Problems (Group B)
P12-39B Journalizing liability transactions and reporting them on the balance sheet
Learning Objectives 1, 5
2. Total Liabilities $661,776
The following transactions of Great Value Pharmacies occurred during 2018 and 2019:
2018
Mar. 1 Borrowed $390,000 from Bartow Bank. The six-year, 13% note
requires payments due annually, on March 1. Each payment consists
of $65,000 principal plus one year’s interest.
Dec. 1 Mortgaged the warehouse for $350,000 cash with Saylor Bank. The
mortgage requires monthly payments of $7,000. The interest rate on
the note is 9% and accrues monthly. The first payment is due on
January 1, 2019.
31 Recorded interest accrued on the Saylor Bank note.
31 Recorded interest accrued on the Bartow Bank note.
2019
Jan. 1 Paid Saylor Bank monthly mortgage payment.
Feb. 1 Paid Saylor Bank monthly mortgage payment.
Mar. 1 Paid Saylor Bank monthly mortgage payment.
1 Paid first installment on note due to Bartow Bank.
Requirements
1. Journalize the transactions in the Great Value Pharmacies general journal. Round to the
nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Great Value Pharmacies on March 1,
2019 after all the journal entries are recorded.
P12-39B, cont.
SOLUTION
Requirement 1
P12-39B, cont.
Requirement 1, cont.
Requirement 2
P12-39B, cont.
Requirement 2, cont.
P12-40B Analyzing, journalizing, and reporting bond transactions
Learning Objectives 2, 3
2. Discount $2,250
Johnny’s Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018. At
December 31, 2020, Johnny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable $ 300,000
Less: Discount on Bonds
Payable
(36,000) $ 264,000
Johnny pays semiannual interest each June 30 and December 31.
Requirements
1. Answer the following questions about Johnny’s bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2020?
c. What is the semiannual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of discount.
SOLUTION
Requirement 1
Requirement 2
P12-41B Analyzing and journalizing bond transactions
Learning Objectives 2, 3, 4
3. June 30 Interest Expense $7,350
On January 1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bonds payable with face
value of $200,000. The bonds pay interest on June 30 and December 31.
Requirements
1. If the market interest rate is 5% when DCU issues its bonds, will the bonds be priced at face
value, at a premium, or at a discount? Explain.
2. If the market interest rate is 8% when DCU issues its bonds, will the bonds be priced at face
value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 93. Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest
payment has already been recorded.
SOLUTION
Requirement 1
P12-41B, cont.
Requirement 3
P12-42B Analyzing and journalizing bond transactions
Learning Objectives 2, 3, 4
June 30 Interest Expense $15,600
On January 1, 2018, Electricians Credit Union (ECU) issued 8%, 20-year bonds payable with
face value of $400,000. The bonds pay interest on June 30 and December 31. The issue price of
the bonds is 104.
Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment
has already been recorded.
SOLUTION
P12-43B Reporting liabilities on the balance sheet and computing debt to equity ratio
Learning Objectives 5, 6
1. Total Liabilities $286,200
The accounting records of Compass Wireless include the following as of December 31, 2018:
Accounts Payable $ 74,000 Salaries Payable $ 7,500
Mortgages Payable
(long-term)
80,000 Bonds Payable (current
portion)
25,000
Interest Payable 21,000 Premium on Bonds Payable 13,000
Bonds Payable (long-term) 63,000 Unearned Revenue
(short-term)
2,700
Total Stockholders’ Equity 145,000
Requirements
1. Report these liabilities on the Compass Wireless balance sheet, including headings and totals
for current liabilities and long-term liabilities.
2. Compute Compass Wireless’s debt to equity ratio at December 31, 2018.
P12-43B, cont
SOLUTION
Requirement 1
