Chapter 10 – Reporting and Analyzing Long-Term Liabilities
Problem 10–5AB (45 minutes)
Part 1
Ten payments of $8,125* ……………….……..
$ 81,250
Par value at maturity ……………………..……
250,000
Total repaid …………………………………………..
331,250
Less amount borrowed ………………….……..
(255,333)
Total bond interest expense …………..……..
$ 75,917
*$250,000 x 0.065 x ½ =$8,125
or:
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………..…….
(5,333)
Total bond interest expense …………..…….
$ 75,917
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2013
$5,333
$255,333
6/30/2013
$ 8,125
$ 7,660
$ 465
4,868
254,868
12/31/2013
8,125
7,646
479
4,389
254,389
6/30/2014
8,125
7,632
493
3,896
253,896
12/31/2014
8,125
7,617
508
3,388
253,388
6/30/2015
8,125
7,602
523
2,865
252,865
12/31/2015
8,125
7,586
539
2,326
252,326
6/30/2016
8,125
7,570
555
1,771
251,771
12/31/2016
8,125
7,553
572
1,199
251,199
6/30/2017
8,125
7,536
589
610
250,610
12/31/2017
8,125
7,515*
610
0
250,000
$81,250
$75,917
$5,333
*Adjusted for rounding.
