Solutions Chapter 10 – Set B Exercises – Libby 7e
E10–1B.
The Atkinson bonds have a coupon interest rate of 7.5%. If bonds with a $10,000 face
E10–2B.
CASE A:
$200,000 x 0.5835 ………………………………………………..
$ 116,700
$16,000 x 5.2064 ………………………………………………….
83,302
Issue price (market and stated rate same) ……………….
$200,002
(at par; $2
rounding error)
CASE B:
$200,000 x 0.6651 ………………………………………………..
$133,020
$16,000 x 5.5824 ………………………………………………….
Issue price (market rate less than stated rate) …………..
$222,338
(at a premium)
CASE C:
$200,000 x 0.5132 ………………………………………………..
$ 102,640
$16,000 x 4.8684 ………………………………………………….
77,894
Issue price (market rate more than stated rate) …………
$ 180,534
(at a discount)
E10–3B.
Computations:
Interest:
$100,000 x 5% x 1/2
=
$2,500
$100,000 x 0.6756
=
67,560
$ 2,500 x 8.1109
=
20,277
=
E10–4B.
Computations:
Interest:
$950,000 x 7%
=
$ 66,500
$950,000 x 0.4224
=
$ 66,500 x 6.4177
=
426,777
Issue price
=
$828,057
Req. 1
Req. 2
December 31:
Interest Expense (+E, –SE)…………………………………………….
78,694
Discount on Bonds Payable (-XL, +L) ($121,943 ÷ 10yrs)
12,194
Cash (-A) …………………………………………………………………
66,500
$ 78,694
Long-term Liabilities
Bonds payable
$950,000
Less: Unamortized discount ($121,943 – $12,194)
$840,251
Req. 3
E10–5B.
Computations:
Interest:
$700,000 x 8.0% x 1/2
=
$ 28,000
Present value:
$700,000 x 0.7168
=
$ 28,000 x 6.6638
=
=
$688,346
Cash (+A) ……………………………………………………………………
Discount on Bonds Payable (+XL, –L) ……………………………..
11,654
Bonds Payable (+L) …………………………………………………..
Cash (+A) ……………………………………………………………………
Discount on Bonds Payable (+XL, –L) ……………………………..
Bonds Payable (+L) …………………………………………………..
June 30:
Interest Expense* (+E, -SE) ………………………………………….
29,255
Discount on Bonds Payable (-XL, +L) ………………………….
1,255
Cash (-A) …………………………………………………………………
28,000
*($688,346 x 8.5% x ½)
Req. 3
E10–6B.
Req. 1
Issue price:
1. Par, $400,000 – Carrying value at end of 1 year, $374,800 = $25,200 (unamortized
discount for 9 remaining years).
3. $374,800 – $2,800 = $372,000 issue price (discount $2,800).
Issuance entry:
Cash (+A) ……………………………………………………………………
Discount on bonds payable (+XL, –L) …………………………..….
28,000
Bonds payable (+L) …………………………………………………..
1. Reported interest expense, $30,800 – Discount amortized, $2,800 = $28,000 (cash
interest).
2. $28,000 ÷ $400,000 = 7% coupon (stated interest) rate.
Interest expense:
Interest expense (+E, –SE) …………………………………………….
Discount on bonds payable ($28,000 ÷ 10 years) (-XL, +L)
Cash ($400,000 x 7%) (-A) …………………………………………
Long-term Liabilities
Bonds payable
Less: Unamortized discount ($11,654 – $1,255)
E10–7B.
1. Issue price: $2,844. Stated rate, 6%; effective or yield rate, 8% (both were given).
3. $3,000 x 6% = $180.
5. Balance sheet:
6. Effective-interest amortization was used.
7. (a) $3,000 x 6% = $180.
8. Effective-interest amortization measures the amount of interest expense and net
liability for each period on a present value basis. The interest expense and related
E10–8B.
Computations:
Interest:
$700,000 x 8% x 1/2
=
$ 28,000
Present value:
=
=
=
$749,132
January 1:
Cash (+A) ……………………………………………………………………
749,132
Premium on Bonds Payable (+L) ………………………………..
49,132
Bonds Payable (+L) ………………………………………………….
700,000
Req. 3
June 30, 2011:
Income statement:
Interest expense
$ 21,858
Long-term Liabilities
Bonds payable
42,990
E10–9B.
Req. 1
Computations:
Interest:
$1,200,000 x 10%
=
$120,000 ÷ 2 = $60,000
=
=
Cash (+A) ……………………………………………………………………
Bonds payable (+L) …………………………………………………..
Premium on bonds payable(+L) ………………………………….
163,098
Req. 2
Interest Expense (+E, –SE)…………………………………………….
Premium on Bonds Payable (-L) …………………………………….
6,142
Cash (-A) …………………………………………………………………
E10–10B.