Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
621
Problem 10-10AB (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
184,566
Part 2
Six payments of $9,900 ………………………..
$ 59,400
Six payments of $9,900* ………………………
$ 59,400
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-10AB (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
9,228
Premium on Bonds Payable …………………………..
672
9,900
Dec. 31
Bond Interest Expense …………………………..
9,195
Premium on Bonds Payable …………………………..
705
9,900
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10–11AC (35 minutes)
Part 1
Year 1
Jan. 1
Right–of-Use Asset…………………………………………………
51,000
Lease Liability ………………………………………………….
Part 2
Year 1
Jan. 1
18,000
Cash ………………………………………………………………..
Dec. 31
17,000
Accum. Amortization—Right–of-Use Asset ………..
Part 4
Year 1
Dec. 31
Interest Expense ……………………………………………………
1,981
16,019
Cash ………………………………………………………………..
Dec. 31
Interest Expense ……………………………………………………
1,019
16,981
Cash ………………………………………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
624
Problem 10-12AC (35 minutes)
Part 1
Year 1
Jan. 1
Right–of-Use Asset…………………………………………………
51,000
Lease Liability ………………………………………………….
51,000
Jan. 1
Lease Liability ……………………………………………………….
18,000
Cash ………………………………………………………………..
18,000
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
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.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
625
PROBLEM SET B
Problem 10-1B (40 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
3,010,000
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
Twenty payments of $170,000 ………………
$3,400,000
Par value at maturity …………………………..
3,400,000
Total repaid ………………………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
626
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
312,000
Part 5
June 30
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable …………………………..
19,500
Cash ……………………………………………………….
170,000
Dec. 31
Bond Interest Expense …………………………..
189,500
Discount on Bonds Payable …………………………..
19,500
Cash ……………………………………………………….
170,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
627
Problem 10-2B (40 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
4,192,932
Part 2
(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000
Part 3
Twenty payments of $170,000 ………………
$3,400,000
Less premium………………………………………
(792,932)
Twenty payments of $170,000 ………………
$3,400,000
Par value at maturity …………………………..
3,400,000
Total repaid ………………………………………….
Less amount borrowed ………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
628
Problem 10-2B (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2019 …………………
$792,932
$4,192,932
713,638
634,344
Part 5
June 30
Bond Interest Expense …………………………..
130,353
Premium on Bonds Payable …………………………..
39,647
Cash ……………………………………………………….
170,000
Premium on Bonds Payable …………………………..
39,647
Cash ……………………………………………………….
170,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
629
Problem 10-3B (45 minutes)
Part 1
Ten payments of $14,400 ……………………..
$ 144,000
Less premium………………………………………
Ten payments of $14,400* …………………….
$ 144,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
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
329,091
327,792
12/31/2021
325,194
6/30/2022
323,895
12/31/2022
322,596
6/30/2023
321,299
320,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
630
Problem 10-3B (Concluded)
Part 3
June 30
Bond Interest Expense …………………………..
13,101
Premium on Bonds Payable …………………………..
1,299
Dec. 31
Bond Interest Expense …………………………..
13,101
Premium on Bonds Payable …………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
631
Problem 10-4B (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
198,494
Part 2
Thirty payments of $7,200* …………………..
$ 216,000
$ 216,000
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
6/30/2020
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
632
Problem 10-4B (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
8,584
Discount on Bonds Payable …………………………..
1,384
Cash ……………………………………………………….
7,200
Dec. 31
Bond Interest Expense …………………………..
8,584
Discount on Bonds Payable …………………………..
1,384
Cash ……………………………………………………….
7,200
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
633
Problem 10-5B (45 minutes)
Background: Amount of Payment (given in the problem)
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
Interest Expense ……………………………………………………
Interest Payable …………………………………………………….
3,750
Notes Payable ……………………………………………………….
Cash ………………………………………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
634
Problem 10-6B (30 minutes)
Part 1
Atlas Company
Part 2
Answer: Bryan Company.
Explanation: Bryan’s debt–to-equity ratio is much higher than that for Atlas.
635
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
41,697
b.
Jan. 1
Cash ……………………………………………………….
96,948
Premium on Bonds Payable …………………………..
6,948
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
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
b.
Jan. 1
Cash ……………………………………………………….
90,000
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
636
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
B.3
7.0236
$83,674
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
637
Problem 10-8BB (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
198,494
Part 2
Thirty payments of $7,200 …………………….
$ 216,000
Par value at maturity …………………………..
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