Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-8BB (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
7,940
Discount on Bonds Payable …………………………..
740
Cash ……………………………………………………….
Dec. 31
Bond Interest Expense …………………………..
7,969
Discount on Bonds Payable …………………………..
769
Cash ……………………………………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-9BB (45 minutes)
Part 1
Ten payments of $14,400 ……………………..
$144,000
Less premium………………………………………
(12,988)
Ten payments of $14,400 ……………………..
$144,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Part 2
Semiannual
Interest
Period-End
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$320,000 + (D)]
1/01/2019
$12,988
$332,988
6/30/2019
$ 13,320
$ 1,080
11,908
331,908
13,276
10,784
330,784
6/30/2020
13,231
9,615
329,615
13,185
8,400
328,400
6/30/2021
13,136
7,136
327,136
12/31/2021
13,085
1,315
5,821
325,821
6/30/2022
13,033
1,367
4,454
324,454
12,978
3,032
323,032
6/30/2023
12,921
1,553
321,553
0
320,000
$131,012
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10-9BB (Concluded)
Part 3
2019
June 30
Bond Interest Expense …………………………..
13,320
Dec. 31
Bond Interest Expense …………………………..
13,276
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
641
Problem 10–10BB (70 minutes)
Part 1
Jan. 1
Cash ……………………………………………………….
493,608
Part 2
Eight payments of $29,250 ……………………
$ 234,000
Less premium………………………………………
(43,608)
Eight payments of $29,250* ………………….
$ 234,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
(493,608)
Part 3
Semiannual
Interest
Period-End
(B)
Bond Interest
Expense
[5% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$450,000 + (D)]
1/01/2019
$43,608
$493,608
6/30/2019
$24,680
$4,570
39,038
489,038
6/30/2020
5,290
23,912
473,912
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
642
Problem 10–10BB (Concluded)
Part 4
June 30
Bond Interest Expense …………………………..
24,680
Premium on Bonds Payable …………………………..
4,570
Cash ……………………………………………………….
29,250
Dec. 31
Bond Interest Expense …………………………..
24,452
Premium on Bonds Payable …………………………..
4,798
Cash ……………………………………………………….
29,250
Part 5
If the market rate on the issue date had been 14% instead of 10%, the bonds
would have sold at a discount because the contract rate of 13% would have been
lower than the market rate.
This change would affect the balance sheet because the bond liability would be
smaller (par value minus a discount instead of par value plus a premium). As the
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Problem 10–11BC (35 minutes)
Part 1
Year 1
Lease Liability ………………………………………………….
Part 2
Year 1
Cash ………………………………………………………………..
Part 3
Year 1 and Year 2 and Year 3
Dec. 31
Accum. Amortization—Right–of-Use Asset ………..
Part 4
Year 1
Dec. 31
Interest Expense ……………………………………………………
1,975
Cash ………………………………………………………………..
Dec. 31
Interest Expense ……………………………………………………
1,025
Cash ………………………………………………………………..
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
644
Problem 10-12BC (35 minutes)
Part 1
Year 1
Jan. 1
Right–of-Use Asset…………………………………………………
39,000
Lease Liability ………………………………………………….
39,000
Part 2
Year 1
Jan. 1
Lease Liability ……………………………………………………….
14,000
Cash ………………………………………………………………..
14,000
Part 3
Year 1
Dec. 31
Amortization Expense ……………………………………………
12,025
Accum. Amortization—Right–of-Use Asset ………..
12,025
Record amortization on right-of-use asset.1
Dec. 31
Amortization Expense ……………………………………………
12,975
Accum. Amortization—Right–of-Use Asset ………..
12,975
Record amortization on right-of-use asset.2
Dec. 31
Amortization Expense ……………………………………………
14,000
Accum. Amortization—Right–of-Use Asset ………..
14,000
Record amortization on right-of-use asset.3
Dec. 31
Interest Expense ……………………………………………………
1,975
Lease Liability ……………………………………………………….
12,025
Cash ………………………………………………………………..
14,000
Record lease payment for interest and lease liability.
Year 2
Dec. 31
Interest Expense ……………………………………………………
1,025
Lease Liability ……………………………………………………….
12,975
Cash ………………………………………………………………..
14,000
Record lease payment for interest and lease liability.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
645
SERIAL PROBLEM — SP 10
Serial Problem — SP 10, Business Solutions (75 minutes)
Part 1
Total equity = $119,393
Part 2
Assume the secured loan is taken, then the percent of assets financed by:
a. Debt
Part 3
Santana Rey should understand the risks she is taking by borrowing funds
from the bank. She currently has no interest-bearing debt (per prior chapter
serial problems), but the loan will require her to pay interest. The interest
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
Company Analysis — AA 10-1 (15 minutes)
$ millions
1. a. $97,207
3. Increase
Explanation: Considering Apple’s long-term debt is trending upwards,
Comparative Analysis — AA 10-2 (25 minutes)
$ millions
1. Apple’s current year debt–to–equity ratio = $241,272 / $134,047= 1.80
2. Google
3. a. More Risky
Explanation: Apple’s debt to equity ratio is larger than the assumed
industry average ratio of 0.5.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
647
Global Analysis — AA 10-3 (20 minutes)
In millions
1. Samsung’s current year debt–to-equity ratio:
2. More Risky
3. a. Less Risky
Explanation: Apple’s debt ratio in the current year is 1.80
b. More Risky
Explanation: Google’s debt ratio in the current year is 0.29
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
648
Ethics Challenge — BTN 10-1
1. The ethics of the Traverse County officials are questionable. The
financial impact of the leasing arrangement is the same as bond
financing in that the county has a debt obligation requiring the
repayment of principal and interest over time. Taxes may need to be
2. Because the lease requires payments of a non-binding nature, investors
who purchased the tax-exempt securities from the bank are holding an
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
649
Communicating in Practice — BTN 10-2
MEMORANDUM
TO:
FROM:
SUBJECT:
The body of the memorandum should make the following points:
The associate is confused about the concept of a bond premium. Bonds
that sell at a premium provide the issuing company more cash than they
are required to pay the bondholders at their maturity date. When a bond is
issued at a premium, the face amount is less than the amount the associate
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
650
Taking It to the Net — BTN 10-3
1. Home Depot’s long-term liabilities as of January 29, 2017, follow:
2. a. These Home Depot notes offer a 5.875% interest rate. If the interest
rate for similar notes from companies with similar risk was 5.875%,
then Home Depot would have issued these notes at their par value
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
651
Teamwork in Action — BTN 10-4
Parts 1 and 2
Effective Interest Amortization of Bond Premium
Semi-
annual
Period-end
(A)
Cash
Interest
Paid
(B)
Bond
Interest
Expense
(C)
Premium
Amortization
(D)
Unamortized
Premium
(E)
Carrying
Value
1/01/2019
$ 4,100
$ 104,100
6/30/2019
$ 4,500
$ 4,164
$ 336
3,764
103,764
349
3,415
103,415
378
2,674
102,674
6/30/2021
393
2,281
102,281
Since teams generally have 4 or 5 members, the team solution will likely end about
here. The remainder of the table is shown for help in answering part 3.
12/31/2021
4,500
4,091
409
1,872
101,872
4,500
4,075
1,447
101,447
12/31/2022
4,500
4,058
1,005
101,005
4,500
4,040
100,545
12/31/2023
100,000
The following computations should be articulated by team members as
each line is explained and prepared:
Column (A) Cash Interest Paid = Bonds’ par value ($100,000) x Semiannual
contract rate (4.5%).
Column (B) Bond interest expense = Bonds’ prior period carrying value x
Semiannual market rate (4%).
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
652
Teamwork in Action (Concluded)
Part 3
Without completing the table, team members should be able to project the
final number in the first column and for each of the columns (A), (D), and
(E). Specifically:
(Col. 1) Last interest period date is 12/31/2023 because this is a five-year
bond, issued 1/1/2019, with semiannual interest payments made
on 6/30 and 12/31 of each year.
Part 4
Part 5 List likely includes:
Similarities
Differences
a. Table column headings
for the period and for
columns (A), (B), and (E).
a. Column (C) will be Discount Amortization and
Column (D) will be Unamortized Discount.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
653
Entrepreneurial Decision — BTN 10-5
Part 1
Alternative Notes for Expansion
Current 10% Note 15% Note 16% Note 17% Note 20% Note
Income before
interest …………. $ 40,000 $ 56,000 $ 56,000 $ 56,000 $ 56,000 $ 56,000
Part 2
The analysis in Part 1 illustrates the general rule (called “financial
leverage” or “trading on the equity”): When a company earns a higher
return with borrowed funds than it is paying in interest, it increases its
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 10
654
Hitting the Road — BTN 10-6
Students’ answers will depend on the municipality and time period chosen