SOLUTIONS TO EXERCISES – SERIES B – CHAPTER 10
EXERCISE 10-1B
Points that should be noted:
a. The carrying value of the amortized note (option 2) will be reduced by
the amount of the principal payments for each period. However, the
carrying value of the note with all principal due at maturity (option 1)
EXERCISE 10-2B
Monroe Co.
Amortization Schedule
$80,000, 4-Yr. Term Note, 6% Interest Rate
Year
Prin. Bal.
on Jan 1
Cash Pay.
Dec. 31
Applied to
Interest
Applied to
Principal
2016
$80,000
$23,087
$4,800
$18,287
2017
61,713
23,087
3,703
19,384
2018
42,329
23,087
2,540
20,547
2019
21,782
23,087
1,305*
21,782
*Adjusted due to rounding.
EXERCISE 10-3B
The first four years are provided for the use of the instructor:
Hood Company
Amortization Schedule
$70,000, 10-Yr. Term Note, 6% Interest Rate
Year
Prin. Bal.
on Jan 1
Cash Pay.
Dec. 31
Applied to
Interest
Applied to
Principal
2016
$70,000
$9,581
$4,200
$5,381
2017
64,619
9,581
3,877
5,704
2018
58,915
9,581
3,535
6,046
2019
52,869
9,581
3,172
6,409
a.
(1) $4,200
(2) $5,381
c.
(1) $3,877
EXERCISE 10-4B
10-I-57
Interest Expense: $37,741 x 5% = $1,887 (rounded)
EXERCISE 10-5B
Month
Amount
Borrowed
(Repaid)
Balance End
of Month
Interest
Rate
Interest
Expense
January
$80,000
$ 80,000
.06/12
$400
February
50,000
130,000
.0625/12
677
March
(30,000)
100,000
.065/12
542
April
20,000
120,000
.0625/12
625
10-I-59
EXERCISE 10-6B
a.
Pluto Company
General Journal
Date
Account Titles
Debit
Credit
2016
Jan. 1
Cash
300,000
Bonds Payable
300,000
Jan. 1
Land
300,000
Cash
300,000
Dec. 31
Cash
50,000
Lease Revenue
50,000
Dec. 31
Interest Expense ($300,000 x 6%)
18,000
Cash
18,000
Dec. 31
Lease Revenue
50,000
Interest Expense
18,000
Retained Earnings
32,000
2017
Dec. 31
Cash
50,000
Lease Revenue
50,000
Dec. 31
Interest Expense
18,000
Cash
18,000
Dec. 31
Lease Revenue
50,000
Interest Expense
18,000
Retained Earnings
32,000
EXERCISE 10-6B a. (cont.)
Pluto Company
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Bonds Payable
Retained Earnings
2016
2016
2016
1/1 300,000
1/1 300,000
1/1 300,000
cl 32,000
12/31 50,000
12/31 18,000
Bal. 300,000
Bal. 32,000
Bal. 32,000
2017
2017
cl 32,000
12/31 50,000
12/31 18,000
Bal. 64,000
Bal. 64,000
Lease Revenue
2016
Land
cl 50,000
12/31 50,000
2016
Bal. -0
1/1 300,000
2017
Bal. 300,000
cl 50,000
12/31 50,000
Bal. -0-
Interest Expense
2016
12/31 18,000
cl 18,000
Bal. -0-
2017
12/31 18,000
cl 18,000
Bal. -0-
EXERCISE 10-6B b. (cont.)
Pluto Company Financial Statements
For the Year Ended December 31
Income Statements
2016
2017
Lease Revenue
$50,000
$50,000
Interest Expense
(18,000)
(18,000)
Net Income
$32,000
$32,000
Balance Sheets
Assets
Cash
$ 32,000
$ 64,000
Land
300,000
300,000
Total Assets
$332,000
$364,000
Liabilities
Bonds Payable
$300,000
$300,000
Stockholders’ Equity
Common Stock
-0-
-0-
Retained Earnings
32,000
64,000
Total Stockholders’ Equity
32,000
64,000
Total Liab. and Stockholders’ Equity
$332,000
$364,000
Statements of Cash Flows
Cash Flows From Operating Activities:
Receipts from Revenue
$ 50,000
$ 50,000
Paid for Interest
(18,000)
(18,000)
Net Cash Flow from Operating Act.
32,000
32,000
Cash Flows From Investing Activities:
Paid to Purchase Land
(300,000)
-0-
Cash Flows From Financing Activities:
Proceeds from Bond Issue
300,000
-0-
Net Change in Cash
32,000
32,000
Plus: Beginning Cash Balance
-0-
32,000
Ending Cash Balance
$ 32,000
$ 64,000
EXERCISE 10-7B
Hazman Corp.
General Journal
Date
Account Titles
Debit
Credit
2016
Jan.1
Cash
200,000
Bonds Payable
200,000
Dec. 31
Interest Expense*
12,000
Cash
12,000
2017
Dec. 31
Interest Expense
12,000
Cash
12,000
*$200,000 x 6% = $12,000 interest expense per year
EXERCISE 10-8B
Tyler Co.
Date
Account Titles
Debit
Credit
2016
Jan. 1
Cash
250,000
Bonds Payable
250,000
2017
Dec. 31
Loss on Bond Redemption*
5,000
Bonds Payable
250,000
Cash
255,000
EXERCISE 10-9B
a. $150,000 x 6% = $9,000
b. $150,000 x 6% x 6/12 = $4,500 on June 30
EXERCISE 10-10B
Face x Selling Price
Cash Proceeds
Discount or
Premium
a.
$400,000 x 101%
$404,000
Premium
b.
$250,000 x 98%
245,000
Discount
c.
$300,000 x 102.25%
306,750
Premium
d.
$200,000 x 97.5%
195,000
Discount
EXERCISE 10-11B
a. Discount
b. Face
EXERCISE 10-12B
EXERCISE 10-13B
a. $120,000 x 1% = $1,200; Premium
EXERCISE 10-14B
a.
Effect of Transactions on Financial Statements
Balance Sheet
Income Statement
No.
Assets
=
Liab.
+
S.
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
1.
+
+
NA
NA
NA
NA
+ FA
2.*
−
+
−
NA
+
−
− OA
b. Interest Expense, 2016:
Stated Interest ($300,000 x 6%) $18,000
Amortization of Bond Discount* 600
Interest Expense $18,600
*Discount: $300,000 x 2% = $6,000
EXERCISE 10-15B
a.
Dixon Construction, Inc.
General Journal
Date
Account Titles
Debit
Credit
2016
July 1
Cash1
288,000
Discount on Bonds Payable
12,000
Bonds Payable
300,000
Dec. 31
Interest Expense
9,600
Discount on Bonds Payable2
600
Cash3
9,000
Dec. 31
Retained Earnings
9,600
Interest Expense
9,600
2017
June 30
Interest Expense
9,600
Discount on Bonds Payable
600
Cash
9,000
Dec. 31
Interest Expense
9,600
Discount on Bonds Payable
600
Cash
9,000
Dec. 31
Retained Earnings
19,200
Interest Expense
19,200
EXERCISE 10-15B a. (cont.)
Dixon Construction, Inc.
T-accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Bonds Payable
Retained Earnings
2016
2016
2016
7/1 288,000
12/31 9,000
7/1 300,000
cl 9,600
Bal. 279,000
Bal. 300,000
Bal. 9,600
2017
2017
6/30 9,000
cl 19,200
12/31 9,000
Disc. on Bonds Pay.
Bal. 28,800
Bal. 261,000
2016
7/1 12,000
12/31 600
Interest Expense
Bal. 11,400
2016
2017
12/31 9,600
cl 9,600
6/30 600
Bal. -0-
12/31 600
2017
Bal. 10,200
6/30 9,600
12/31 9,600
cl 19,200
Bal. -0-
EXERCISE 10-15B (cont.)
b.
Dixon Construction, Inc.
Balance Sheet
As of December 31
2016
2017
Liabilities
Bonds Payable
$300,000
$300,000
Discount on Bonds Payable
(11,400)
(10,200)
Carrying Value of Bonds
288,600
289,800
Total Liabilities
$288,600
$289,800