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(××6/12)−
(××6/12)=
P3. Bond Transactions—Effective Interest Method (Concluded)
$9,140,000
Paid semiannual interest and amortized
the discount on 9%, 20-year bonds
$10,000,000
0.10
2014
0.09
2.
14-23
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
( × × 6 / 12 ) –
(××6/12)
1.
$1,962,000
$2,000,000
bonds and amortized the discount
0.095
P4. Bonds Issued at a Discount and a Premium—Effective Interest Method
0.092
2014
Paid semiannual interest on 9.2%, 10-year
14-24
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
( × × 6 / 12 ) –
*
**
P4. Bonds Issued at a Discount and a Premium—Effective Interest Method (Continued)
2014
2015
Paid semiannual interest on 9.8%, 10-year
$1,963,195 0.095
Paid semiannual interest on 9.2%, 10-year
bonds and amortized the discount
$1,962,000 + $1,195 = $1,963,195
$4,040,000 – $4,100 = $4,035,900
remainder of the interest period
*
14-25
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
2. a.
b.
P4. Bonds Issued at a Discount and a Premium—Effective Interest Method (Concluded)
Cash paid for interest:
Bond interest expense in 2014:
Total cash paid for 2014 bond issues: $380,000
$474,200
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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1. a.
/=
×=
(−
2. a.
$160,000
159,200$1,200
1,194 806
158,394
$2,000
2,000
$800
$15,468$171,864 0.09
$14,322years $171,864
Periodic Payment × Factor (Table 2 in Appendix B: 9%, 12 periods)
P5. Lease Versus Purchase
at End of Period
Reduction
in DebtUnpaid Balance
Unpaid BalanceMonth at 0.75% onMonthly
0
1
2
*Rounded
Present value calculated.
PaymentMonth
Interest for 1
equipment for first year
12
Made lease payment for second year
Made lease payment for first year
$171,864 $8,532 ) × 0.09
To record depreciation on leased
14-27
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
3.
Made second monthly payment on
mortgage
P5. Lease Versus Purchase (Concluded)
Based on the calculation, it appears that the purchase is best because the cost of
$160,000 is less than the net present value of the lease, which is $171,864. Both op-
vate, rebuild, or sell it, as the need arises. A disadvantage is that Wooster assumes
needs customer parking after 12 years, it will have to make arrangements for new
financial considerations.
parking facilities, which could be re-leasing the current facility, if it is still used. Also,
the owner of the facility may want to use the space for other purposes. An advantage
of purchasing the building is that Wooster has control over the property and can reno-
tions result in an increase in assets and in liabilities.
14-28
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1. a.
d.
(1)
(2)
(3)
2. a.
c.
d.
(1)
(2)
(3)
3. a.
b.
Amortization computed:
Interest components
Cash paid in interest:
Interest expense computed:
Calculation of cash received:
Interest expense computed:
Amortization computed:
Cash paid in interest:
Interest components
The difference of
Difference between a and b explained:
P6. Bond Basics—Straight-Line Method, Retirement, and Conversion
Calculation of cash received:
Alternate Problems
$300,000 between a and b is the bond discount.
Cash to retire bonds:
Gain or loss calculated:
Carrying value:
14-29
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
