144,000
Less premium.............................................
(12,988)
Total bond interest expense .....................
$131,012
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $320,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Premium
Amortization
[(A) - (B)]
(D)
Unamortized
Premium
[Prior (D) - (C)]
(E)
Carrying
Value
[$320,000 + (D)]
1/01/2013
$12,988
$332,988
6/30/2013
$ 14,400
$ 13,320
$ 1,080
11,908
331,908
12/31/2013
14,400
13,276
1,124
10,784
330,784
6/30/2014
14,400
13,231
1,169
9,615
329,615
12/31/2014
14,400
13,185
1,215
8,400
328,400
6/30/2015
14,400
13,136
1,264
7,136
327,136
12/31/2015
14,400
13,085
1,315
5,821
325,821
6/30/2016
14,400
13,033
1,367
4,454
324,454
12/31/2016
14,400
12,978
1,422
3,032
323,032
6/30/2017
14,400
12,921
1,479
1,553
321,553
12/31/2017
14,400
12,847*
1,553
0
320,000
$144,000
$131,012
$ 12,988
*Adjusted for rounding.
Fundamental Accounting Principles, 21st Edition
846
Problem 14-5BB (Concluded)
Part 3
2013
June 30
Bond Interest Expense ................................
13,320
Premium on Bonds Payable ................................
1,080
Cash ................................................................
14,400
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense ................................
13,276
Premium on Bonds Payable ................................
1,124
Cash ................................................................
14,400
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
0.8548
$320,000
$273,536
Interest (annuity) ....
B.3
3.6299
14,400
52,271
Price of bonds ........
$325,807
* Table values are based on a discount rate of 4% (half the annual original market
rate) and 4 periods (semiannual payments).
Comparison to Part 2 Table
Except for a small rounding difference, this present value ($325,807) equals
Problem 14-6B (60 minutes)
Part 1
2013
Jan. 1
Cash ................................................................
198,494
Discount on Bonds Payable ................................
41,506
Bonds Payable .........................................................
240,000
Sold bonds on stated issue date.
Part 2
Thirty payments of $7,200* ........................
$ 216,000
Par value at maturity ................................
240,000
Total repaid .................................................
456,000
Less amount borrowed .............................
(198,494)
Total bond interest expense .....................
$ 257,506
$240,000 x 0.06 x ½ = $7,200
or:
Thirty payments of $7,200* .......................
$ 216,000
Plus discount .............................................
41,506
Total bond interest expense .....................
$ 257,506
Part 3 Straight-line amortization table ($41,506/30= $1,384)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2013
$41,506
$ 198,494
6/30/2013
40,122
199,878
12/31/2013
38,738
201,262
6/30/2014
37,354
202,646
12/31/2014
35,970
204,030
Problem 14-6B (Concluded)
Part 4
2013
June 30
Bond Interest Expense ................................
8,584
Discount on Bonds Payable ................................
1,384
Cash ................................................................
7,200
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense ................................
8,584
Discount on Bonds Payable ................................
1,384
Cash ................................................................
7,200
To record six months’ interest and
discount amortization.
Problem 14-7BB (60 minutes)
Part 1
2013
Jan. 1
Cash ................................................................
198,494
Discount on Bonds Payable ................................
41,506
Bonds Payable .........................................................
240,000
Sold bonds on stated issue date.
Part 2
Thirty payments of $7,200* ........................
$ 216,000
Par value at maturity ................................
240,000
Total repaid .................................................
456,000
Less amount borrowed .............................
(198,494)
Total bond interest expense .....................
$ 257,506
*$240,000 x 0.06 x ½ = $7,200
or:
Thirty payments of $7,200 .........................
$ 216,000
Plus discount .............................................
41,506
Total bond interest expense .....................
$ 257,506
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3% x $240,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) - (A)]
(D)
Unamortized
Discount
[Prior (D) - (C)]
(E)
Carrying
Value
[$240,000 - (D)]
1/01/2013
$41,506
$198,494
6/30/2013
$7,200
$7,940
$740
40,766
199,234
12/31/2013
7,200
7,969
769
39,997
200,003
6/30/2014
7,200
8,000
800
39,197
200,803
12/31/2014
7,200
8,032
832
38,365
201,635
Fundamental Accounting Principles, 21st Edition
850
Problem 14-7BB (Concluded)
Part 4
2013
June 30
Bond Interest Expense ................................
7,940
Discount on Bonds Payable ................................
740
Cash ................................................................
7,200
To record six months’ interest and
discount amortization.
2013
Dec. 31
Bond Interest Expense ................................
7,969
Discount on Bonds Payable ................................
769
Cash ................................................................
7,200
To record six months’ interest and
discount amortization.
Problem 14-8BB (70 minutes)
Part 1
2013
Jan. 1
Cash ................................................................
493,608
Premium on Bonds Payable ................................
43,608
Bonds Payable .........................................................
450,000
Sold bonds on stated issue date.
Part 2
Eight payments of $29,250* ......................
$ 234,000
Par value at maturity ................................
450,000
Total repaid .................................................
684,000
Less amount borrowed .............................
(493,608)
Total bond interest expense .....................
$ 190,392
*$450,000 x 0.13 x ½ = $29,250
or:
Eight payments of $29,250 ........................
$ 234,000
Less premium.............................................
(43,608)
Total bond interest expense .....................
$ 190,392
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $450,000]
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) - (B)]
(D)
Unamortized
Premium
[Prior (D) - (C)]
(E)
Carrying
Value
[$450,000 + (D)]
1/01/2013
$43,608
$493,608
6/30/2013
$29,250
$24,680
$4,570
39,038
489,038
12/31/2013
29,250
24,452
4,798
34,240
484,240
6/30/2014
29,250
24,212
5,038
29,202
479,202
12/31/2014
29,250
23,960
5,290
23,912
473,912
Problem 14-8BB (Concluded)
Part 4
2013
June 30
Bond Interest Expense ................................
24,680
Premium on Bonds Payable ................................
4,570
Cash ................................................................
29,250
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense ................................
24,452
Premium on Bonds Payable ................................
4,798
Cash ................................................................
29,250
To record six months’ interest and
premium amortization.
Jan. 1
Bonds Payable ..............................................................
450,000
Premium on Bonds Payable ................................
23,912
Loss on Retirement of Bonds ................................
3,088
Cash*................................................................
477,000
To record the retirement of bonds.
*($450,000 x 106%)
Part 6
If the market rate on the issue date had been 14% instead of 10%, the bonds
would have sold at a discount because the contract rate of 13% would have been
lower than the market rate.
This change would affect the balance sheet because the bond liability would be
smaller (par value minus a discount instead of par value plus a premium). As the
Problem 14-9B (45 minutes)
Part 1 Amount of Payment
Note balance ................................................................
$150,000
Number of periods .........................................................
3
Interest rate ................................................................
10%
Value from Table B.3 .....................................................
2.4869
Payment ($150,000 / 2.4869) ................................
$ 60,316
Part 2
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[10% x (A)]
+
(C)
Debit
Notes
Payable
[(D) - (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) - (C)]
9/30/2014 .............
$150,000
$15,000
$ 45,316
$ 60,316
$104,684
9/30/2015 .............
104,684
10,468
49,848
60,316
54,836
9/30/2016 .............
54,836
5,480*
54,836
60,316
0
$30,948
$150,000
$180,948
*Adjusted for rounding.
Part 3
2013
Dec. 31
Interest Expense ............................................................
3,750
Interest Payable .......................................................
3,750
Accrued interest on the installment
note payable ($15,000 x 3/12).
2014
Sept. 30
Interest Expense ............................................................
11,250
Interest Payable .............................................................
3,750
Notes Payable ................................................................
45,316
Cash ..........................................................................
60,316
Record first payment on installment note
(interest expense = $15,000 - $3,750).
