CHAPTER 15
SOLUTIONS TO PROBLEMS: SET B
PROBLEM 15-1B
(a) 2015
June 1 Cash ………………………………………….. 2,000,000
Bonds Payable …………………….. 2,000,000
(b) Dec. 31 Interest Expense …………………………. 157,500
Interest Payable
($3,000,000 X 9% X 7/12) ……. 157,500
(c) Current Liabilities
Interest payable ………………………………….. 15,000
(e) Dec. 31 Interest Expense …………………………. 157,500
Interest Payable ($3,000,000 X 9% X 7/12) 157,500
PROBLEM 15-2B
(a) 2015
Jan. 1 Cash ($800,000 X 1.05) ………………….. 840,000
Bonds Payable ………………………. 800,000
Premium on Bonds Payable ……. 40,000
(b) Long-term Liabilities
Bond payable, due 2025 …………………………. $800,000
Add: Premium on bonds payable …………… 36,000 $836,000
(c) 2017
PROBLEM 15-3B
(a) Jan. 1 Interest Payable ……………………………….. 96,000
Cash …………………………………………. 96,000
PROBLEM 15-4B
(a)
Annual
Interest Period
Cash
Payment
Interest
Expense
Reduction
of Principal
Principal
Balance
Issue Date
1
$119,224
$64,000
$55,224
$800,000
774,776
(b) 2015
Dec. 31 Cash …………………………………………….. 800,000
Mortgage Payable …………………… 800,000
(c) 12/31/16
Current Liabilities
Current portion of mortgage payable $ 59,642**
PROBLEM 15-5B
(a) Naylor Enterprises should record the Mendenhall 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 Mendenhall Co. lease is a capital lease. The entry to record the
capital lease on January 1, 2014 therefore is as follows:
(c) The Midas Inc. lease is an operating lease. The entry to record the
lease payment in 2014 therefore is as follows:
*PROBLEM 15-6B
(a) 2015
Jan. 1 Cash ($6,000,000 X 96%) ……………… 5,760,000
(b) See page 10-55.
(c) 2015
Dec. 31 Interest Expense …………………………. 492,000
Discount on Bonds
2016
Jan. 1 Interest Payable ………………………….. 480,000
Cash ……………………………………. 480,000
(d) Current Liabilities
Interest payable …………………………………. $ 480,000
*PROBLEM 15-6B (Continued)
(b)
Semiannual
Interest
Periods
(A)
Interest to
Be Paid
(4.5% X $6,000,000)
(B)
Interest Expense
to Be Recorded
(A) + (C)
(C)
Discount
Amortization
($240,000 ÷ 40)
(D)
Unamortized
Discount
(D) – (C)
(E)
Bond
Carrying Value
[$6,000,000 – (D)]
*PROBLEM 15-7B
(a) Jan. 1 Cash ($4,000,000 X 103%) …………….. 4,120,000
Premium on Bonds Payable …… 120,000
Bonds Payable ……………………… 4,000,000
(c) Premium
Current Liabilities
Interest payable ………………………………… $ 280,000
Long-term Liabilities
Bonds payable, due 2025 ………………….. $4,000,000
Add: Premium on bonds payable …….. 108,000 $4,108,000
*PROBLEM 15-8B
2016
(a) Jan. 1 Interest Payable ………………………….. 216,000
Cash ……………………………………. 216,000**
2017
(c) Jan. 1 Bonds Payable ……………………………. 800,000
Loss on Bond Redemption ………….. 43,000
(d) Dec. 31 Interest Expense …………………………. 150,000
Discount on Bonds Payable ….. 6,000**
Interest Payable……………………. 144,000**
*PROBLEM 15-9B
(a) 2015
July 1 Cash ………………………………………… 4,219,600
(b) WITHERSPOON SATELLITES
Bond Discount Amortization
Effective-Interest Method—Annual Interest Payments
9% Bonds Issued at 10%
Semi–
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
$405,000
$421,960
$16,960
$280,400
263,440
$4,219,600
4,236,560
(c) Dec. 31 Interest Expense
($4,219,600 X %) …………………….. 421,960
(d) 2016
Jan. 1 Interest Payable
Cash ………………………………….. 405,000
405,000
(e) Dec. 31 Interest Expense
($4,236,560 X 10%) …………………. 423,656
*PROBLEM 15-10B
(a) (1) 2015
July 1 Cash ……………………………………… 4,543,627
Bonds Payable ………………… 4,000,000
Premium on Bonds
Payable ……………………….. 543,627
(2) Dec. 31 Interest Expense
($4,543,627 X 8%) ……………….. 363,490
(3) 2016
Jan. 1 Interest Payable
Cash ………………………………. 400,000
(4) Dec. 31 Interest Expense
[($4,543,627 – $36,510) X 8%] …. 360,569
(b) Bonds payable …………………………………………… 4,000,000
*PROBLEM 15-10B (Continued)
(c) Dear :
Thank you for asking me to clarify some points about the bonds issued
by Ashlock Chemical Company.
If you have other questions, please contact me.
Sincerely,