SOLUTIONS TO EXERCISES – SERIES A – CHAPTER 10
EXERCISE 10-1A
a. Year 1
Option 1 – annual interest only:
$150,000 x 8% = $12,000
Option 2 – annual interest and $15,000 on principal:
EXERCISE 10-2A
Beatie Co.
Amortization Schedule
$200,000, 5-Yr. Term Note, 6% Interest Rate
Year
Prin. Bal.
on Jan 1
Cash Pay.
Dec. 31
Applied to
Interest
Applied to
Principal
2016
$200,000
$47,479
$12,000
$35,479
2017
164,521
47,479
9,871
37,608
2018
126,913
47,479
7,615
39,864
2019
87,049
47,479
5,223
42,256
2020
44,793
47,479
2,686
44,793
*Rounded for final year
EXERCISE 10-3A
Provided for the use of the Instructor:
Dayle Company
Amortization Schedule
$80,000, 5-Yr. Term Note, 8% Interest Rate
Year
Prin. Bal.
on Jan 1
Cash Pay.
Dec. 31
Applied to
Interest
Applied to
Principal
Prin Bal.
End of Period
2016
$80,000
$20,037
$6,400
$13,637
$66,363
2017
66,363
20,037
5,309
14,728
51,635
2018
51,635
20,037
4,131
15,906
35,729
2019
35,729
20,037
2,858
17,179
18,550
2020
18,550
20,037
1,487*
18,550
-0-
*Rounded for final year
Note: Computation for years 2018, 2019, 2020 are not required
a.
(1) $6,400
(2) $13,637
c.
(1) $5,309
EXERCISE 10-4A
a.
Effect of Transactions on Financial Statements
Balance Sheet
Income Statement
Statement of
No
.
Assets
=
Liab.
+
S.
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
1.
200,000
=
200,000
+
NA
NA
−
NA
=
NA
200,000FA
2.
(27,174)
=
(15,174)
+
(12,000)
NA
−
12,000
=
(12,000)
(15,174)FA
(12,000)OA
b. (1)
Revenue
$62,000
Expenses
Operating Expenses
$45,000
Interest Expense
12,000
Total Expenses
(57,000)
Net Income
$ 5,000
Cash Flows From Operating Activities:
Inflow from Customers
$62,000
Outflow for Expenses
(57,000)
Net Cash Flow from Operating Activities
$ 5,000
Cash Flows From Financing Activities:
Inflow from Issue of Note
$200,000
Outflow to Repay Note
(15,174)
Net Cash Flow from Financing Activities
$184,826
EXERCISE 10–5A
Month
Amount
Borrowed
(Repaid)
Balance End
of Month
Interest
Rate
Interest
Expense
January
$80,000
$80,000
.06/12
$400
February
60,000
140,000
.065/12
758
March
(20,000)
120,000
.06/12
600
EXERCISE 10-6A
a.
Doyle Company
General Journal
Date
Account Titles
Debit
Credit
2016
Jan. 1
Cash
500,000
Bonds Payable
500,000
Jan. 1
Land
500,000
Cash
500,000
Dec. 31
Cash
125,000
Lease Revenue
125,000
Dec. 31
Interest Expense ($500,000 x 7%)
35,000
Cash
35,000
Dec. 31
Lease Revenue
125,000
Interest Expense
35,000
Retained Earnings
90,000
2017
Dec. 31
Cash
125,000
Lease Revenue
125,000
Dec. 31
Interest Expense
35,000
Cash
35,000
Dec. 31
Lease Revenue
125,000
Interest Expense
35,000
Retained Earnings
90,000
EXERCISE 10-6A a. (cont.)
Doyle Company
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Bonds Payable
Retained Earnings
2016
2016
2016
1/1 500,000
1/1 500,000
1/1 500,000
cl 90,000
12/31 125,000
12/31 35,000
Bal. 500,000
Bal. 90,000
Bal. 90,000
2017
2017
cl 90,000
12/31 125,000
12/31 35,000
Bal. 180,000
Bal. 180,000
Lease Revenue
2016
Land
cl 125,000
12/31 125,000
2016
Bal. -0
1/1 500,000
2017
Bal. 500,000
cl 125,000
12/31 125,000
Bal. -0-
Interest Expense
2016
12/31 35,000
cl 35,000
Bal. -0-
2017
12/31 35,000
cl 35,000
Bal. -0-
EXERCISE 10-6A b. (cont.)
Doyle Company
Financial Statements
2016
2017
Income Statements for the Year Ended Decebmer 31
Lease Revenue
$125,000
$125,000
Interest Expense
(35,000)
(35,000)
Net Income
$ 90,000
$ 90,000
Balance Sheets as of December 31
Assets
Cash
$ 90,000
$180,000
Land
500,000
500,000
Total Assets
$590,000
$680,000
Liabilities
Bonds Payable
$500,000
$500,000
Stockholders’ Equity
Common Stock
-0-
-0-
Retained Earnings
90,000
180,000
Total Stockholders’ Equity
90,000
180,000
Total Liab. and Stockholders’ Equity
$590,000
$680,000
Statements of Cash Flows for the Year Ended December 31
Cash Flows From Operating Activities:
Receipts from Revenue
$ 125,000
$125,000
Paid for Interest
(35,000)
(35,000)
Net Cash Flow from Operating Act.
90,000
90,000
Cash Flows From Investing Activities:
Paid to Purchase Land
(500,000)
-0-
Cash Flows From Financing Activities:
Proceeds from Bond Issue
500,000
-0-
Net Change in Cash
90,000
90,000
Plus: Beginning Cash Balance
-0-
90,000
Ending Cash Balance
$ 90,000
$180,000
10–VI–30
EXERCISE 10-7A
Bell Corp.
General Journal
Date
Account Titles
Debit
Credit
2016
Jan.1
Cash
180,000
Bonds Payable
180,000
Dec. 31
Interest Expense*
10,800
Cash
10,800
2017
Dec. 31
Interest Expense
10,800
Cash
10,800
*$180,000 x 6% = $10,800 interest expense per year
EXERCISE 10-8A
Nivan Co.
Date
Account Titles
Debit
Credit
2016
Jan. 1
Cash
500,000
Bonds Payable
500,000
2020
Dec. 31
Loss on Bond Redemption*
15,000
Bonds Payable
500,000
Cash
515,000
EXERCISE 10–9A
The total amount of interest paid each year will be the same regardless of
whether it is paid annually or semiannually. If the interest is paid
EXERCISE 10-10A
Face x Selling Price
Cash Proceeds
Discount or Premium
a.
$400,000 x 103%
$412,000
Premium
b.
$200,000 x 97.5%
195,000
Discount
c.
$100,000 x 102.25%
102,250
Premium
d.
$120,000 x 96%
115,200
Discount
EXERCISE 10-11A
a. Premium
b. Face
EXERCISE 10-12A
EXERCISE 10-13A
a. $80,000 x 1.25% = $1,000; Premium
EXERCISE 10-14A
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. Discount: $180,000 x 2% = $3,600
Amortization of bond discount: $3,600 5 = $720 per year
Carrying Value, December 31, 2016:
Bonds Payable $180,000
Less: Discount on Bonds Payable (2,880)*
EXERCISE 10-15A
a.
Square Foot Grill, Inc.
General Journal
Date
Account Titles
Debit
Credit
2016
July 1
Cash1
204,000
Premium on Bonds Payable
4,000
Bonds Payable
200,000
Dec. 31
Interest Expense
5,800
Premium on Bonds Payable2
200
Cash3
6,000
Dec. 31
Retained Earnings
5,800
Interest Expense
5,800
2017
June 30
Interest Expense
5,800
Premium on Bonds Payable
200
Cash
6,000
Dec. 31
Interest Expense
5,800
Premium on Bonds Payable
200
Cash
6,000
Dec. 31
Retained Earnings
11,600
Interest Expense
11,600
EXERCISE 10-15A a.(cont.)
Square Foot Grill, Inc.
T-accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Bonds Payable
Retained Earnings
2016
2016
2016
7/1 204,000
12/31 6,000
7/1 200,000
cl 5,800
Bal. 198,000
Bal. 200,000
Bal. 5,800
2017
2017
6/30 6,000
cl 11,600
12/31 6,000
Premium on Bonds Pay.
Bal. 17,400
Bal. 186,000
2016
12/31 200
7/1 4,000
Interest Expense
Bal. 3,800
2016
2017
12/31 5,800
cl 5,800
6/30 200
Bal. -0-
12/31 200
2017
Bal. 3,400
6/30 5,800
12/31 5,800
cl 11,600
Bal. -0-
10–VI–38
EXERCISE 10-15A (cont.)
b.
Square Foot Grill, Inc.
Balance Sheet As of December 31
2016
2017
Liabilities
Bonds Payable
$200,000
$200,000
Premium on Bonds Payable
3,800
3,400
Net Carrying Value of Bonds
203,800
203,400
Total Liabilities
$203,800
$203,400
EXERCISE 10-16A
Price Co.
General Journal
Date
Account Titles
Debit
Credit
2016
Jan. 1
Cash1
183,350
Discount on Bonds Payable
6,650
Bonds Payable
190,000
Dec. 31
Interest Expense
12,370
Discount on Bonds Payable2
1,330
Cash3
11,400
2017
Dec. 31
Interest Expense
12,730
Discount on Bonds Payable
1,330
Cash
11,400
EXERCISE 10-17A
a.
Effect of Transactions on Financial Statements
Balance Sheet
Income Statement
Statement of
No
.
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flow
1.
+
+
NA
NA
NA
NA
+ FA
2a.
NA
−
+
NA
−
+
NA
2b.
−
NA
−
NA
+
−
− OA
b. Premium: $150,000 x 3% = $4,500
Amortization of bond premium: $4,500 5 = $900 per year
Carrying Value, December 31, 2016:
Bonds Payable $150,000