Exercise 14–4
1. January 1, 2016
Interest $4,000,000¥ x 11.46992 * = $45,879,680
2. June 30, 2016
3. December 31, 2016
14–22 Intermediate Accounting, 8/e
Exercise 14–5
1. Liability at December 31, 2016
Bonds payable (face amount) ……………………………….. $320,000,000
2. Interest expense for year ended December 31, 2016
3. Statement of cash flows for year ended December 31, 2016
Myriad would report the cash inflow of $283,294,720*** from the sale of the
Exercise 14–5 (concluded)
Calculations:
January 1, 2016***
Cash (price given) ………………………………………………. 283,294,720
14–24 Intermediate Accounting, 8/e
Exercise 14–6
1. June 30, 2016
2. December 31, 2016
3. June 30, 2017
Exercise 14–7
1. Price of the bonds at January 1, 2016
Interest $7,500,000¥ x 13.76483 * = $103,236,225
2. January 1, 2016
3. June 30, 2016
4. December 31, 2023
Interest expense ($7,500,000 + 688,243) …………………….. 8,188,243
14–26 Intermediate Accounting, 8/e
Exercise 14–8
1. January 1, 2016
Interest $7,500,000¥ x 13.76483 * = $103,236,225
Principal $150,000,000 x 0.17411 ** = 26,116,500
2. June 30, 2016
3. December 31, 2023
Cash (5% x $150,000,000) …………………………………….. 7,500,000
Exercise 14–9
1. Price of the bonds at January 1, 2016
Interest $18,000¥ x 6.87396 * = $123,731
2. January 1, 2016
3. Amortization schedule
Cash Effective Increase in Outstanding
Payment Interest Balance Balance
3% x Face Amount 3.5% x Outstanding Balance Discount Reduction
579,377
1 18,000 .035 (579,377) = 20,278 2,278 581,655
14–28 Intermediate Accounting, 8/e
Exercise 14–9 (concluded)
4. June 30, 2016
Interest expense (3.5% x $579,377) ……………….. 20,278
December 31, 2016**
Interest expense (3.5% x [$579,377 + 2,278]) …. 20,358
5. Liability at December 31, 2016
Bonds payable (face amount) ……………………………….. $600,000
6. Interest expense for year ended December 31, 2016
7. December 31, 2019
Interest expense (3.5% x $597,099) ……………….. 20,901*
Exercise 14–10
1. Price of the bonds at January 1, 2016
¥ 4.5% x $500,000
2. January 1, 2016
3. Amortization schedule
Cash Effective Increase in Outstanding
Payment Interest Balance Balance
4.5% x Face Amount 5% x Outstanding Balance Discount Reduction
483,842
1 22,500 .05 (483,842) = 24,192 1,692 485,534
14–30 Intermediate Accounting, 8/e
Exercise 14–10 (concluded)
4. June 30, 2016
5. December 31, 2019
Interest expense (5% x $497,621) ………………….. 24,879*
Exercise 14–11
1. February 1, 2016
2. July 31, 2016
3. December 31, 2016
4. January 31, 2017
Interest expense (1/6 x 5% x [$731,364 + 568]) .. 6,100*
14–32 Intermediate Accounting, 8/e
Exercise 14–12
1. March 1, 2016
2. August 31, 2016
3. December 31, 2016
4. February 28, 2017
Interest expense (2/6 x $21,150) …………………….. 7,050
Exercise 14–13
1. January 1, 2016
2. June 30, 2016
3. December 31, 2016
4. December 31, 2016
Federal will report the bonds among its liabilities in the December 31, 2016,
14–34 Intermediate Accounting, 8/e
Exercise 14–14
1. National Equipment Transfer Corporation
Cash (priced at par) ………………………………….. 200,000,000
2. National Equipment Transfer Corporation
Interest expense …………………………..……………… 7,460,000
Exercise 14–15
The 2016 interest expense is overstated by the extra interest recorded in
February. Similarly, retained earnings is overstated the same amount because 2015
interest expense was understated when the accrued interest was not recorded.
To correct the error:
Retained earnings ………………………………………………….. 61,000
2016 adjusting entry:
Interest expense (5/6 x $73,200) ……………………………. 61,000
14–36 Intermediate Accounting, 8/e
Exercise 14–16
Requirement 1
The error caused both 2014 net income and 2015 net income to be overstated, so
retained earnings is overstated by a total of $85,000. Also, the notes payable would be
understated by the same amount. Remember, the entry to record interest is:
Interest expense ……………………………………………………….…………….. xxx
Requirement 2
Requirement 3
The financial statements that were incorrect as a result of the error would be
Exercise 14–17
Requirement 1
Interest $24,000¥ x 2.40183 * = $ 57,644
Requirement 2
Cash Effective Increase in Outstanding
Payment Interest Balance Balance
4% x Face Amount 12% x Outstanding Balance Discount Reduction
484,712
1 24,000 .12 (484,712) = 58,165 34,165 518,877
Requirement 3
Interest expense (market rate x outstanding balance) …………….. 58,165
Discount on notes payable (difference) ……………………….. 34,165
14–38 Intermediate Accounting, 8/e
Exercise 14–18
Requirement 1
Interest $24,000¥ x 2.40183 * = $ 57,644
Requirement 2
Cash Effective Increase in Outstanding
Payment Interest Balance Balance
4% x Face Amount 12% x Outstanding Balance Discount Reduction
484,712
1 24,000 .12 (484,712) = 58,165 34,165 518,877
Exercise 14–18 (concluded)
Requirement 3
Cash (stated rate x face amount) ……………………………………….. 24,000
Discount on notes receivable (difference) ………………………. 34,165
14–40 Intermediate Accounting, 8/e
Exercise 14–19
1. January 1, 2016
2. Amortization schedule
$8,000,000 ÷ 2.67301 = $2,992,881
Cash Effective Decrease in Outstanding
Dec.31 Payment Interest Balance Balance
6% x Outstanding Balance Balance Reduction
8,000,000
2016 2,992,881 .06 (8,000,000) = 480,000 2,512,881 5, 487,119
3. December 31, 2016
Cash (payment determined above) ……………………………………. 2,992,881
4. December 31, 2018
Cash (payment determined above) ……………………………………. 2,992,881