Financial & Managerial Accounting, 5th Edition
600
Problem 10-3B (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 10-4B (45 minutes)
Part 1
Ten payments of $14,400* …………………….
Par value at maturity ……………………..……
Total repaid ………………………………………….
Less amount borrowed ………………….…….
Total bond interest expense …………..…….
*$320,000 x 0.09 x ½ = $14,400
or:
Ten payments of $14,400 ……………….…….
Less premium………………………………..…….
Total bond interest expense …………..…….
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
Financial & Managerial Accounting, 5th Edition
602
Problem 10-4B (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 10–5BB (45 minutes)
Part 1
Ten payments of $14,400 ……………….…….
Par value at maturity ……………………..……
Total repaid ………………………………………….
Less amount borrowed ………………….…….
Total bond interest expense …………..…….
or:
Ten payments of $14,400 ……………….…….
Less premium………………………………..…….
Total bond interest expense …………..…….
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.
Financial & Managerial Accounting, 5th Edition
604
Problem 10–5BB (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
the carrying value of the bonds in column (E) of the amortization table
Problem 10–6B (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
* Semiannual interest payment, computed as $240,000 x 6% x ½ year.
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
Financial & Managerial Accounting, 5th Edition
606
Problem 10-6B (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 10–7BB (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
Financial & Managerial Accounting, 5th Edition
608
Problem 10–7BB (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 10–8BB (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* ………………….
Par value at maturity ……………………..……
Total repaid ………………………………………….
Less amount borrowed ………………….…….
Total bond interest expense …………..…….
*$450,000 x 0.13 x ½ = $29,250
or:
Eight payments of $29,250 ……………..…….
Less premium………………………………..…….
Total bond interest expense …………..…….
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 10–8BB (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.
Part 5
2015
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 10-9B (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).