Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
Exercise 10-14 (20 minutes)
1.
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[12% x 1/12
x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
Jan. 31
$30,000
$ 300
$ 696
$ 996
$29,304
2.
Notes Payable ………………………………..
3.
Jan. 31
Interest Expense …………………………………
300
Notes Payable ……………………………………..
696
Cash ……………………………………………..
Interest Expense …………………………………
293
Notes Payable ……………………………………..
703
Cash ……………………………………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
Exercise 10-15 (20 minutes)
WOOHOO CO.
Liabilities Section of Balance Sheet
December 31
Liabilities
Current liabilities
Accounts payable ………………………………………… $ 500
Wages payable …………………………………………….. 200
Exercise 10-16 (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 and Managerial Accounting 9e Solutions Manual: Chapter 10
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
0.4564
$800,000
$365,120
Interest (annuity) ……
B.3
13.5903
326,167
2.
Cash ………………………………………………………………
691,287
Discount on Bonds Payable …………………………...
108,713
Bonds Payable ………………………………………….
800,000
Sold bonds at a discount on the stated issue date.
Exercise 10-18A (25 minutes)
1. Estimation of the market price at the issue date
Cash Flow
Table
Table Value*
Amount
Present Value
2.
Cash ………………………………………………………………
162,172
Premium on Bonds Payable ………………………
12,172
Bonds Payable ………………………………………….
150,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
Exercise 10-19B (30 minutes)
2. Total bond interest expense over the life of the bonds
Six payments of $22,500* …………….
$135,000
Plus discount ………………………………
36,860
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)]
1/01/2021
$36,860
$463,140
6/30/2021
$ 22,500
$ 27,788
$ 5,288
31,572
468,428
6/30/2022
20,024
479,976
13,725
486,275
0
500,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
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Exercise 10–20B (30 minutes)
2. Total bond interest expense over the life of the bonds
Six payments of $26,000* …………….
$ 156,000
Less premium ……………………………..
(9,850)
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)]
1/01/2021
$9,850
$409,850
6/30/2021
$ 26,000
$ 24,591
$1,409
8,441
408,441
6/30/2022
5,364
405,364
403,686
400,000
674
Exercise 10–21C (10 minutes)
Exercise 10–22C (20 minutes)
1.
Jan. 1
Right–of-Use Asset ………………………………………..
41,000
Lease Liability …………………………………………..
41,000
Record right-of-use lease asset.
2.
Jan. 1
Cash …………………………………………………………
Record beginning-year lease payment.
3.
Amortization Expense—Right-of-Use Asset ……
Accum. Amortization—Right-of-Use Asset ..
Record amortization ($41,000 / 5 years).
Exercise 10-23C (15 minutes)
Option 2: $5,000 + $1,500 per month for 25 months =
$5,000 + ($1,500 x 22.0232) = $38,035
Option 3: = $38,500
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PROBLEM SET A
Problem 10-1A (40 minutes)
Part 1
Jan. 1
Cash …………………………………………………..
3,456,448
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.]
(a) Cash Payment = $4,000,000 x 6% x 6/12 year = $120,000
Part 3
Thirty payments of $120,000 …………….
$ 3,600,000
Plus discount ………………………………….
543,552
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2021 ……………
$543,552
$3,456,448
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Problem 10-1A (Concluded)
Part 5
June 30
Bond Interest Expense ……………………………..
138,118
Discount on Bonds Payable…………………
18,118
Cash …………………………………………………..
120,000
Dec. 31
Bond Interest Expense ……………………………..
138,118
Discount on Bonds Payable…………………
18,118
Cash …………………………………………………..
120,000
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
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Problem 10-2A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2021 ……………
$895,980
$4,895,980
Part 5
June 30
Bond Interest Expense
…………………………..……………………………..
…………………………..……………………………..
90,134
Premium on Bonds Payable………………..
Premium on Bonds Payable………………..
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
Problem 10-3A (45 minutes)
Part 1
Ten payments of $8,125* ……………..
$ 81,250
Less premium ……………………………..
(5,333)
Total bond interest expense ………..
$ 75,917
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2021
$5,333
$255,333
6/30/2021
4,800
254,800
12/31/2021
4,267
254,267
6/30/2022
3,734
253,734
12/31/2022
3,201
253,201
6/30/2023
2,668
252,668
12/31/2023
2,135
252,135
6/30/2024
1,602
251,602
12/31/2024
1,069
261,069
6/30/2025
533**
250,533
12/31/2025
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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 ………………………………
32,819
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2021
$32,819
$292,181
Wild and Shaw Financial and Managerial Accounting 9e 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)]
12/31/2021 …
$200,000
$ 16,000
$ 34,091
$ 50,091
$165,909
$ 50,455
$200,000
$250,455
Part 2
2021
Jan. 1
Cash ……………………………………………………………
200,000
Notes Payable …………………………………………
200,000
Borrowed $200,000 by signing a 8%
installment note.
Dec. 31
Interest Expense ………………………………………….
Notes Payable ………………………………………………
Cash ………………………………………………………
Record first installment payment.
Dec. 31
Interest Expense ………………………………………….
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Problem 10-6A (30 minutes)
2. Amortization table for the loan
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[9% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
Year 1
$100,000
$ 9,000
$ 21,867
$ 30,867
$78,133
Year 2
Year 4
3.
a.
Jan. 1
Cash …………………………………………………..
100,000
Notes Payable ………………………………..
100,000
Issued notes for cash.
Dec. 31
Interest Expense …………………………………
Cash ……………………………………………..
Record first installment payment.
Dec. 31
Interest Expense …………………………………
Notes Payable ……………………………………..
Cash ……………………………………………..
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Problem 10-7A (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 and Managerial Accounting 9e Solutions Manual: Chapter 10
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Problem 10-8AA (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.4564
$40,000
$18,256
Interest (annuity) ….
B.3
b.
Jan. 1
Cash …………………………………………………..
45,437
Premium on Bonds Payable……………
Bonds Payable ………………………………
40,000
Sold bonds on stated issue date.
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.3769
$40,000
$15,076
Interest (annuity) ….
B.3
b.
Jan. 1
Cash …………………………………………………..
40,000
Bonds Payable ………………………………
40,000
Sold bonds on stated issue date.
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Problem 10-8AA (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.3118
$40,000
$12,472
B.3
$35,412
b.
Jan. 1
Cash …………………………………………………..
35,412
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Problem 10-9AB (60 minutes)
Part 1
Jan. 1
Cash ………………………………………………….
292,181
Part 2
Eight payments of $8,125* ……………
$ 65,000
Plus discount ………………………………
32,819
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)]
1/01/2021
$32,819
$292,181
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 10
Problem 10-9AB (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