Problem 10–9AB (Concluded)
Part 3
2015
June 30
Bond Interest Expense …………………………..
7,660
Premium on Bonds Payable ………………….……….
465
Cash ……………………………………………….………
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 ………………………………..……………….
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 ……………………………………………….………
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