PROBLEM 10-1B
(a) Jan. 1 Cash ………………………………………………….. 18,000
Notes Payable .. 18,000
5 Cash ………………………………………………….. 18,480
Sales Revenue
(b) Jan. 31 Interest Expense ………………………………… 120
Interest Payable
($18,000 X 8% X 1/12 = $120) ……. 120
PROBLEM 10-1B (Continued)
(c) Current liabilities
Notes payable ……………………………………………………….. $ 18,000
Accounts payable ………………………………………………….. 52,000
Salaries and wages payable …………………………………… 44,769
PROBLEM 10-2B
(a) Aug. 1 Inventory or Purchases …………………….. 6,000
Notes Payable ……………………………. 6,000
31 Interest Expense
($6,000 X .09 X 1/12) ………………………. 45
Interest Payable …………………………. 45
Nov. 1 Notes Payable ………………………………….. 6,000
Interest Payable ……………………………….. 135
Cash ………………………………………….. 6,135
PROBLEM 10-2B (Continued)
(b)
Notes Payable
Interest Payable
11/1 6,000
8/1 6,000
11/1 135
8/31 45
9/1 15,000
9/30 145
10/1 40,000
10/31 412
12/31 Bal. 55,000
11/30 367
12/31 367
12/31 Bal. 1,201
Interest Expense
8/31 45
9/30 145
10/31 412
11/30 367
12/31 367
12/31 Bal. 1,336
(c) Current liabilities
Notes payable ……………………………………………………….. 55,000
PROBLEM 10-3B
(a) Jan. 1 Interest Payable ……………………………….. 96,000
Cash ………………………………………….. 96,000
PROBLEM 10-4B
(a) 2016 Cash …………………………………………………. 600,000
April 1 Bonds Payable …………………………... 600,000
(b) Dec. 31 Interest Expense ……………………………….. 22,500
(d) 2017 Interest Payable ………………………………… 22,500
April 1 Interest Expense
(e) Dec. 31 Interest Expense ……………………………….. 22,500
Interest Payable …………………………. 22,500
PROBLEM 10-5B
(a) 2017
Jan. 1 Cash ($5,000,000 X 103%) …………….. 5,150,000
Bonds Payable ……………………… 5,000,000
Premium on Bonds
Payable …………………………….. 150,000
PROBLEM 10-6B
(a)
2017
2016
1. Current ratio
= .67:1
= .60:1
2. Free cash flow
$1,503 – $472 – $475
= $556
$1,410 – $453 – $450
= $507
3. Debt to assets ratio
4. Times interest
earned
$1,8661 ÷ $319
= 5.85 times
$1,7782 ÷ $307
= 5.79 times
(b) The company’s liquidity position as measured through the current
ratio and free cash flow has improved. The debt to assets ratio
(c) Kellogg’s use of operating leases (vs. capital leases) would reduce its
solvency. If the leases were capital rather than operating, the balance
*PROBLEM 10-7B
2017
(a) Jan. 1 Interest Payable ………………………… 144,000
Cash ………………………………….. 144,000
2018
(c) Jan. 1 Bonds Payable ………………………….. 1,800,000
Premium on Bonds Payable ………. 126,000*
(d) Dec. 31 Interest Expense ……………………….. 58,000
*PROBLEM 10-8B
(a) Jan. 1 Cash ($2,200,000 X 102%) …………… 2,244,000
Premium on Bonds Payable …. 44,000
Bonds Payable ……………………. 2,200,000
(b) Jan. 1 Cash ($2,200,000 X 98%) …………….. 2,156,000
Discount on Bonds Payable ……….. 44,000
Bonds Payable ……………………. 2,200,000
(c) Premium
Current Liabilities
Interest payable $ 176,000
Discount
Current Liabilities
Interest payable $ 176,000
*PROBLEM 10-9B
(a) (1) 1/1/17 Cash ($3,000,000 X 103%) ….. 3,090,000
Bonds Payable ……………. 3,000,000
(2) 1/1/17 Cash ($3,000,000 X 99%) ……. 2,970,000
(b) See amortization tables on following page.
(c) (1) 12/31/18 Interest Expense ……………….. 198,750
(2) 12/31/18 Interest Expense ……………….. 213,750
(d) (1) Long-term Liabilities:
(b), (1)
*PROBLEM 10-9B (Continued)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(7% X $3,000,000)
(B)
Interest Expense
to Be Recorded
(A) – (C)
(C)
Premium
Amortization
($90,000 ÷ 8)
(D)
Unamortized
Premium
(D) – (C)
(E)
Bond
Carrying Value
[$3,000,000 + (D)]
Issue date
1
$210,000
$198,750
$11,250
$90,000
78,750
$3,090,000
3,078,750
(2)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(7% X $3,000,000)
(B)
Interest Expense
to Be Recorded
(A) + (C)
(C)
Discount
Amortization
($30,000 ÷ 8)
(D)
Unamortized
Discount
(D) – (C)
(E)
Bond
Carrying Value
[$3,000,000 – (D)]
Issue date
1
$210,000
$213,750
$3,750
$30,000
26,250
$2,970,000
2,973,750
*PROBLEM 10-10B
2017
(a) Jan. 1 Cash ………………………………………….. 2,154,434
(b) IMELDA CORPORATION
Bond Premium Amortization
Effective-Interest Method—Annual Interest Payments
6% Bonds Issued at 5%
Annual
Interest
Periods
(A)
Interest
to Be
Paid
(B)
Interest
Expense
(C)
Premium
Amor–
tization
(A) – (B)
(D)
Unamor-
tized
Premium
(D) – (C)
(E)
Bond
Carrying
Value
($2,000,000 + D)
120,000
115,727
Issue date
1
$120,000
$107,722
$12,278
$154,434
142,156
$2,154,434
2,142,156
(c) Dec. 31 Interest Expense
($2,154,434 X 5%) …………………………... 107,722
(d) 2018
Jan. 1 Interest Payable …………………………………. 120,000
Cash …………………………………………… 120,000
(e) Dec. 31 Interest Expense
[($2,154,434 – $12,278) X 5%] ………….. 107,108
*PROBLEM 10-11B
2017
(a) (1) Jan. 1 Cash …………………………………… 1,717,761
Bonds Payable …………….. 1,600,000
(2) Dec. 31 Interest Expense
($1,717,761 X 6%) …………….. 103,066
2018
(3) Jan. 1 Interest Payable ………………….. 112,000
(4) Dec. 31 Interest Expense …………………. 102,530
[($1,717,761 – $8,934) X 6%]
(b) Bonds payable …………………………………………… 1,600,000
(c) (1) Total bond interest expense—2018, $102,530.
*PROBLEM 10-12B
(a)
Quarterly
Interest Period
(A)
Cash
Payment
(B)
Interest
Expense
(D) X 2%
(C)
Reduction
of Principal
(A) – (B)
(D)
Principal
Balance
(D) – (C)
Issue Date
1
2
$20,792
20,792
$6,800
6,520
$13,992
14,272
$340,000
326,008
311,736
(b) Dec. 31 Interest Expense …………………………….. 6,800
(c) Current liabilities
Mortgage payable …………………………………………… $ 58,822*
Long-term liabilities
282,331
*PROBLEM 10-13B
(a)
Period
Cash
Payment
(A)
Interest
Expense
(B) = (D) X 8%
Principal
Reduction
(C) = (A) – (B)
Balance
(D) = (D) – (C)
July 1, 2016
$140,000
June 30, 2017
$35,064
$11,200
$ 23,864
116,136
June 30, 2018
35,064
9,291
25,773
90,363
June 30, 2019
35,064
7,229
27,835
62,528
June 30, 2020
35,064
5,002
30,062
June 30, 2021
35,064
32,466
Total
175,320
35,320
140,000
(b) July 1/16 Cash …………………………………………… 140,000
Notes Payable ………………………… 140,000
(c) 2018
Current liabilities