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Problem 10-9AB (Concluded)
Part 3
2015
June 30
Bond Interest Expense ................................
7,660
Premium on Bonds Payable ................................
465
Cash ................................................................
8,125
To record six months’ interest and
premium amortization.
Problem 10-10AB (60 minutes)
Part 1
2015
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)]
1/01/2015
$4,566
$184,566
6/30/2015
$9,900
$9,228
$672
3,894
183,894
12/31/2015
9,900
9,195
705
3,189
183,189
6/30/2016
9,900
9,159
741
2,448
182,448
12/31/2016
9,900
9,122
778
1,670
181,670
Problem 10-10AB (Concluded)
Part 4
2015
June 30
Bond Interest Expense ................................
9,228
Premium on Bonds Payable ................................
672
Cash ................................................................
9,900
To record six months’ interest and
premium amortization.
2015
Dec. 31
Bond Interest Expense ................................
9,195
Premium on Bonds Payable ................................
705
Cash ................................................................
9,900
To record six months’ interest and
premium amortization.
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.
Problem 10-11AD (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
17,833
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—Leased Asset, Off. Equip ...................
7,985
Accum. Depreciation—Leased Asset, Off. Equip ...............
7,985
To record depreciation ($39,927 / 5 years).
Problem 10-1B (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.
2015
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.
2015
Jan. 1
Cash ................................................................
90,000
Bonds Payable .........................................................
90,000
Sold bonds on stated issue date.
Problem 10-1B (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.
2015
Jan. 1
Cash ................................................................
83,674
Discount on Bonds Payable ................................
6,326
Bonds Payable .........................................................
90,000
Sold bonds on stated issue date.
Problem 10-2B (40 minutes)
Part 1
2015
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
(b) Discount = $3,400,000 - $3,010,000 = $390,000
Straight-line discount amortization = $390,000 / 20 semiannual periods
= $19,500
(c) Bond interest expense = $170,000 + $19,500 = $189,500
Problem 10-2B (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
1/01/2015 .....................
$390,000
$3,010,000
6/30/2015 .....................
370,500
3,029,500
12/31/2015 .....................
351,000
3,049,000
6/30/2016 .....................
331,500
3,068,500
12/31/2016 .....................
312,000
3,088,000
Part 5
2015
June 30
Bond Interest Expense ................................
189,500
Discount on Bonds Payable ................................
19,500
Cash ................................................................
170,000
To record six months’ interest and
discount amortization.
2015
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 10-3B (40 minutes)
Part 1
2015
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
Straight-line premium amortization= $792,932/20 semiannual periods
= $ 39,647 rounded
(c) Bond interest expense = $170,000 - $39,647 = $130,353
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
Problem 10-3B (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2015 .....................
$792,932
$4,192,932
6/30/2015 .....................
753,285
4,153,285
12/31/2015 .....................
713,638
4,113,638
6/30/2016 .....................
673,991
4,073,991
12/31/2016 .....................
634,344
4,034,344
Part 5
2015
June 30
Bond Interest Expense ................................
130,353
Premium on Bonds Payable ................................
39,647
Cash ................................................................
170,000
To record six months’ interest and
premium amortization.
2015
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* .........................
$ 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
1/01/2015
$12,988
$332,988
6/30/2015
11,689
331,689
12/31/2015
10,390
330,390
6/30/2016
9,091
329,091
12/31/2016
7,792
327,792
6/30/2017
6,493
326,493
12/31/2017
5,194
325,194
6/30/2018
3,895
323,895
12/31/2018
2,596
322,596
6/30/2019
1,299*
321,299
12/31/2019
0
320,000
