EXERCISE 15-12
Plan One
Issue Stock
Plan Two
Issue Bonds
Income before interest and taxes
Interest ($2,700,000 X 10%)
Income before taxes
$800,000
—
800,000
$800,000
270,000
530,000
EXERCISE 15-13
(a) Total assets …………………………………………………… $1,000,000
Less: Total liabilities …………………………………….. 580,000
Total stockholders’ equity ……………………………… $ 420,000
EXERCISE 15-14
(a) Rent Expense …………………………………. 500
Cash ……………………………………….. 500
*EXERCISE 15-15
(a) 2017
Jan. 1 Cash ($600,000 X 103%) …………………… 618,000
Premium on Bonds Payable ………. 18,000
Bonds Payable …………………………. 600,000
(c) 2018
Jan. 1 Interest Payable ……………………………… 54,000
Cash ……………………………………….. 54,000
*EXERCISE 15-16
(a) 2016
Dec. 31 Cash ……………………………………………… 730,000
Discount on Bonds Payable ……………. 70,000
Bonds Payable ………………………… 800,000
*EXERCISE 15-17
(a) Cash …………………………..………………………………. 360,727
Discount on Bonds Payable …………………………. 39,273
Bonds Payable ……………………………………… 400,000
*EXERCISE 15-18
(a) Cash …………………………..………………………………. 407,968
Bonds Payable ……………………………………… 380,000
Premium on Bonds Payable …………………… 27,968
SOLUTIONS TO PROBLEMS
PROBLEM 15-1A
(a) 2017
May 1 Cash …………………………………………….. 600,000
Bonds Payable ………………………. 600,000
(c) Current Liabilities
Interest payable …………………………………….. $ 36,000
(d) 2018
May 1 Interest Payable ……………………………. 36,000
Interest Expense
($600,000 X 9% X 4/12)…………………. 18,000
(f) Jan. 1 Interest Payable ……………………………. 36,000
Cash ……………………………………… 36,000
PROBLEM 15–2A
(a) 2017
Jan. 1 Cash ($6,000,000 X 98%) ……………… 5,880,000
Discount on Bonds Payable ………….. 120,000
Bonds Payable …………………….. 6,000,000
PROBLEM 15-3A
(a) Jan. 1 Interest Payable ………………………….. 40,000
Cash ……………………………………. 40,000
(b) Jan. 1 Bonds Payable ……………………………. 200,000
Loss on Bond Redemption ………….. 6,000
PROBLEM 15-4A
(a)
Annual
Interest Period
Cash
Payment
Interest
Expense
Reduction of
Principal
Principal
Balance
Issue Date
1
2
$59,612
59,612
$32,000
29,791
$27,612
29,821
$400,000
372,388
342,567
(b) 2016
Dec. 31 Cash ……………………………………………… 400,000
Mortgage Payable ……………………. 400,000
(c) 12/31/17
Current Liabilities
Current portion of mortgage payable $ 29,821**
PROBLEM 15-5A
(a) Ruggiero Inc. should record the Judson Delivery lease as a capital
lease because: (1) the lease term is greater than 75% of the estimated
economic life of the leased property and (2) the present value of the
lease payments is 90% or more of the fair value of the computer. It should
be noted that only one condition needs to be met to require
capitalization.
(b) The Hester Co. lease is an operating lease. The entry to record the
lease payment in 2017 therefore is as follows:
(c) The Judson Delivery lease is a capital lease. The entry to record the
capital lease on January 1, 2017 therefore is as follows:
*PROBLEM 15-6A
(a) 2017
Jan. 1 Cash ($3,000,000 X 104%) ……………. 3,120,000
Bonds Payable …………………….. 3,000,000
Premium on Bonds Payable……. 120,000
(b) See page 15-30.
(c) 2017
Dec. 31 Interest Expense …………………………. 288,000
(d) Current Liabilities
Interest payable …………………………………… $ 300,000
*PROBLEM 15-6A (Continued)
(b)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(10% X $3,000,000)
(B)
Interest Expense
to Be Recorded
(A) – (C)
(C)
Premium
Amortization
($120,000 ÷ 10)
(D)
Unamortized
Premium
(D) – (C)
(E)
Bond
Carrying Value
[$3,000,000 + (D)]
Issue date
1
2
$300,000
300,000
$288,000
288,000
$12,000
12,000
$120,000
108,000
96,000
$3,120,000
3,108,000
3,096,000
*PROBLEM 15-7A
(a) 2017
July 1 Cash ($3,500,000 X 104%) …………… 3,640,000
Premium on Bonds
Payable …………………………... 140,000
Bonds Payable ……………………. 3,500,000
(b) 2017
July 1 Cash ($3,500,000 X 98%) …………….. 3,430,000
Discount on Bonds Payable ……….. 70,000
Bonds Payable ……………………. 3,500,000
(c) Premium
Current Liabilities
Interest Payable…………………………………. $280,000
Long-term Liabilities
Discount
Current Liabilities
Interest Payable…………………………………. $280,000
*PROBLEM 15-8A
(a) 2018
Jan. 1 Interest Payable ………………………… 210,000
Cash ………………………………….. 210,000
(b) Dec. 31 Interest Expense ……………………….. 190,000
(c) 2019
Jan. 1 Bonds Payable ………………………….. 1,200,000
Premium on Bonds Payable ………. 72,000
(d) Dec. 31 Interest Expense ……………………….. 114,000
Premium on Bonds Payable ………. 12,000
*PROBLEM 15-9A
2017
(a) Jan. 1 Cash …………………………………………. 1,667,518
(b) LOCK CORP.
Bond Discount Amortization
Effective-Interest Method—Annual Interest Payments
5% Bonds Issued at 6%
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
($1,800,000 – D)
Issue date
1
$90,000
$100,051
$10,051
$132,482
122,431
$1,667,518
1,677,569
(c) Dec. 31 Interest Expense
($1,667,518 X 6%) ……………………………. 100,051
*PROBLEM 15-10A
2017
(a) 1. Jan. 1 Cash …………………………………….. 2,147,202
Bonds Payable ………………. 2,000,000
Premium on Bonds
Payable………………………. 147,202
2. Dec. 31 Interest Expense
($2,147,202 X 6%) ………………. 128,832
2018
3. Jan. 1 Interest Payable ……………………. 140,000
Cash ……………………………… 140,000
4. Dec. 31 Interest Expense …………………… 128,162
[($2,147,202 – $11,168) X 6%]
(b) Bonds payable ……………………………………………. 2,000,000
Add: Premium on bonds payable ………………… 124,196* 2,124,196
COMPREHENSIVE PROBLEM: CHAPTERS 13 TO 15
(a) 1. Cash…………………………………………………………. 22,000
Preferred Stock (1,000 X $20) ……………….. 20,000
Paid-in Capital in Excess of
Par—PS ……………………………………………. 2,000
4. Cash Dividends …………………………………………. 6,750*
Dividends Payable ……………………………….. 6,750
*$20,000 X .06 + [(3,000 + 1,000 – 300) X $1.50]
5. Bad Debt Expense …………………………………….. 4,650
Allowance for Doubtful
Accounts ($5,100 – $450) ………………….. 4,650
8. Unearned Rent Revenue ($8,000 X 3/4) ……….. 6,000
Rent Revenue………………………………………. 6,000
COMPREHENSIVE PROBLEM (Continued)
(b) QUIGLEY CORPORATION
Adjusted Trial Balance
December 31, 2017
Debit
Credit
Cash ………………………………………………………..
Accounts Receivable ………………………………..
Inventory …………………………………………………
Allowance for Doubtful Accounts ……………..
Accumulated Depreciation—Buildings ………
Accumulated Depreciation—Equipment …….
Accounts Payable …………………………………….
Interest Payable …………………………..…………..
Dividends Payable ……………………………………
Treasury Stock …………………………………………
Cash Dividends ………………………………………..
Sales Revenue …………………………………………
Rent Revenue …………………………………………..
Bad Debts Expense …………………………..……..
Interest Expense ………………………………………
$ 55,800
51,000
22,700
14,700
6,750
4,650
5,000
$ 5,100
33,000
18,000
19,300
5,000
6,750
570,000
6,000