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*PROBLEM 10-6B
(a) (1) 2015
July 1 Cash ............................................. 4,543,627
(2) Dec. 31 Interest Expense
($4,543,627 X 4%) ................. 181,745
(3) 2016
July 1 Interest Expense
(4) Dec. 31 Interest Expense
(b) Bonds payable ................................................... 4,000,000
*PROBLEM 10-6B (Continued)
(c) Dear :
Thank you for asking me to clarify some points about the bonds issued
by Ashlock Chemical Company.
(1) The amount of interest expense reported for 2016 related to these
(2) When the bonds are sold at a premium, the effective-interest method
(3) The total cost of borrowing is as shown below:
Semiannual interest payments
(4) The total bond interest expense over the life of the bonds is the
If you have other questions, please contact me.
Sincerely,
*PROBLEM 10-7B
(a) 2015
Jan. 1 Cash ($6,000,000 X 96%) .................. 5,760,000
(b) See page 10-55.
(c) 2015
July 1 Interest Expense ............................... 276,000
Dec. 31 Interest Expense ............................... 276,000
2016
Jan. 1 Interest Payable ................................ 270,000
July 1 Interest Expense ............................... 276,000
Dec. 31 Interest Expense ............................... 276,000
Discount on Bonds
*PROBLEM 10-7B (Continued)
(d) Current Liabilities
Long-term Liabilities
*PROBLEM 10-7B (Continued)
Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 10-55
(b)
Semiannual
Interest
Periods
(A)
Interest to
Be Paid
(4.5% X $6,000,000)
(B)
Interest Expense
to Be Recorded
(A) + (C)
(C)
Discount
Amortization
($240,000 ÷ 40)
(D)
Unamortized
Discount
(D) – (C)
(E)
Bond
Carrying Value
[$6,000,000 – (D)]
Issue date
1
2
3
4
$270,000
270,000
270,000
270,000
$276,000
276,000
276,000
276,000
$6,000
6,000
6,000
6,000
$240,000
234,000
228,000
222,000
216,000
$5,760,000
5,766,000
5,772,000
5,778,000
5,784,000
*PROBLEM 10-8B
(a) Jan. 1 Cash ($4,000,000 X 103%) ................ 4,120,000
July 1 Interest Expense ............................... 154,000
Dec. 31 Interest Expense ...............................
154,000
(b) Jan. 1 Cash ($4,000,000 X 96%) .................. 3,840,000
July 1 Interest Expense ............................... 168,000
Discount on Bonds
Dec. 31 Interest Expense ............................... 168,000
*PROBLEM 10-8B (Continued)
(c) Premium
Current Liabilities
Long-term Liabilities
Discount
Current Liabilities
Long-term Liabilities
*PROBLEM 10-9B
(a) Jan. 1 Interest Payable ................................ 108,000
(b) July 1 Interest Expense ............................... 112,500
Discount on Bonds
(c) July 1 Bonds Payable .................................. 800,000
(d) Dec. 31 Interest Expense ............................... 75,000
COMPREHENSIVE PROBLEM SOLUTION 10–1
(a)
1.
Interest Payable ..............................................
Cash .........................................................
2,500
2,500
2.
Inventory .........................................................
Accounts Payable ...................................
241,100
241,100
3.
Cash.................................................................
Sales Revenue .........................................
Sales Taxes Payable ...............................
481,500
450,000
31,500
Cost of Goods Sold ........................................
Inventory ..................................................
250,000
250,000
4.
Accounts Payable ...........................................
Cash .........................................................
230,000
230,000
5.
Interest Expense .............................................
Cash .........................................................
2,500
2,500
6.
Insurance Expense .........................................
Prepaid Insurance ...................................
5,600
5,600
7.
Prepaid Insurance ..........................................
Cash .........................................................
12,000
12,000
8.
Sales Taxes Payable .......................................
Cash .........................................................
24,000
24,000
9.
Other Operating Expenses .............................
Cash .........................................................
91,000
91,000
10.
Interest Expense .............................................
Cash .........................................................
2,500
2,500
Bonds Payable ................................................
Cash .........................................................
Gain on Bond Redemption .....................
50,000
47,000
3,000
COMPREHENSIVE PROBLEM SOLUTION (Continued)
11.
Cash (90,000 X 104%) .....................................
Bonds Payable ........................................
Premium on Bonds Payable ...................
93,600
90,000
3,600
Adjusting Entries
12.
Insurance Expense ($12,000 X 5/12) ..............
Prepaid Insurance ...................................
5,000
5,000
13.
Depreciation Expense ($43,000 – $3,000) ÷ 5 ....
Accumulated Depreciation Equipment ..
8,000
8,000
14.
Income Tax Expense ......................................
Income Taxes Payable ............................
26,520
26,520
(b) JAMES CORPORATION
Trial Balance
12/31/2015
Account
Debit
Credit
Cash ............................................................
$194,100
Inventory .....................................................
16,850
Prepaid Insurance ......................................
7,000
Equipment ..................................................
43,000
Accumulated Depreciation–Equipment ....
$ 8,000
Accounts Payable ......................................
24,850
Sales Taxes Payable ..................................
7,500
Income Taxes Payable ...............................
26,520
Bonds Payable ...........................................
90,000
Premium on Bonds Payable ......................
3,600
Common Stock ...........................................
20,000
Retained Earnings ......................................
18,600
Sales Revenue ............................................
450,000
Cost of Goods Sold ....................................
250,000
Depreciation Expense ................................
8,000
Insurance Expense ....................................
10,600
Other Operating Expenses ........................
91,000
Interest Expense ........................................
5,000
Gain on Bond Redemption ........................
3,000
Income Tax Expense ..................................
26,520
$652,070
$652,070
