*EXERCISE 14.27 (Continued)
December 31, 2021 (see schedule)
Cash ………………………………………………………………………
11,000
Allowance for Doubtful Accounts …………………………..
12,277
Interest Revenue …………………………………………….
Cash ………………………………………………………………………
Allowance for Doubtful Accounts …………………………..
Interest Revenue …………………………………………….
Allowance for Doubtful Accounts …………………………..
Notes Receivable ……………………………………………
Problem 14.1 (Time 15–20 minutes)
Purpose—to provide the student with the opportunity to interpret a bond amortization schedule. This
Problem 14.2 (Time 25–30 minutes)
Problem 14.3 (Time 20–30 minutes)
Problem 14.4 (Time 15–20 minutes)
Purpose—to provide the student with an understanding of the relevant journal entries which are necessi–
Problem 14.5 (Time 50–65 minutes)
Purpose—to provide the student with an understanding of the relevant journal entries which are neces–
Problem 14.6 (Time 20–25 minutes)
Purpose—to provide the student with an understanding of the relevant journal entries which are
Problem 14.7 (Time 20–25 minutes)
Problem 14.8 (Time 15–25 minutes)
Purpose—to provide the student with an opportunity to become familiar with the application of GAAP,
Problem 14.9 (Time 20–25 minutes)
Purpose—to provide the student with an opportunity to become familiar with the application of GAAP,
Problem 14.10 (Time 20–25 minutes)
Problem 14.11 (Time 40–50 minutes)
Purpose—to provide the student with an opportunity to explain what the effective-interest method is,
why it is preferable, and how it is computed. As one part of the problem, an amortization schedule must
be prepared.
PROBLEM 14.1
(a) The bonds were sold at a discount of $5,651 ($100,000 – $94,349).
Evidence of the discount is the January 1, 2014 book value of $94,349,
which is less than the maturity value of $100,000 in 2023.
(b) The interest allocation and bond discount amortization are based
PROBLEM 14.2
(a)
Present value of the principal
$2,000,000 X .38554 (PVF10, 10%) …………………..
$ 771,080
Present value of the interest payments
$210,000* X 6.14457 (PVF-OA10, 10%) …………….
Cash ………………………………………………………………………
Bonds Payable ……………………………………………….
Premium Bonds Payable …………………………..
(10.5%)
(10%)
1/1/19
(1)
(2)
(1) – (2)
$2,061,440
1/1/20
$210,000b
$206,144
$3,856
2,057,584
1/1/21
205,758
2,053,342
1/1/23
204,868
2,043,544
(c)
Carrying amount as of 1/1/22 ………………………….
Less: Amortization of bond premium
(5,132 ÷ 2) ……………………………………………
Reacquisition price ………………………………………..
Carrying amount as of 7/1/22
($2,046,110 ÷ 2) ……………………………………………
PROBLEM 14.2 (Continued)
Entry for accrued interest
Interest Expense …………………………………………………….
51,217
Premium on Bonds Payable
($5,132 X 1/2 X 1/2) …………………………..…………………..
Cash
($210,000 X 1/2 X 1/2) …………………………..
Entry for reacquisition
Bonds Payable ($2,000,000 X ½) …………………………..
Premium on Bonds Payable …………………………..
Loss on Redemption of Bonds …………………………..
Cash ……………………………………………………….
PROBLEM 14.3
(a)
1/1/20
(1)
(2)
(2) – (1)
$32,000**
4/1/20
$400
$640*
$240
32,240
7/1/20
400
645
245
32,485
10/1/20
400
650
250
32,735
1/1/21
400
655
255
32,990
(1)
(2)
4/1/21
29,147
7/1/21
25,227
10/1/21
21,229
4/1/22
12,991
7/1/22
10/1/22
1/1/23
PROBLEM 14.3 (Continued)
(e) The new sales gimmick may bring people into the showroom the first
PROBLEM 14.4
(a)
Entry to record the issuance of the 11% bonds on December 18, 2020:
Cash ($4,000,000 X 1.02) ………………………………………….
4,080,000
Bonds Payable ……………………………………………….
4,000,000
Premium on Bonds Payable …………………………..
Entry to record the retirement of the 9% bonds on January 2, 2021:
Bonds Payable ……………………………………………………….
3,000,000
Loss on Redemption of Bonds …………………………..
Discount on Bonds Payable …………………………..
($150,000 X 10/25)
Cash ($3,000,000 X 104%) …………………………..
3,120,000
[The loss represents the excess of the
cash paid ($3,120,000) over the
carrying amount of the bonds
($3,000,000 – $60,000 = $2,940,000).]
Note 1. Loss on Bond Redemption
in 2031. The funds used to purchase the mortgage bonds represent a
portion of the proceeds from the sale of $4,000,000 of 11% debenture
1. Sanford Co.
Schedule of Bond Discount Amortization
3/1/20
(1)
(2)
(2) – (1)
$472,090
9/1/20
$25,000*
$28,325
$3,325
475,415
3/1/21
25,000
28,525
3,525
478,940
9/1/21
25,000
28,736
3,736
482,676
3/1/22
486,637
9/1/22
25,000
29,198
4,198
490,835
3/1/23
25,000
29,450
4,450
495,285
9/1/23
500,000
PROBLEM 14.5 (Continued)
12/31/20 (see schedule)
Interest Expense ($28,525 X 4/6) …………………………..
19,017
Discount on Bonds Payable
($3,525 X 4/6) ………………………………………………..
2,350
Interest Payable ($25,000 X 4/6) ………………………..
Interest Payable …………………………..…………………………
Discount on Bonds Payable
($3,525 X 2/6) ………………………………………………..
Cash ……………………………………………………….
Interest Expense ……………………………………………………..
28,736
Discount on Bonds Payable …………………………..
Cash ……………………………………………………….
12/31/21 (see schedule)
19,308
Discount on Bonds Payable
($3,961 X 4/6) ………………………………………………..
2,641
Interest Payable ($25,000 X 4/6) ………………………..
2. Titania Co.
Schedule of Bond Discount Amortization
6/1/20
(1)
(2)
(1) – (2)
$425,853
12/1/20
$24,000*
$21,293
$2,707
423,146
6/1/21
24,000
21,157
2,843
420,303
12/1/21
24,000
21,015
2,985
417,318
6/1/22
24,000
20,866
3,134
414,184
12/1/22
24,000
20,709
410,893
6/1/23
24,000
20,545
3,455
407,438
12/1/23
24,000
20,372
3,628
403,810
6/1/24
24,000
3,810
400,000
PROBLEM 14.5 (Continued)
12/1/20 (see schedule)
Interest Expense ……………………………………………………..
21,293
Premium on Bonds Payable …………………………..
2,707
Cash ($400,000 X .12 X 6/12) …………………………..
24,000
Interest Expense ($21,157 X 1/6) …………………………..
Premium on Bonds Payable
($2,843 X 1/6) ……………………………………………………….
Interest Payable ($24,000 X 1/6) ………………………..
Interest Expense ($21,157 X 5/6) …………………………..
Interest Payable ………………………………………………………
Premium on Bonds Payable
($2,843 X 5/6) ……………………………………………………….
2,369
Cash ……………………………………………………….
24,000
Interest Expense
($21,015 X .3* X 4/6) ………………………………………………
Premium on Bonds Payable
($2,985 X .3 X 4/6) ………………………………………………….
Cash ($24,000 X .3* X 4/6) …………………………..
PROBLEM 14.5 (Continued)
10/1/21
Bonds Payable ……………………………………………………….
120,000
Premium on Bonds Payable …………………………..
5,494
Gain on Redemption of Bonds …………………………
4,294*
Cash ……………………………………………………….
*Reacquisition price
Par value
Unamortized premium
Interest Expense ($21,015 X .7*)…………………………..
Premium on Bonds Payable
($2,985 X .7) ……………………………………………………….
2,089
Cash ($24,000 X .7) …………………………..
16,800
($400,000 – $120,000) ÷ $400,000 = .7
12/31/21
Interest Expense ($20,866 X .7 X 1/6) ………………………..
2,434
Premium on Bonds Payable
($3,134 X .7 X 1/6) …………………………………………………
Interest Payable
($24,000 X .7 X 1/6) …………………………..
Interest Expense ($20,866 X .7 X 5/6) ………………………..
Interest Payable ……………………………………………………..
2,800
Premium on Bonds Payable
($3,134 X .7 X 5/6) …………………………………………………
Cash ($24,000 X .7) …………………………..
PROBLEM 14.5 (Continued)
12/1/22 (see schedule)
Premium on Bonds Payable
($3,291 X .7) ……………………………………………………….
PROBLEM 14.6
May 1, 2020
Cash
($900,000 X 106%) + ($900,000 X .12 X 4/12) ……………
990,000.00
Bonds Payable ………………………………………………..
900,000.00
Premium on Bonds Payable …………………………..
Interest Expense ($900,000 X .12 X 4/12) …………..
Interest Expense ($900,000 X .12) …………………………..
108,000.00
Interest Payable ………………………………………………
108,000.00
Premium on Bonds Payable …………………………………….
Interest Expense
($54,000 X 8/116* = $3,724.14)………………………..
Interest Payable ………………………………………………………
108,000.00
Cash ………………………………………………………………
108,000.00
April 1, 2021
Bonds Payable ……………………………………………………….
360,000.00
Premium on Bonds Payable …………………………………….
19,551.72*
Interest Expense ($360,000 X .12 X 3/12) …………………..
Cash ($367,200 + $10,800) …………………………..
378,000.00
Gain on Redemption of Bonds …………………………
($360,000 X 102%) + ($360,000 X .12 X 3/12) ……………
Net carrying value of bonds redeemed:
Par value ………………………………………………………………..
$360,000.00
Unamortized premium
[$54,000 X ($360,000 ÷ $900,000) X 105/116] ……………
Accrued interest ($360,000 X .12 X 3/12) ……………………
PROBLEM 14.6 (Continued)
December 31, 2021
Interest Expense ($540,000 X .12) …………………………..
64,800.00
Interest Payable ………………………………………………
64,800.00
Premium on Bonds Payable …………………………………….
Interest Expense …………………………………………….
Amortization per year on $540,000
($54,000 X 12/116 X .60*) ……………………………………….
$3,351.72
Amortization on $360,000 for 3 months
($54,000 X 3/116 X .40**) ………………………………………..
**$360,000 ÷ $900,000 = .4
PROBLEM 14.7
4/1/20
(a)
Cash (15,000 X $1,000 X 97%) …………………………..
14,550,000
Discount on Bonds Payable …………………………..
450,000
Bonds Payable …………………………..
15,000,000
(b)
Interest Expense ………………………………………………………
840,000
Cash …………………………..…………………………..
Discount on Bonds Payable …………………………..
*$15,000,000 X .11 X 6/12 =
$825,000
**$450,000 ÷ 180 months =
$2,500/mo.; $2,500/mo.
X 6 months = $15,000
(c)
Interest Expense ………………………………………………………
420,000
Interest Payable
($825,000 X 3/6) …………………………..
412,500
Discount on Bonds Payable
($2,500 X 3 months)…………………………..
7,500
Cash …………………………..…………………………..
Discount on Bonds Payable …………………………..
*Cash paid to retiring
bondholders: $6,000,000
X .11 X 5/12 = $275,000
**$2,500/mo. X 2 months X
PROBLEM 14.7 (Continued)
At March 1, 2021 the carrying amount of the retired
bonds is:
Bonds payable ………………………………………………………………
$6,000,000
Less: Unamortized discount …………………………………………
169,000*
The loss on redemption of bonds is:
Reacquisition price ……………………………………………….
Less: Carrying amount …………………………..
The entry to record extinguishment of the bonds is:
Bonds Payable ……………………………………………….
Loss on Redemption of Bonds ………………………..
Discount on Bonds Payable ……………………..
Common Stock (200,000 x $10) …………………
PROBLEM 14.8
(a)
December 31, 2020
409,806.00
190,194.00
600,000.00
(b)
12/31/21
12/31/22
12/31/23
12/31/24
*3.03 adjustment due to rounding.
(c)
December 31, 2022