Financial Accounting, 10/e 10–21
E10–23.
Present value:
$1,400,000 x 0.78941
=
$1,105,174
$56,000* x 7.01969
=
=
$1,498,277
Req. 1
January 1:
Cash (+A) ……………………………………………………………………
1,498,277
Bonds payable (+L) ………………………………………………….
Req. 2
Interest expense (+E, –SE) …………………………………………….
Bonds payable (-L) (($1,498,277 – $1,400,000) / 8) …………..
Cash (-A) …………………………………………………………………
Req. 3
June 30:
Balance sheet:
Long-term Liabilities
Bonds payable
10–22 Solutions Manual
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E10–24.
Req. 1 $960,000 will be reported as a financing cash inflow.
PROBLEMS
P10–1.
Req. 1
Req. 2
Debt-to-equity ratio assuming issuance of debt: $600,000 / $300,000 = 2.00
Req. 3
Req. 4
It is important to note that the above calculations assume that Arbor’s other liability and
equity accounts do not change, and that we are only adding additional debt or equity to
its balance sheet. Since we do not have additional information, this is a fair assumption,
Financial Accounting, 10/e 10–23
P10–2.
Req. 1
Present value
$100,000 x .67556
=
$ 67,556
=
$100,000
Req. 2
June 30
Dec. 31
Interest expense ($100,000 x .08 x 1/2) .
$4,000
$4,000
Req. 3
June 30
Dec. 31
Cash owed ($100,000 x .08 x 1/2) ………
$4,000
$4,000
This Year
Bonds payable book value …………………
$100,000
P10–3.
CASE A (Market interest rate = 7%)
a. Cash received at issuance:
Present value:
$500,000 x 0.50835
=
$254,175
$35,000* x 7.02358
=
=
$500,000
CASE B (Market interest rate = 8%)
a. Cash received at issuance:
Present value:
$500,000 x 0.46319
=
$231,595
$35,000* x 6.71008
=
=
$466,448
b. Interest expense calculation: $466,448 x .08 = $37,316
Financial Accounting, 10/e 10–25
P10-3. (continued)
CASE C (Market interest rate = 6%)
a. Cash received at issuance:
Present value:
$500,000 x 0.55839
=
$279,195
$35,000* x 7.36009
=
=
$536,798
c. Cash payment for interest: $500,000 x .07 = $35,000
Case A
(7%)
Case B
(8%)
Case C
(6%)
a.
Cash received at issue ……………………………………
$500,000
$466,448
$536,798
b.
Interest expense recorded in Year 1 ………………….
$ 35,000
$ 37,316
$ 32,208
c.
Cash paid for interest in Year 1 ………………………..
d.
Cash paid at maturity for bond principal …………….
$500,000
$500,000
$500,000
P10–4.
CASE A (Market interest rate = 8%)
Issue price (market rate same as coupon rate)
(at par)
P10-4. (continued)
CASE B (Market interest rate = 6%)
$800,000 x 0.78941
$ 631,528
$856,158
(at a premium)
CASE C (Market interest rate = 10%)
$800,000 x 0.67684
$ 541,472
$ 748,295
(at a discount)**
P10–5.
Req. 1 Issuance price:
Present value:
$200,000 x 0.46319
=
$92,638
$12,000* x 6.71008
=
=
Req. 2 Computation of interest expense recorded on December 31 of this year:
$173,159 x .08 = $13,853
Financial Accounting, 10/e 10–27
P10-5. (continued)
Req. 3
Time
Debt-to-Equity
Times Interest Earned
(a) Issuance
Increases
Stays the same
(b) Interest expense recorded
Decreases**
P10–6.
Req. 1
Issue price:
Present value:
$1,000,000 x 0.31180
=
$311,800
$50,000* x 11.46992
=
=
$885,296
Req. 2
June 30
December 31
Interest expense ……………………………….
$53,118*
$53,305**
P10–6. (continued)
Req. 3
December 31
Cash paid ($1,000,000 x .10 x ½) ……….
Req. 4
June 30
December 31
Bonds payable …………………………………
$888,414*
$891,719**
Financial Accounting, 10/e 10–29
P10–7.
Present value:
$100,000 x 0.78941
$2,000* x 7.01969
Req. 1
January 1:
Cash (+A) ……………………………………………………………………
Bond discount (-L) ………………………………………………………..
7,020
Bonds payable (+L) …………………………………………………..
Req. 2
March 31:
Interest expense (+E, –SE) ($92,980 x .12 x ¼) ……………….
2,789
Bond discount (+L) ……………………………………………………
789
Cash (-A) ($100,000 x .08 x ¼) …………………………………..
2,000
June 30:
Interest expense (+E, -SE) ($93,769 x .12 x ¼) ……………….
2,813
Bond discount (+L) ……………………………………………………
813
Cash (-A) ($100,000 x .08 x ¼) …………………………………..
2,000
Book value of bonds: $94,582 ($100,000 – ($7,020 – $789 – $813))
September 30:
Interest expense (+E, -SE) ($94,582 x .12 x ¼) ……………….
2,837
Bond discount (+L) ……………………………………………………
837
Cash (-A) ($100,000 x .08 x ¼) …………………………………..
2,000
P10–7. (continued)
December 31:
Interest expense (+E, -SE) ($95,419 x .12 x ¼) ……………….
2,863
Bond discount (+L) ………………………………………………………
2,000
Req. 3
December 31:
Balance sheet:
Long-term Liabilities
Bonds payable
P10–8.
Present value:
$100,000 x 0.78941
$2,000* x 7.01969
Req. 1
January 1:
Cash (+A) ……………………………………………………………………
92,980
Bonds payable (+L) …………………………………………………..
92,980
Req. 2
March 31:
Interest expense (+E, -SE) ($92,980 x .12 x ¼) ……………….
2,789
2,000
Financial Accounting, 10/e 10–31
P10–8. (continued)
Req 2 (continued)
June 30:
Interest expense (+E, -SE) ($93,769 x .12 x ¼) ……………….
2,813
2,000
September 30:
Interest expense (+E, -SE) ($94,582 x .12 x ¼) ……………….
2,837
2,000
December 31:
Interest expense (+E, -SE) ($95,419 x .12 x ¼) ……………….
2,863
2,000
Req. 3
December 31:
Balance sheet:
Long-term Liabilities
Bonds payable
P10–9.
Req. 1
Issue price:
Present value
$700,000 x 0.55839
=
$390,873
$45,500* x 7.36009
=
=
$725,757
Req. 2
June 30
December 31
Interest expense ……………………………….
$43,545*
$43,428**
Req. 3
June 30
December 31
Cash paid ………………………………………..
$45,500
$45,500
Req. 4
June 30
Bonds payable …………………………………
*
$721,730*
*
Financial Accounting, 10/e 10–33
P10–10.
Req.1 Missing amounts are underlined
Date
Cash
Interest
Amortization
Balance
Jan. 1, Year 1………………………
$48,813
End of Year 1 ………………………
$3,600
$3,417
$183
48,630
End of Year 2 ………………………
3,404
48,434
End of Year 3 ………………………
3,390
48,224
End of Year 4 ………………………
Req. 2
Principal amount: $48,000 from last column at end of the last year.
Req. 3
Cash received: $48,813 from last column at January 1, Year 1.
Req. 4
Req. 5
Cash disbursed for interest each period: $3,600
Total cash distributed over life of bonds: $3,600 x 4 = $14,400.
Req. 6
P10–11.
Present value:
$300,000 x 0.85349
$9,000* x 7.32548
Req. 1
January 1:
Cash (+A) ……………………………………………………………………
321,976
Bond premium (+L) …………………………………………………..
21,976
Bonds payable (+L) …………………………………………………..
300,000
Req. 2
Interest expense (+E, -SE) ($321,976 x .08 x ¼) ……………..
6,440
Bond premium (-L) ……………………………………………………….
2,560
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
9,000
Book value of bonds: $319,416 ($300,000 + ($21,976 – $2,560))
June 30:
Interest expense (+E, -SE) ($319,416 x .08 x ¼) ……………..
6,388
Bond premium (-L) ……………………………………………………….
2,612
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
9,000
Interest expense (+E, -SE) ($316,804 x .08 x ¼) ……………..
6,336
Bond premium (-L) ……………………………………………………….
2,664
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
9,000
Interest expense (+E, -SE) ($314,140 x .08 x ¼) ……………..
6,283
Bond premium (-L) ……………………………………………………….
2,717
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
9,000
Book value of bonds: $311,423 ($300,000 + ($21,976 – $2,560 – $2,612 – $2,664 –
$2,717))
Financial Accounting, 10/e 10–35
P10-11. (continued)
Req. 3
December 31:
Long-term Liabilities
Bonds payable
P10–12.
Present value:
$300,000 x 0.85349
$9,000* x 7.32548
Req. 1
January 1:
Cash (+A) ……………………………………………………………………
321,976
Bonds payable (+L) …………………………………………………..
321,976
Req. 2
March 31:
Interest expense (+E, -SE) ($321,976 x .08 x ¼) ……………..
Bonds payable (-L) …………………………..…………………………..
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
Book value of bonds: $319,416 ($321,976 – $2,560)
June 30:
Interest expense (+E, -SE) ($319,416 x .08 x ¼) ……………..
Bonds payable (-L) …………………………..…………………………..
Interest expense (+E, -SE) ($316,804 x .08 x ¼) ……………..
Bonds payable (-L) …………………………..…………………………..
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
Book value of bonds: $314,140 ($316,804 – $2,664)
P10–12. (continued)
Req. 2 (continued)
December 31:
Interest expense (+E, -SE) ($314,140 x .08 x ¼) ……………..
Bonds payable (-L) …………………………..…………………………..
Cash (-A) ($300,000 x .12 x ¼) …………………………………..
Req. 3
December 31:
Long-term Liabilities
Bonds payable
P10–13.
Bonds payable (-L) …………………………..…………………………..
1,000,000
Loss on bond call (+E, –SE) …………………………………………..
Bond premium (-L) ……………………………………………………….
Cash (-A) …………………………………………………………………
P10–14.
Bonds payable (-L) …………………………..…………………………..
1,010,000
Loss on bond call (+E, –SE) …………………………………………..