859
Problem 14-8BB (Concluded)
Part 4
2017
June 30
Bond Interest Expense …………………………..
7,940
Dec. 31
Bond Interest Expense …………………………..
7,969
860
Problem 14-9BB (45 minutes)
Part 1
Ten payments of $14,400 ……………………..
$144,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Ten payments of $14,400 ……………………..
$144,000
Less premium………………………………………
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)]
1/01/2017
$12,988
$332,988
6/30/2017
$ 13,320
$ 1,080
11,908
331,908
6/30/2019
13,136
327,136
6/30/2021
12,921
1,553
321,553
$131,012
861
Problem 14-9BB (Concluded)
Part 3
2017
June 30
Bond Interest Expense …………………………..
13,320
Dec. 31
Bond Interest Expense …………………………..
13,276
Part 4
As of December 31, 2019
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.8548
$320,000
$273,536
Comparison to Part 2 Table
Except for a small rounding difference, this present value ($325,807) equals
862
Problem 14-10BB (70 minutes)
Part 1
2017
Jan. 1
Cash ……………………………………………………….
493,608
Part 2
Eight payments of $29,250* ………………….
$ 234,000
Eight payments of $29,250 ……………………
$ 234,000
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)]
863
Problem 14-10BB (Concluded)
Part 4
2017
Premium on Bonds Payable …………………………..
2017
Premium on Bonds Payable …………………………..
Part 5
Bonds Payable ……………………………………………………..
Premium on Bonds Payable …………………………..
Part 6
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
864
Problem 14-11BD (35 minutes)
Part 1
Part 2
Part 3
Capital Lease Liability Payment (Amortization) Schedule
Period
Ending
Date
Beginning
Balance of
Lease
Liability
Interest on
Lease
Liability
(10%)
Reduction
of Lease
Liability
Cash
Lease
Payment
Ending
Balance of
Lease
Liability
Year 1
$75,816
$ 7,582*
$12,418
$ 20,000
$63,398
Year 3
Year 5
20,000
Part 4
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
865
SERIAL PROBLEM — SP 14
Serial Problem — SP 14, Business Solutions (75 minutes)
Part 1
Part 2
Assume the secured loan is taken, then the percent of assets financed by:
Part 3
Santana Rey should understand the risks she is taking by borrowing funds
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
Reporting in Action — BTN 14-1
1. Apple reported long-term debt of $53,463 million as of September 26,
3. Assuming that Apple had $100 million carrying value of convertible
bonds that convert into 20,000 shares of stock, the following entry
would be recorded upon conversion:
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
867
Comparative Analysis — BTN 14-2
1. Apple’s current year debt–to-equity ratio = $171,124 / $119,355= 1.43
2. For both years, Apple’s debt–to-equity ratio is above that of the industry
average of 0.44. This implies that its debt levels are more risky than that
Ethics Challenge — BTN 14-3
1. The ethics of the Traverse County officials are questionable. The
financial impact of the leasing arrangement is the same as bond
2. Because the lease requires payments of a non-binding nature, investors
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
868
Communicating in Practice — BTN 14-4
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
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
869
Taking It to the Net — BTN 14-5
1. Home Depot’s long-term liabilities as of January 31, 2016, 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%,
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
870
Teamwork in Action — BTN 14-6
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
1/01/2017
$ 4,100
$ 104,100
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.
12/31/2019
4,500
4,091
409
1,872
101,872
4,500
4,075
1,447
101,447
4,500
4,058
1,005
101,005
100,000
*Discrepancy due to rounding.
The following computations should be articulated by team members as
each line is explained and prepared:
6/30/2017
6/30/2019
871
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:
Part 4
Total Bond interest expense = Interest Paid – Premium
Part 5 List likely includes:
Similarities
Differences
columns (A), (B), and (E).
c. Computations in
will follow the same format.
c. Carrying value (E) will increase as we amortize a
a. Table column headings
a. Column (C) will be Discount Amortization and
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
872
Entrepreneurial Decision — BTN 14-7
Part 1
The table below reveals how the five alternative interest-bearing notes
would affect this company’s interest expense, net income, equity, and
return on equity (net income/equity):
Alternative Notes for Expansion
Current 10% Note 15% Note 16% Note 17% Note 20% Note
Income before
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
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
Hitting the Road — BTN 14-8
Students’ answers will depend on the municipality and time period chosen
Global Decision — BTN 14-9
1. Samsung’s current year debt–to-equity ratio (in KRW millions):
2. Samsung’s debt-to–equity ratio decreased slightly from the prior year to
the current year. For the current and prior years, Samsung’s debt–to–