Problem 14–11
Requirement 1
*Present value of an ordinary annuity of $1: n = 5, i = 10% (Table 4)
** Present value of $1: n = 5, i = 10% (Table 2)
Requirement 2
December 31, 2018
……………………..Discount on notes payable (difference)
………………………………………………………….Cash (given)
Requirement 3
December 31, 2019
Problem 14–12
Requirement 1
present installment present value
value payment table amount
This is the Table 4 value for n = 4, i = ? In row 4 of Table 4, the number
Requirement 2
……………………………………Notes payable (present value)
Requirement 3
………………………………………………………….Cash (given)
Requirement 4
………………………………………………………….Cash (given)
Requirement 5
Problem 14–13
Requirement 1
Interest $5,000¥x 3.16987 * = $15,849
¥ 5% x $100,000
*Present value of an ordinary annuity of $1: n = 4, i = 10% (Table 4)
** Present value of $1: n = 4, i = 10% (Table 2)
…………………………………….Notes payable (face amount)
Requirement 2
Cash Effective Increase in Outstanding
Dec.31 Payment Interest Balance Balance
84,150
2018 5,000 .10 (84,150) = 8,415 3,415 87,565
* rounded
Requirement 3
Interest expense (market rate x outstanding balance)………. 9,132
……………………..Discount on notes payable (difference)
Problem 14–13 (concluded)
Requirement 4
amount (from Table 4)
of loan n = 4, i = 10% payment
Requirement 5
Cash Effective Decrease in Outstanding
Dec. 31 Payment Interest Balance Balance
10% x Outstanding Balance Balance Reduction
84,150
2018 26,547 .10 (84,150) = 8,415 18,132 66,018
* rounded
Requirement 6
………………………………..Cash (payment determined above)
Problem 14–14
Bonds payable (face amount)…………………………………… 800,000
Problem 14–15
Requirement 1
Interest expense (7% x $19,000,000)………………………………. 1,330,000
…………………….Discount on bonds payable (difference)
Requirement 2
Bonds payable (face amount)…………………………………… 20,000,000
Problem 14–16
1. Issuance of the bonds.
Cash ($385,000 – 1,500)…………………………………………… 383,500
2. December 31, 2018
Interest expense ($20,000 + 825)……………………………………. 20,825
3. June 30, 2019
Interest expense ($20,000 + 825)……………………………………. 20,825
4. Call of the bonds
Bonds payable (face amount)…………………………………… 400,000
Problem 14-17
U.S. GAAP and IFRS now treat transaction costs (called debt issue costs under U.S.
GAAP) similarly and reduce the recorded amount of the debt, as well as the net cash the
issuing company receives from the sale of the bonds. A lower [net] amount is borrowed at
the same cost, increasing the effective interest rate. Since the recorded amount of the debt
is reduced by the transaction costs, the higher rate will be reflected in a higher recorded
interest expense.
1. Issuance of the bonds
2. December 31, 2018
Interest expense ($20,000 + 825)……………………………………. 20,825
3. June 30, 2019
Interest expense ($20,000 + 825)……………………………………. 20,825
4. Call of the bonds
*Notice that the discount is combined with the face amount of the bonds. This
is the “net method” that is the preferred method under IFRS.
Problem 14–18
Requirement 1
Bonds payable (face amount)…………………………………… 20,000,000
Requirement 2
Bonds payable (face amount)…………………………………… 10,000,000