Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 10 Solution Manual Part 2

March 26, 2020
Exercise 10-7 (30 minutes)
1. Premium = Issue price - Par value = $409,850 - $400,000 = $9,850
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000* ...............
$156,000
3. Straight-line amortization table ($9,850/6 = $1,642)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2015
$9,850
$409,850
6/30/2015
8,208
408,208
Exercise 10-8 (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
5.
Cash ................................................................................
162,172
Exercise 10-9 (20 minutes)
2. Discount at issuance
3. Total amortization for first 6 years
The first six years (from 1/1/15 to 12/31/20) equals 40% of the bonds’ 15-
4. Carrying value of the bonds at 12/31/2020
Discount at issuance (from part 2) ......
$ 15,750
5. Cash purchase price
($700,000 x 20%) x 104.5% = $146,300
6. Loss on retirement
7. Journal entry at retirement for 20% of bonds
2021
Jan. 1
Bonds Payable ...............................................................
140,000
Exercise 10-10 (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)]
2015 .......
$100,000
$ 7,000
$ 22,523
$ 29,523
$77,477
*Adjusted for rounding.
Exercise 10-11 (20 minutes)
2015
Jan. 1
Cash ................................................................................
100,000
Notes Payable ..........................................................
100,000
Borrowed $100,000 by signing a 7%
2018
Dec. 31
Interest Expense ............................................................
1,933
Notes Payable ................................................................
27,590
Cash ..........................................................................
29,523
Exercise 10-12 (15 minutes)
1a. Current debt-to-equity ratio = $220,000 / $400,000* = 0.55
2. Montclair’s risk will increase because it will have more debt. That debt
(plus interest) must be repaid even if the project does not work out as
Exercise 10-13B (30 minutes)
1. Discount = Par value - Issue price = $500,000 - $463,140 = $36,860
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $22,500* .......................
$135,000
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $500,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Discount
Amortization
[(B) - (A)]
(D)
Unamortized
Discount
[Prior (D) - (C)]
(E)
Carrying
Value
[$500,000 - (D)]
1/01/2015
$36,860
$463,140
6/30/2015
$ 22,500
$ 27,788
$ 5,288
31,572
468,428
12/31/2015
22,500
28,106
5,606
25,966
474,034
*Adjusted for rounding.
Exercise 10-14B (30 minutes)
1. Premium = Issue price - Par value = $409,850 - $400,000 = $9,850
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000* .......................
$ 156,000
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $400,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Premium
Amortization
[(A) - (B)]
(D)
Unamortized
Premium
[Prior (D) - (C)]
(E)
Carrying
Value
[400,000 + (D)]
1/01/2015
$9,850
$409,850
6/30/2015
$ 26,000
$ 24,591
$1,409
8,441
408,441
12/31/2015
26,000
24,506
1,494
6,947
406,947
*Adjusted for rounding.
Exercise 10-15 (40 minutes)
1. Straight-line amortization table (($100,000-$95,948)/8 = $506.5)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
6/01/2015 .....................
$4,052
$95,948
11/30/2015 .....................
3,546
96,454
5/31/2016 .....................
3,040
96,960
* Adjusted for rounding difference.
Supporting computations
Eight payments of $3,500** ....................
$ 28,000
Par value at maturity ...............................
100,000
Exercise 10-15 (Concluded)
2.
2015
Nov. 30
Bond Interest Expense ..................................................
4,006
Discount on Bonds Payable ................................
506
Cash ..........................................................................
3,500
To record 6 months’ interest and discount amortization.
Exercise 10-16C (20 minutes)
2. Journal entries
2015
May 1
Cash ................................................................................
3,502,000
Interest Payable .......................................................
102,000
Bonds Payable .........................................................
3,400,000
Sold bonds with 4 months’ accrued interest.
Exercise 10-17D (10 minutes)
Exercise 10-18D (20 minutes)
Exercise 10-19D (15 minutes)
[Note: 12% / 12 months = 1% per month as the relevant interest rate.]
Exercise 10-20 (20 minutes)
(amounts in euros millions)
1.
Cash.................................................................................
1,663
2.
Loans and Borrowings ..................................................
2,400
Premium on Loans and Borrowings ............................
24
3. Heineken’s Loans and Borrowings carried a premium of 112 as of
4. The contract rate was higher than the market rate at issuance. This is
implied from the higher carrying value of its loans and borrowings
PROBLEM SET A
Problem 10-1A (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value .....................
B.1
0.4564
$40,000
$18,256
b.
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value .....................
B.1
0.3769
$40,000
$15,076
b.
2015
Problem 10-1A (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ....................
B.1
0.3118
$40,000
$12,472
b.
2015
Problem 10-2A (40 minutes)
Part 1
2015
Jan. 1
Cash ................................................................
3,456,448
Discount on Bonds Payable ................................
543,552
Bonds Payable .........................................................
4,000,000
Sold bonds on stated issue date.
Part 2
Part 3
Thirty payments of $120,000 ....................
$3,600,000
Par value at maturity ................................
4,000,000
Total repaid .................................................
7,600,000
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2015 .....................
$543,552
$3,456,448
Problem 10-2A (Concluded)
Part 5
2015
June 30
Bond Interest Expense ..................................................
138,118
Discount on Bonds Payable ................................
18,118
Problem 10-3A (40 minutes)
Part 1
2015
Jan. 1
Cash ................................................................................
4,895,980
Premium on Bonds Payable ................................
895,980
Bonds Payable .........................................................
4,000,000

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