Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Exercise 10–14 (20 minutes)
WOOHOO CO.
Liabilities Section of Balance Sheet
December 31
Liabilities
Current liabilities
Accounts payable ………………………………………… $ 500
Wages payable …………………………………………….. 200
Exercise 10-15 (15 minutes)
1a. Current debt–to–equity ratio = $220,000 / $400,000* = 0.55
2. More risky.
Explanation: Montclair’s risk will increase because it will have more
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Exercise 10–16A (25 minutes)
1. Estimation of the market price at the issue date
Cash Flow
Table
Table Value*
Amount
Present Value
Par (maturity) value ……..
B.1
$800,000
$365,120
Interest (annuity) ………….
B.3
326,167
2.
Cash ……………………………………………………………………..
691,287
Discount on Bonds Payable……………………………………
108,713
Bonds Payable …………………………..…………………….
800,000
Exercise 10–17A (25 minutes)
1. Estimation of the market price at the issue date
Cash Flow
Table
Table Value*
Amount
Present Value
Par (maturity) value ……..
B.1
0.6756
$150,000
$101,340
$162,172
2.
Cash ……………………………………………………………………..
162,172
Premium on Bonds Payable…………………………..
12,172
Bonds Payable …………………………..…………………….
150,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Exercise 10-18B (30 minutes)
2. Total bond interest expense over the life of the bonds
Six payments of $22,500 ………………………
$135,000
Plus discount ………………………………………
36,860
$135,000
500,000
Less amount borrowed ………………………..
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $500,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$500,000 – (D)]
1/01/2019
$36,860
$463,140
6/30/2019
$ 22,500
$ 27,788
$ 5,288
31,572
468,428
25,966
474,034
6/30/2020
20,024
479,976
6/30/2021
7,049
0
500,000
$135,000
$171,860
$36,860
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Exercise 10-19B (30 minutes)
2. Total bond interest expense over the life of the bonds
Six payments of $26,000 ………………………
$ 156,000
Less premium………………………………………
(9,850)
$ 156,000
400,000
Less amount borrowed ………………………..
(409,850)
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $400,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[400,000 + (D)]
1/01/2019
$9,850
$409,850
6/30/2019
$ 26,000
$ 24,591
$1,409
8,441
408,441
6/30/2020
5,364
405,364
403,686
6/30/2021
401,907
400,000
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Exercise 10–20C (10 minutes)
Exercise 10–21C (20 minutes)
1.
Jan. 1
Right–of-Use Asset ……………………………………………………….
41,000
Lease Liability …………………………..…………………………..
41,000
2.
Jan. 1
Lease Liability …………………………..…………………………..
Cash ……………………………………………………………………………
3.
Amortization Expense—Right–of-Use Asset ………………………..
Accum. Amortization—Right–of-Use Asset …………………….
Exercise 10–22C (15 minutes)
[Note: 12% / 12 months = 1% per month as the relevant interest rate.]
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PROBLEM SET A
Problem 10-1A (40 minutes)
Part 1
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout
the bonds’ life because this company uses straight-line amortization.]
Part 3
Thirty payments of $120,000 ……………………..
$ 3,600,000
Plus discount ……………………………………………
543,552
Total bond interest expense ………………………
$ 4,143,552
or:
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2019 …………………
$543,552
$3,456,448
6/30/2019 …………………
525,434
6/30/2020 …………………
489,198
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Problem 10-1A (Concluded)
Part 5
June 30
Bond Interest Expense …………………………………………..
138,118
Discount on Bonds Payable …………………………..
18,118
Cash ……………………………………………………….
Dec. 31
Bond Interest Expense …………………………………………..
138,118
Discount on Bonds Payable …………………………..
18,118
Cash ……………………………………………………….
Problem 10-2A (40 minutes)
Part 1
Jan. 1
Cash ……………………………………………………………………..
4,895,980
Premium on Bonds Payable …………………………..
Bonds Payable …………………………..…………………….
4,000,000
Part 2
(a) Cash Payment = $4,000,000 x 6% x 6/12 = $120,000
Part 3
Thirty payments of $120,000 ……………………..
$ 3,600,000
Less premium …………………………………………..
(895,980)
Total bond interest expense ………………………
$ 2,704,020
or:
Thirty payments of $120,000 ………………..
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
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Problem 10-2A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2019 …………………
$895,980
$4,895,980
Part 5
June 30
Bond Interest Expense …………………………..
90,134
Premium on Bonds Payable …………………………..
29,866
Cash ……………………………………………………….
120,000
Dec. 31
Bond Interest Expense …………………………..
90,134
Premium on Bonds Payable …………………………..
29,866
Cash ……………………………………………………….
120,000
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Problem 10-3A (45 minutes)
Part 1
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
(5,333)
Ten payments of $8,125* ……………………..
$ 81,250
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2019
$5,333
$255,333
6/30/2019
4,800
254,800
12/31/2019
4,267
254,267
6/30/2020
3,734
253,734
3,201
253,201
6/30/2021
2,668
252,668
12/31/2021
2,135
252,135
6/30/2022
1,602
251,602
1,069
261,069
6/30/2023
12/31/2023
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-3A (Concluded)
Part 3
June 30
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
533
8,125
Dec. 31
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
533
8,125
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Problem 10-4A (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125 …………………
$ 65,000
Plus discount ………………………………….
$ 65,000
(292,181)
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2019
$32,819
$292,181
*Rounded to nearest dollar.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-4A (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………………………..
4,102
Cash ……………………………………………………….
8,125
Dec. 31
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………………………..
4,102
Cash ……………………………………………………….
8,125
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Problem 10-5A (45 minutes)
Background: Amount of Payment (given in the problem)
Note balance
$200,000
Number of periods
Interest rate
Value from Table B.3
Part 1
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[8% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
10/31/2020 …………
$200,000
$ 16,000
$ 34,091
$ 50,091
$165,909
$ 50,455
$200,000
$250,455
Part 2
2019
Dec. 31
Interest Expense ……………………………………………………
2,667
Interest Payable …………………………..…………………..
2,667
Accrued interest on the installment
note payable ($16,000 x 2/12) (rounded).
2020
Oct. 31
Interest Expense ……………………………………………………
Interest Payable …………………………………………………….
2,667
Notes Payable …………………………..…………………………..
Cash ………………………………………………………………..
Record first payment on installment note
(interest expense = $16,000 – $2,667).
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Problem 10-6A (20 minutes)
Part 1
Part 2
Answer: Scott Company.
Explanation: Scott’s debt–to-equity ratio is higher than Pulaski’s. This
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10–7AA (50 minutes)
Part 1
a.
Cash Flow
Table
Amount
Present Value
Par value …………………
B.1
$40,000
$18,256
B.3
b.
Jan. 1
Cash ……………………………………………………….
45,437
Part 2
a.
Cash Flow
Table
Amount
Present Value
Par value …………………
B.1
$40,000
$15,076
B.3
Jan. 1
Cash ……………………………………………………….
616
Problem 10–7AA (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ………………..
B.1
$40,000
$12,472
B.3
$35,412
b.
Jan. 1
Cash ……………………………………………………….
35,412
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Problem 10–8AB (60 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125 …………………
$ 65,000
Plus discount ………………………………….
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[2.5% x $325,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$325,000 – (D)]
1/01/2019
$32,819
$292,181
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10–8AB (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
11,687
Discount on Bonds Payable …………………………..
3,562
Cash ……………………………………………………….
8,125
Dec. 31
Bond Interest Expense …………………………..
11,830
Discount on Bonds Payable …………………………..
3,705
Cash ……………………………………………………….
8,125
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Problem 10–9AB (45 minutes)
Part 1
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
(5,333)
Ten payments of $8,125* ………………………
$ 81,250
Total repaid …………………………………………..
Less amount borrowed …………………………
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2019
$5,333
$255,333
6/30/2019
$ 8,125
$ 7,660
$ 465
4,868
254,868
12/31/2019
8,125
7,646
479
4,389
254,389
8,125
7,632
493
3,896
253,896
3,388
7,602
2,865
252,865
12/31/2021
8,125
7,586
2,326
252,326
8,125
7,570
1,771
251,771
8,125
7,536
250,610
8,125
0
250,000
620
Problem 10–9AB (Concluded)
Part 3
2019
June 30
Bond Interest Expense ………………………….
7,660
Premium on Bonds Payable ………………….
465
8,125
Dec. 31
Bond Interest Expense ………………………….
7,646
Premium on Bonds Payable ………………….
479
8,125