Alternate Exercises and Problems 14–1
Chapter 14 Bonds and Notes
EXERCISES
Exercise 14-1
1. Price of the bonds at January 1, 2016
Interest $ 12,000,000¥ x 11.46992 * = $137,639,040
2. January 1, 2016
3. June 30, 2016
4. December 31, 2016
Interest expense (6% x [$212,471,040 + 748,262) ………… 12,793,158
14–2 Intermediate Accounting, 8/e
Exercise 14-2
Requirement 1
Schmidt (Issuer)
Cash (102% x $60 million) ……………………………………. 61,200,000
Requirement 2
Schmidt (Issuer)
Interest expense ($2,700,000 – $60,000) ……………………… 2,640,000
Facial Mapping (Investor)
Requirement 3
Schmidt (Issuer)
Convertible bonds payable (10% of the account balance) 6,000,000
Facial Mapping (Investor)
Alternate Exercises and Problems 14–3
Exercise 14-3
Requirement 1
June 30, 2016
Interest expense (5% x $368 million) 18,400,000
Requirement 2
December 31, 2016
Requirement 3
Unnatural will report the loss from the change in the fair value of the bonds in net
income if the entire change is due to the change in general interest rates. But any
14–4 Intermediate Accounting, 8/e
PROBLEMS
Problem 14-1
Requirement 1
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
4.5% x Face Amount 5% x Outstanding Balance
193,537
1 9,000 .05(193,537) = 9,677 677 194,214
2 9,000 .05(194,214) = 9,711 711 194,925
Requirement 2
Cash Recorded Increase in Outstanding
Interest Interest Balance Balance
4.5% x Face Amount Cash plus Discount Reduction $6,463 ÷ 8
193,537
1 9,000 (9,000 + 808) = 9,808 808 194,345
2 9,000 (9,000 + 808) = 9,808 808 195,153
Alternate Exercises and Problems 14–5
Problem 14-1 (continued)
Requirement 3
(effective interest)
Interest expense (5% x $196,455) ………………………………. 9,823
Requirement 4
By the straight-line method, a company determines interest indirectly by
allocating a discount or a premium equally to each period over the term to maturity.
This is allowed if doing so produces results that are not materially different from the
14–6 Intermediate Accounting, 8/e
Problem 14-1 (concluded)
Requirement 5
The amortization schedule in requirement 1 gives us the answer – $19,728. The
outstanding debt balance after the June 30, 2018, interest payment (line 5) is the
Alternate Exercises and Problems 14–7
Problem 14-2
Requirement 1
Interest $ 25,000¥ x 3.16987 * = $ 79,247
Requirement 2
Cash Effective Increase in Outstanding
Dec.31 Interest Interest Balance Balance
420,752
2016 25,000 .10(420,753) = 42,075 17,075 437,827
Requirement 3
14–8 Intermediate Accounting, 8/e
Problem 14-2 (concluded)
Requirement 4
$420,753 ÷ 3.16987 = $132,735
Requirement 5
Cash Effective Decrease in Outstanding
Dec.31 Payment Interest Balance Balance
10% x Outstanding Balance Balance Reduction
420,753
2016 132,735 .10(420,753) = 42,075 90,660 330,093
Requirement 6
Interest expense (market rate x outstanding balance) ………. 23,037
Alternate Exercises and Problems 14–9
Problem 14-3
Requirement 1
Bonds payable (face amount) ………………………………….. 100,000,000