823
Exercise 14-13B (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $22,500* …………………..
$135,000
Par value at maturity …………………………
Total repaid ……………………………………….
$135,000
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)]
1/01/2017
$36,860
6/30/2017
$ 27,788
6/30/2018
6/30/2019
824
Exercise 14-14B (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
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)]
1/01/2017
$9,850
$409,850
6/30/2017
$ 26,000
6/30/2019
825
Exercise 14-15 (40 minutes)
1. Straight-line amortization table ([$100,000-$95,952]/8 = $506)
Semiannual
Period-End
Unamortized
Discount †
Carrying
Value
1/01/2017(issuance) ……….
$4,048
$95,952
6/30/2017 …………………
3,542
96,458
96,964
6/30/2018 …………………
2,530
97,470
6/30/2019 …………………
98,482
1,012
98,988
6/30/2020 …………………
99,494
826
Exercise 14-15 (Concluded)
2.
2017
June 30
Bond Interest Expense …………………………………………..
4,006
Discount on Bonds Payable …………………………..
Cash ………………………………………………………………..
Bond Interest Expense …………………………………………..
Discount on Bonds Payable …………………………..
Cash ………………………………………………………………..
Record 6 months’ interest and discount amortization.
3.
2020
Cash ………………………………………………………………..
Paid par value at maturity. (Assume interest recorded.)
Exercise 14-16 (20 minutes)
2017
Jan. 1
Cash ……………………………………………………………………..
3,400,000
Bonds Payable …………………………………………………
3,400,000
Bond Interest Expense …………………………………………..
Cash ……………………………………………………….
Paid semiannual interest. $3,400,000 x 0.09 x ½
Bond Interest Expense …………………………………………..
Cash ……………………………………………………….
2020
Bonds Payable ………………………………………………………
3,400,000
Cash ……………………………………………………….
3,400,000
827
Exercise 14-17C (10 minutes)
Exercise 14-18C (20 minutes)
1.
Leased Asset—Office Equipment ……………………………………….
41,000
2.
Depreciation Expense—Leased Asset, Office Equip ……………
Exercise 14-19C (15 minutes)
[Note: 12% / 12 months = 1% per month as the relevant interest rate.]
828
Exercise 14-20 (20 minutes)
(amounts in euros millions)
1.
Cash………………………………………………………………………
1,888
2.
Loans and Borrowings …………………………………………..
1,700
3. Heineken’s Loans and Borrowings carried a premium of €658 as of
4. The contract rate was higher than the market rate at issuance. This is
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 14
829
PROBLEM SET A
Problem 14-1A (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value …………………
B.1
0.4564
$40,000
$18,256
b.
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value …………………
B.1
0.3769
$40,000
$15,076
B.3
B.3
830
Problem 14-1A (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.
2017
831
Problem 14-2A (40 minutes)
Part 1
2017
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.]
Part 3
Thirty payments of $120,000 ………………..
$3,600,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
(3,456,448)
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2017 …………………
$543,552
$3,456,448
6/30/2017 …………………
525,434
6/30/2018 …………………
489,198
832
Problem 14-2A (Concluded)
Part 5
2017
June 30
Bond Interest Expense …………………………………………..
138,118
Bond Interest Expense …………………………………………..
138,118
Problem 14-3A (40 minutes)
Part 1
2017
Jan. 1
Cash ……………………………………………………………………..
4,895,980
4,000,000
Part 2
(a) Cash Payment = $4,000,000 x 6% x 6/12 = $120,000
Thirty payments of $120,000 ………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
833
Problem 14-3A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2017 …………………
$895,980
$4,895,980
Part 5
2017
June 30
Bond Interest Expense …………………………..
90,134
29,866
Bond Interest Expense …………………………..
90,134
29,866
Problem 14-4A (45 minutes)
Part 1
Ten payments of $8,125* ……………………..
$ 81,250
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
Part 2
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2017
$5,333
$255,333
6/30/2017
4,800
254,800
12/31/2017
4,267
254,267
6/30/2018
3,734
253,734
12/31/2018
3,201
253,201
6/30/2019
2,668
252,668
2,135
252,135
6/30/2020
1,602
251,602
12/31/2020
1,069
261,069
6/30/2021
533**
250,533
12/31/2021
0
250,000
835
Problem 14-4A (Concluded)
Part 3
2017
June 30
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
2017
Dec. 31
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
836
Problem 14-5A (60 minutes)
Part 1
2017
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125* ……………….
$ 65,000
Par value at maturity ……………………….
325,000
(292,181)
$ 65,000
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2017
$32,819
$292,181
837
Problem 14-5A (Concluded)
Part 4
2017
June 30
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………………………..
4,102
Cash ……………………………………………………….
8,125
Bond Interest Expense …………………………..
12,227
Discount on Bonds Payable …………………………..
4,102
Cash ……………………………………………………….
8,125
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
bonds would have sold at a premium because the contract rate of 5%
would have been greater than the market rate.
838
Problem 14-6A (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)]
10/31/2018 …………
$200,000
$ 16,000
$ 34,091
$ 50,091
$165,909
$ 50,455
$200,000
$250,455
Part 2
2017
Dec. 31
Interest Expense ……………………………………………………
2,667
Interest Payable …………………………..…………………..
Interest Expense ……………………………………………………
Interest Payable …………………………………………………….
2,667
Cash ………………………………………………………………..
839
Problem 14-7A (20 minutes)
Part 1
Part 2
Scott’s debt–to–equity ratio is higher than Pulaski’s. This implies that Scott
840
Problem 14-8AB (60 minutes)
Part 1
2017
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125* ……………….
$ 65,000
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)]
1/01/2017
$32,819
$292,181
841
Problem 14-8AB (Concluded)
Part 4
2017
June 30
Bond Interest Expense …………………………..
11,687
2017
Dec. 31
Bond Interest Expense …………………………..
11,830
842
Problem 14-9AB (45 minutes)
Part 1
Ten payments of $8,125* ………………………
$ 81,250
Par value at maturity …………………………..
Total repaid …………………………………………..
Less amount borrowed …………………………
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2017
$5,333
$255,333
6/30/2017
$ 8,125
$ 7,660
$ 465
4,868
254,868
4,389
6/30/2018
3,388
6/30/2019
2,326
6/30/2020
1,199
6/30/2021
$81,250
$75,917
*Adjusted for rounding.