1.
a.
b.
Reduction
in Debt
Unpaid Balance
Chapter 10, SE 3.
Interest for 1
on Unpaid Balance
at End of Period
$150,000
Monthly
Month at 0.6667%*
Payment
Month
0
CHAPTER 10—Solutions
LONG-TERM LIABILITIES
Advantage
4
Chapter 10, SE 1.
7
Chapter 10, SE 2.
467
**
2011
Dec. 31 35,000
Income Taxes Expense
*From Appendix B
(from Table 2*)
Choice B
Present value of 30 periodic payments at 6%
Present value of 40 periodic payments at 6%
(from Table 2*)
Choice A
Chapter 10, SE 6.
Chapter 10, SE 5.
0
Chapter 10, SE 4.
at End of Period
Month at 0.75%* Reduction Unpaid Balance
Interest for 1
in DebtMonth Payment on Unpaid Balance
Monthly
Rounded
$225,000
468
1 7,840,000
160,000
1 356,000
16,000
340,000
1 356,000
16,000
340,000
Apr.
Cash
Unamortized Bond Discount
Bond Interest Expense
2012
Unamortized Bond Discount
2011
Apr.
Chapter 10, SE 7.
Cash
Unamortized Bond Discount
Bond Interest ExpenseOct.
Cash
469
1 10,200,000
200,000
1 380,000
20,000
400,000
1 380,000
20,000
400,000
Unamortized Bond Premium
Unamortized Bond Premium
Unamortized Bond Premium
2012
Apr. Bond Interest Expense
Cash
Bond Interest Expense
Oct.
Chapter 10, SE 8.
2011
Cash
Apr. Cash
470
1 212,000
12,000
31 9,434
66
9,500
1 9,500
9,500
1 240,000
15,900
a.
Sept.
Chapter 10, SE 10.
Bonds Payable
Loss on Retirement of Bonds
Dec.
Amount paid: $100,000 × 1.03 = $103,000
Chapter 10, SE 11.
Cash
Unamortized Bond Premium
Chapter 10, SE 9.
2011
Mar.
Unamortized Bond Premium
Recorded accrued semiannual interest and
Bond Interest Payable
Cash
Bond Interest ExpenseAug.
Paid semiannual interest
Bond Interest Payable
471
2011
Mar. 1 1,200,000
24,000
240,000
936,000
2011
June 1 1,800,000
36,000
540,000
1,224,000
Bonds Payable
Unamortized Bond Discount
Common Stock
Chapter 10, SE 13.
Additional Paid-In Capital
Converted $1,800,000 of 8% bonds into
Converted $1,200,000 of 6% bonds into
Chapter 10, SE 12.
Bonds Payable
Unamortized Bond Discount
Common Stock
Additional Paid-In Capital
1.
1.
2.
Chapter 10, E 1.
terest rate on the issue date is the determinant.
The market price of a bond varies over time because the market interest rate
The relationship between the prevailing market rate of interest and the face in-
Chapter 10, E 2.
The lender reviews the enterprise’s current earnings and cash flows as well as
its debt to equity and interest coverage ratios. The analysis may also include a
473
$7,580
Chapter 10, E 3.
Interest Coverage Ratio Income Before Income Taxes + Interest Expense
Interest Expense
$1,650
2011 = +
$1,650
=
474
Reduction
in Debt
300,000
300,000
at End of Period
$300,000
Unpaid Balance
Building
Entries prepared in journal form
Month at 1% on
Month
2.
Unpaid Balance
Chapter 10, E 4.
1. Monthly payment schedule prepared
Interest for 1
Monthly
Payment
0
Mortgage Payable
Purchased building by signing a
38,851
69,931
16,069
86,000
Periodic Payment × Factor (Table 2 in Appendix B: 15%, 12 periods) = Present Value
Chapter 10, E 5.
1. Present value calculated
Cash
Capital Lease Obligations
Interest Expense
3. Journal entry prepared to record depreciation for the first year
Depreciation Expense—Capital Lease Equipment
4. Journal entries prepared to record lease payments
Year 1
Made lease payment for first year
2011
Dec. 31 120,000
40,000
Deferred Income Taxes
Choice B
Present value of 30 periodic payments at 6%
(from Table 2*):
Choice A
Present value of 40 periodic payments at 6%
(from Table 2*):
Chapter 10, E 6.
Income Taxes Expense
Chapter 10, E 7.
477
a.
b.
(from Table 2*): $6,000 × 14.878 $ 89,268
c.
(from Table 2*): $7,500 × 13.590 $101,925
d.
(from Table 2*): $7,500 × 15.046 $112,845
(from Table 1*): $150,000 × 0.097 14,550
$127,395
e.
(from Table 2*): $7,500 × 23.115 $173,363
Present value of a single payment at the end of 40 periods at 6%
Present value of 40 periodic payments at 6%
Present value of a single payment at the end of 40 periods at 3%
Present value of 20 periodic payments at 5%
Issue price (total present value) of bond issue
Present value of 40 periodic payments at 3%
Chapter 10, E 8.
Present value of 20 periodic payments at 4%
Present value of 20 periodic payments at 3%
**
478
Face value × 0.099 =
Face value = ÷
Face value =
$50,000,000
Present value of a single payment at the end of 30 periods at 8%
(from Table 1*):
(from Table 1*):
0.099
Face value of 50-year, 8% zero coupon bonds, compounded annually:
Chapter 10, E 9.
Face value of 30-year, 10% zero coupon bonds, compounded annually:
Face value of 30-year, 8% zero coupon bonds, compounded annually:
Present value of a single payment at the end of 30 periods at 10%
(from Table 1*):
Present value of a single payment at the end of 50 periods at 8%
$50,000,000
$505,050,505 or about $505 million
479
1. a.
2. a.
× × 6 / 12 =
3. a.
× × 6 / 12 =
b.
( $320,000 ÷ 10 ÷ =
2
years )
$420,000
$8,000,000 0.105
Amortization of bond premium:
$16,000
Cash paid in interest:
$420,000
$8,000,000
Cash paid in interest:
0.105
Chapter 10, E 10.
Cash received:
480
2011
Mar. 1 3,840,000
160,000
Sept. 1 186,000
16,000
2012
Mar. 1 186,000
16,000
170,000
Cash
Chapter 10, E 11.
Bond Interest Expense
Cash
Unamortized Bond Discount
Unamortized Bond Discount
Unamortized Bond Discount
Bond Interest Expense
481
2011
Mar. 1 5,150,000
150,000
Sept. 1 160,000
15,000
175,000
2012
Mar. 1 160,000
15,000
175,000
Paid semiannual interest and amortized
premium
Unamortized Bond Premium
Cash
Bond Interest Expense
Cash
Bond Interest Expense
Unamortized Bond Premium
Unamortized Bond Premium
Chapter 10, E 12.
Cash
482
1. a.
2. a.
× 0.095 × 6 / =
b.
3. a.
× 0.095 × 6 / =
b.
12
12 $11,875$250,000
Amortization of bond premium:
Amortization of bond premium:
Chapter 10, E 13.
Cash received:
Cash paid in interest:
$250,000
Cash paid in interest:
$11,875
483
2011
Mar. 1 2,302,660
Aug. 31 126,646
6,646
120,000
2012
Feb. 28 127,012
7,012
120,000
Unamortized Bond Discount
Cash
Bond Interest Expense
Chapter 10, E 14.
Cash
Cash
Unamortized Bond Discount
Recorded accrued semiannual interest and
Bond Interest Expense
484
1.
3.
$600,000
Bonds payable
2. Gain or loss calculated
Effects of bond conversion:
Chapter 10, E 16.
Unamortized discount attributable to retired bonds:
bonds will be recorded at the carrying value of the bonds.
There is no gain or loss on the conversion because the stock issued for the
Total liabilities are reduced by $570,000, as follows:
1. Cash paid to retire bonds calculated
Chapter 10, E 15.
× $274,904
$700,000
Current market value of the bonds calculated
Present value of 20 periodic payments at 8% (16% ÷ 2)
Chapter 10, E 17.
1.
2.
(from Table 2*):
Gain or loss determined
Face value
9.818
$28,000
**