Problem 10-10AB (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
184,566
Premium on Bonds Payable …………………………..
4,566
Bonds Payable …………………………………………………
180,000
Sold bonds on stated issue date.
Part 2
Six payments of $9,900 ………………………..
Six payments of $9,900* ………………………
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[5.5% x $180,000]
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$180,000 + (D)]
1/01/2019
$4,566
$184,566
6/30/2019
$9,900
$9,228
$672
3,894
183,894
3,189
183,189
181,670
Problem 10-10AB (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
9,228
Premium on Bonds Payable …………………………..
672
Cash ……………………………………………………….
9,900
Record six months’ interest and
premium amortization.
Dec. 31
Bond Interest Expense …………………………..
9,195
Premium on Bonds Payable …………………………..
705
Cash ……………………………………………………….
9,900
Problem 10–11AC (35 minutes)
Part 1
Year 1
Jan. 1
Right–of-Use Asset…………………………………………………
51,000
Lease Liability ………………………………………………….
51,000
Record right-of-use asset and lease liability.
Part 2
Year 1
Jan. 1
Lease Liability ……………………………………………………….
18,000
Cash ………………………………………………………………..
18,000
Record beginning-year cash lease payment.
Dec. 31
Amortization Expense ……………………………………………
17,000
Accum. Amortization—Right-of–Use Asset ………..
17,000
Part 4
Year 1
Dec. 31
Interest Expense ……………………………………………………
1,981
Lease Liability ……………………………………………………….
16,019
Cash ………………………………………………………………..
18,000
Dec. 31
Interest Expense ……………………………………………………
1,019
Lease Liability ……………………………………………………….
16,981
Cash ………………………………………………………………..
18,000
Problem 10-12AC (35 minutes)
Part 1
Year 1
Jan. 1
Right–of-Use Asset…………………………………………………
51,000
Lease Liability ………………………………………………….
51,000
Record right-of-use asset and lease liability.
Jan. 1
Lease Liability ……………………………………………………….
18,000
Cash ………………………………………………………………..
18,000
Record beginning-year cash lease payment.
Part 3
Year 1
Dec. 31
Amortization Expense ……………………………………………
16,019
Accum. Amortization—Right-of–Use Asset ………..
16,019
Record amortization on right-of-use asset.1
Year 2
Dec. 31
Amortization Expense ……………………………………………
16,981
Accum. Amortization—Right-of–Use Asset ………..
16,981
Record amortization on right-of-use asset.2
Dec. 31
Amortization Expense ……………………………………………
18,000
Accum. Amortization—Right-of–Use Asset ………..
18,000
Record amortization on right-of-use asset.3
Part 4
Year 1
Dec. 31
Interest Expense ……………………………………………………
1,981
Lease Liability ……………………………………………………….
16,019
Cash ………………………………………………………………..
18,000
Record lease payment for interest and lease liability.
Year 2
Dec. 31
Interest Expense ……………………………………………………
1,019
Lease Liability ……………………………………………………….
16,981
Cash ………………………………………………………………..
18,000
Record lease payment for interest and lease liability.
PROBLEM SET B
Problem 10-1B (40 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
3,010,000
Discount on Bonds Payable …………………………..
390,000
Bonds Payable …………………………………………………
3,400,000
Sold bonds on stated issue date.
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout
the bonds’ life because the company uses straight-line amortization.]
Part 3
Twenty payments of $170,000 ……………..
$3,400,000
Plus discount ………………………………………
390,000
Total bond interest expense …………………
$3,790,000
Twenty payments of $170,000 ………………
$3,400,000
Par value at maturity …………………………..
3,400,000
Total repaid ………………………………………….
Less amount borrowed ………………………..
Problem 10-1B (Concluded)
Part 4 (Semiannual amortization: $390,000/20 = $19,500)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2019 …………………
$390,000
$3,010,000
6/30/2019 …………………
370,500
3,029,500
6/30/2020 …………………
312,000
Part 5
June 30
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable …………………………..
19,500
Cash ……………………………………………………….
170,000
Record six months’ interest and
discount amortization.
Dec. 31
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable …………………………..
19,500
Cash ……………………………………………………….
170,000
Record six months’ interest and
discount amortization.
Problem 10-2B (40 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
4,192,932
Premium on Bonds Payable …………………………..
792,932
Bonds Payable …………………………………………………
3,400,000
Sold bonds on issue date at a premium.
Part 3
Twenty payments of $170,000 ………………
$3,400,000
Less premium………………………………………
(792,932)
Total bond interest expense …………………
$2,607,068
or:
Twenty payments of $170,000 ………………
$3,400,000
Par value at maturity …………………………..
3,400,000
Total repaid ………………………………………….
Less amount borrowed ………………………..
Problem 10-2B (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2019 …………………
$792,932
$4,192,932
6/30/2019 …………………
753,285
4,153,285
6/30/2020 …………………
673,991
4,073,991
634,344
Part 5
June 30
Bond Interest Expense …………………………..
130,353
Premium on Bonds Payable …………………………..
39,647
Cash ……………………………………………………….
170,000
Record six months’ interest and
premium amortization.
Dec. 31
Bond Interest Expense …………………………..
130,353
Premium on Bonds Payable …………………………..
39,647
Cash ……………………………………………………….
170,000
Record six months’ interest and
premium amortization.
Problem 10-3B (45 minutes)
Part 1
Ten payments of $14,400 ……………………..
$ 144,000
Less premium………………………………………
(12,988)
Total bond interest expense …………………
$ 131,012
Ten payments of $14,400* …………………….
$ 144,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
(332,988)
Part 2
Straight-line amortization table ($12,988/10 = $1,299**)
Semiannual
Interest Period-End
Unamortized
Premium
Carrying
Value
1/01/2019
$12,988
$332,988
6/30/2019
11,689
331,689
12/31/2019
10,390
330,390
6/30/2020
9,091
329,091
12/31/2020
7,792
327,792
5,194
325,194
6/30/2022
3,895
323,895
6/30/2023
321,299
12/31/2023
0
320,000
Problem 10-3B (Concluded)
Part 3
June 30
Bond Interest Expense …………………………..
13,101
Premium on Bonds Payable …………………………..
1,299
Cash ……………………………………………………….
14,400
Record six months’ interest and
premium amortization.
Dec. 31
Bond Interest Expense …………………………..
13,101
Premium on Bonds Payable …………………………..
Cash ……………………………………………………….
14,400
Record six months’ interest and
premium amortization.
Problem 10-4B (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
198,494
Discount on Bonds Payable …………………………..
41,506
Bonds Payable …………………………………………………
240,000
Sold bonds on stated issue date.
Thirty payments of $7,200* …………………..
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Part 3 Straight-line amortization table ($41,506/30= $1,384)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2019
$41,506
$ 198,494
6/30/2019
40,122
199,878
6/30/2020
204,030
Problem 10-4B (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
8,584
Discount on Bonds Payable …………………………..
1,384
Cash ……………………………………………………….
7,200
Record six months’ interest and
discount amortization.
Dec. 31
Bond Interest Expense …………………………..
8,584
Discount on Bonds Payable …………………………..
1,384
Cash ……………………………………………………….
7,200
Record six months’ interest and
discount amortization.
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
bonds would have sold at a premium because the contract rate of 6%
would have been greater than the market rate.
This change would affect the balance sheet because the bond liability
would be larger (par value plus a premium instead of par value minus a
discount). As the years passed, the bond liability would decrease with
amortization of the premium instead of increasing with amortization of the
discount.
Problem 10-5B (45 minutes)
Background: Amount of Payment (given in the problem)
Note balance
$150,000
Number of periods
3
Interest rate
10%
Value from Table B.3
2.4869
Payment ($150,000 / 2.4869)
$ 60,316
rounded to nearest dollar
Part 1
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[10% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
9/30/2020 ………….
$150,000
$15,000
$ 45,316
$ 60,316
$104,684
Part 2
2019
Dec. 31
Interest Expense ……………………………………………………
3,750
Interest Payable ……………………………………………….
3,750
Accrued interest on the installment
note payable ($15,000 x 3/12).
Interest Expense ……………………………………………………
Interest Payable …………………………………………………….
3,750
Notes Payable ……………………………………………………….
Cash ………………………………………………………………..
Record first payment on installment note
(interest expense = $15,000 – $3,750).
Problem 10-6B (30 minutes)
Part 1
Atlas Company
Debt–to-equity ratio = $80,000 / $100,000 = 0.80
Bryan Company
Debt–to-equity ratio = $562,500 / $187,500 = 3.00
Part 2
Problem 10–7BA (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.6139
$90,000
$55,251
Interest (annuity) ….
B.3
7.7217
5,400**
41,697
Price of bonds ……..
$96,948
Bond Premium ……..
$ 6,948
Premium on Bonds Payable …………………………..
Bonds Payable …………………………………………………
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.5584
$90,000
$50,256
Interest (annuity) ….
B.3
7.3601
5,400
39,745
Price of bonds ……..
$90,001**
* Table values are based on a discount rate of 6% (half the annual market rate) and
10 periods (semiannual payments). (Note: When the contract rate and market
rate are the same, the bonds sell at par and there is no discount or premium.)
**Difference due to rounding
Bonds Payable …………………………………………………
Problem 10–7BA (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.5083
$90,000
$45,747
Interest (annuity) ….
B.3
7.0236
5,400
37,927
Price of bonds ……..
$83,674
Bonds Payable …………………………………………………
Problem 10-8BB (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
198,494
Discount on Bonds Payable …………………………..
41,506
Bonds Payable …………………………………………………
240,000
Sold bonds on stated issue date.
Part 2
Thirty payments of $7,200 …………………….
$ 216,000
Plus discount ………………………………………
41,506
Total bond interest expense …………………
$ 257,506
Par value at maturity …………………………..
240,000
Total repaid ………………………………………….
Less amount borrowed ………………………..
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3% x $240,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$240,000 – (D)]
1/01/2019
$41,506
$198,494
6/30/2019
$7,200
$7,940
$740
40,766
199,234