PROBLEM 15-2C
(a) 2017
Jan. 1 Cash ($800,000 X 1.05) ………………….. 840,000
Bonds Payable ………………………. 800,000
Premium on Bonds Payable ……. 40,000
(b) Current Liabilities
Interest payable ($800,000 X 9%) …………………….. $72,000
(c) 2019
Jan. 1 Bonds Payable ……………………………… $800,000
Premium on Bonds Payable ………….. 32,000
PROBLEM 15-3C
(a) Jan. 1 Interest Payable …………………………... 84,000
Cash …………………………………….. 84,000**
(b) Jan. 1 Bonds Payable …………………………….. 300,000
PROBLEM 15-4C
(a)
Annual
Interest Period
Cash
Payment
Interest
Expense
Reduction
of Principal
Principal
Balance
Issue Date
1
2
$89,418
89,418
$48,000
44,687
$41,418
44,731
$600,000
558,582
513,851
(b) 2016
Dec. 31 Cash …………………………………………….. 600,000
Mortgage Payable …………………… 600,000
2017
(c) 12/31/17
Current Liabilities
Current portion of mortgage payable $ 44,731**
PROBLEM 15-5C
(a) Gomez Enterprises should record the Rich Co. lease as a capital lease
because the lease term is greater than 75% of the estimated economic
life of the leased property.
(b) The Rich Co. lease is a capital lease. The entry to record the capital
lease on January 1, 2017 therefore is as follows:
(c) The Pagel Inc. lease is an operating lease. The entry to record the
lease payment in 2017 therefore is as follows:
*PROBLEM 15-6C
(a) 2016
Jan. 1 Cash ($6,000,000 X 96%) ……………… 5,760,000
(b) See page 15-17.
(c) 2016
Dec. 31 Interest Expense …………………………. 552,000
Discount on Bonds
2017
Jan. 1 Interest Payable ………………………….. 540,000
Cash ……………………………………. 540,000
(d) Current Liabilities
Interest payable …………………………………. $ 540,000
*PROBLEM
15-6C (Continued)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(9% X $6,000,000)
(B)
Interest
Expense
to Be Recorded
(A) + (C)
(C)
Discount
Amortization
($240,000 ÷
20)
(D)
Unamortized
Discount
(D) – (C)
(E)
Bond
Carrying Value
[$6,000,000 –
(D)]
Issue date
1
$540,000
$552,000
$12,000
$240,000
228,000
$5,760,000
5,772,000
*PROBLEM 15-7C
(a) Jan. 1 Cash ($4,000,000 X 103%) ……………. 4,120,000
Premium on Bonds Payable ….. 120,000
Bonds Payable …………………….. 4,000,000
(b) Jan. 1 Cash ($4,000,000 X 95%) ……………… 3,800,000
Discount on Bonds Payable ………… 200,000
Bonds Payable …………………….. 4,000,000
(c) Premium
Current Liabilities
Interest payable ………………………………… $ 320,000
Discount
Current Liabilities
Interest payable ………………………………… $ 320,000
*PROBLEM 15-8C
2017
(a) Jan. 1 Interest Payable ………………………….. 225,000
Cash ……………………………………. 225,000**
2018
(c) Jan 1 Bonds Payable ……………………………. 800,000
(d) Dec. 31 Interest Expense …………………………. 159,120
Discount on Bonds Payable ….. 6,120**
Interest Payable……………………. 153,000**
*PROBLEM 15-9C
(a) 2016
Jan. 1 Cash …………………………………………. 3,939,246
(b) EUROPA SATELLITES
Bond Discount Amortization
Effective-Interest Method—Annual Interest Payments
8% Bonds Issued at 10%
Annual
Interest
Periods
(A)
Interest
to Be
Paid
(B)
Interest
Expense
to Be
Recorded
(C)
Discount
Amor-
tization
(B) – (A)
(D)
Unamor-
tized
Discount
(D) – (C)
(E)
Bond
Carrying
Value
($4,500,000 – D)
Issue date
1
$360,000
$393,925
$33,925
$560,754
526,829
$3,939,246
3,973,171
(c) Dec. 31 Interest Expense
($3,939,246 X 10%) …………………. 393,925
Discount on Bonds Payable ….. 33,925
(d) 2017
Jan. 1 Interest Payable ………………………… 360,000
Cash ………………………………….. 360,000
(e) Dec. 31 Interest Expense
*PROBLEM 15-10C
(a) (1) 2016
Jan. 1 Cash ……………………………………… 5,679,533
(2) Dec. 31 Interest Expense
($5,679,533 X 8%) ……………….. 454,363
($5,000,000 X 10%) ……….. 500,000
(3) 2017
Jan. 1 Interest Payable ……………………. 500,000
Cash ………………………………. 500,000
(4) Dec. 31 Interest Expense
(b) Bonds payable …………………………………………… 5,000,000
(c) Dear :
Thank you for asking me to clarify some points about the bonds issued
by Georgia Chemical Company.
*PROBLEM 15–10C (Continued)
(2) When the bonds are sold at a premium, the effective-interest method
will result in more interest expense reported than the straight-line
method in 2017. Straight-line interest expense for 2017 is $432,047
($500,000 – $67,953).