Exercise 10-13B (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $22,500* …………………..
$135,000
Par value at maturity …………………………
Total repaid ……………………………………….
$135,000
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[4.5% x $500,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(E)
Carrying
Value
[$500,000 – (D)]
1/01/2016
$463,140
6/30/2016
$ 22,500
$ 27,788
$ 5,288
468,428
6/30/2017
479,976
486,275
6/30/2018
500,000
Exercise 10–14B (30 minutes)
2. Total bond interest expense over the life of the bonds
Amount repaid
Six payments of $26,000* …………………..
$ 156,000
Par value at maturity …………………………
Total repaid ……………………………………….
$ 156,000
3. Effective interest amortization table
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[6.5% x $400,000]
(B)
Bond Interest
Expense
[6% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[400,000 + (D)]
1/01/2016
$9,850
$409,850
6/30/2016
$ 26,000
$ 24,591
$1,409
8,441
408,441
6,947
406,947
403,686
6/30/2018
401,907
400,000
Exercise 10-15 (40 minutes)
1. Straight-line amortization table (($100,000-$95,948)/8 = $506.5)
Semiannual
Period-End
Unamortized
Discount †
Carrying
Value
6/01/2016 …………………
$4,052
$95,948
11/30/2016 …………………
3,546
96,454
5/31/2017 …………………
96,960
11/30/2017 …………………
2,534
97,466
98,478
1,016
98,984
99,494
† Supporting computations
Eight payments of $3,500** ………………..
$ 28,000
Exercise 10-15 (Concluded)
2.
2016
Nov. 30
Bond Interest Expense …………………………………………..
4,006
Discount on Bonds Payable …………………………..
Cash ………………………………………………………………..
Dec. 31
Bond Interest Expense …………………………………………..
Discount on Bonds Payable …………………………..
Interest Payable …………………………..…………………..
2017
May 31
Interest Payable …………………………………………………….
Bond Interest Expense …………………………………………..
3,338
Discount on Bonds Payable …………………………..
Cash ………………………………………………………………..
Exercise 10–16C (20 minutes)
2. Journal entries
2016
May 1
Cash ……………………………………………………………………..
3,502,000
Interest Payable …………………………..…………………..
102,000
Bonds Payable …………………………………………………
Bond Interest Expense …………………………………………..
Cash ……………………………………………………….
153,000
Dec. 31
Bond Interest Expense …………………………………………..
Cash ……………………………………………………….
153,000
Exercise 10–17D (10 minutes)
Exercise 10–18D (20 minutes)
1.
Leased Asset—Office Equipment ……………………………………….
41,000
2.
Depreciation Expense—Leased Asset, Office Equip ……………
Exercise 10–19D (15 minutes)
[Note: 12% / 12 months = 1% per month as the relevant interest rate.]
Exercise 10-20 (20 minutes)
(amounts in euros millions)
1.
Cash………………………………………………………………………
858
2.
Loans and Borrowings …………………………..………………
2,400
3. Heineken’s Loans and Borrowings carried a premium of €183 as of
4. The contract rate was higher than the market rate at issuance. This is
implied from the higher carrying value of its loans and borrowings
PROBLEM SET A
Problem 10-1A (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value …………………
B.1
0.4564
$40,000
$18,256
B.3
b.
2016
Jan. 1
Cash ……………………………………………………….
45,437
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value …………………
B.1
0.3769
$40,000
$15,076
B.3
b.
2016
Jan. 1
Cash ……………………………………………………….
40,000
Problem 10-1A (Concluded)
Part 3
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ………………..
B.1
0.3118
$40,000
$12,472
B.3
$35,412
b.
2016
Jan. 1
Cash ……………………………………………………….
35,412
Problem 10-2A (40 minutes)
Part 1
2016
Jan. 1
Cash ……………………………………………………….
3,456,448
Part 2
[Note: The semiannual amounts for (a), (b), and (c) below are the same throughout the bonds’
life because this company uses straight-line amortization.]
(a) Cash Payment = $4,000,000 x 6% x 6/12 year = $120,000
Part 3
Thirty payments of $120,000 ………………..
$3,600,000
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
(3,456,448)
Part 4 (Semiannual amortization: $543,552/30 = $18,118.4)
Semiannual
Period-End
Unamortized
Discount
Carrying
Value
1/01/2016 …………………
$543,552
$3,456,448
6/30/2016 …………………
525,434
6/30/2017 …………………
489,198
Problem 10-2A (Concluded)
Part 5
2016
June 30
Bond Interest Expense …………………………………………..
138,118
Bond Interest Expense …………………………………………..
138,118
Problem 10-3A (40 minutes)
Part 1
2016
Jan. 1
Cash ……………………………………………………………………..
4,895,980
4,000,000
Part 3
Thirty payments of $120,000 ………………..
$3,600,000
Par value at maturity …………………………..
4,000,000
Total repaid ………………………………………….
Less amount borrowed ………………………..
(4,895,980)
Problem 10-3A (Concluded)
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2016 …………………
$895,980
$4,895,980
Part 5
2016
June 30
Bond Interest Expense …………………………..
90,134
29,866
2016
Dec. 31
Bond Interest Expense …………………………..
90,134
29,866
Problem 10-4A (45 minutes)
Part 1
Ten payments of $8,125* ……………………..
$ 81,250
Par value at maturity …………………………..
Total repaid ………………………………………….
Less amount borrowed ………………………..
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
Part 2
Straight-line amortization table ($5,333/10 = $533*)
Semiannual
Interest Period–End
Unamortized
Premium
Carrying
Value
1/01/2016
$5,333
$255,333
6/30/2016
4,800
254,800
6/30/2017
3,734
253,734
6/30/2018
2,135
252,135
6/30/2019
6/30/2020
Problem 10-4A (Concluded)
Part 3
2016
June 30
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
2016
Dec. 31
Bond Interest Expense …………………………..
7,592
Premium on Bonds Payable …………………………..
Problem 10-5A (60 minutes)
Part 1
2016
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125* ……………….
$ 65,000
(292,181)
$ 65,000
Part 3 Straight-line amortization table ($32,819/8 =$4,102*)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2016
$32,819
$292,181
Problem 10–5A (Concluded)
Part 4
2016
Bond Interest Expense …………………………..
12,227
2016
Dec. 31
Bond Interest Expense …………………………..
12,227
Part 5
If the market interest rate on the issue date had been 4% instead of 8%, the
bonds would have sold at a premium because the contract rate of 5%
would have been greater than the market rate.
Problem 10–6A (45 minutes)
Part 1 Amount of Payment
Note balance ……………………………………………………….
$200,000
Interest rate ……………………………………………………….
Part 2
Payments
Period
Ending
Date
(A)
Beginning
Balance
[Prior (E)]
(B)
Debit
Interest
Expense
[8% x (A)]
+
(C)
Debit
Notes
Payable
[(D) – (B)]
=
(D)
Credit
Cash
[computed]
(E)
Ending
Balance
[(A) – (C)]
10/31/2017 …………
$200,000
$ 16,000
$ 34,091
$ 50,091
$165,909
$ 50,455
$200,000
$250,455
Part 3
2016
Dec. 31
Interest Expense …………………………..……………………….
2,667
Interest Payable …………………………..…………………..
2,667
Interest Expense …………………………..……………………….
Interest Payable …………………………………………………….
2,667
Cash ………………………………………………………………..
Accrued interest on the installment
Problem 10–7A (20 minutes)
Part 1
Part 2
Scott’s debt–to-equity ratio is higher than Pulaski’s. This implies that Scott
Problem 10–8AB (60 minutes)
Part 1
2016
Jan. 1
Cash ……………………………………………………….
292,181
Part 2
Eight payments of $8,125* ……………….
$ 65,000
Part 3
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[2.5% x $325,000]
(B)
Bond Interest
Expense
[4% x Prior (E)]
(C)
Discount
Amortization
[(B) – (A)]
(D)
Unamortized
Discount
[Prior (D) – (C)]
(E)
Carrying
Value
[$325,000 – (D)]
1/01/2016
$32,819
$292,181
Problem 10–8AB (Concluded)
Part 4
2016
June 30
Bond Interest Expense …………………………..
11,687
2016
Dec. 31
Bond Interest Expense …………………………..
11,830
Problem 10–9AB (45 minutes)
Part 1
Ten payments of $8,125* ………………………
$ 81,250
Par value at maturity …………………………..
Total repaid …………………………………………..
Less amount borrowed …………………………
Ten payments of $8,125 ……………………….
$ 81,250
Less premium………………………………………
Part 2
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
[3.25% x $250,000]
(B)
Bond Interest
Expense
[3% x Prior (E)]
(C)
Premium
Amortization
[(A) – (B)]
(D)
Unamortized
Premium
[Prior (D) – (C)]
(E)
Carrying
Value
[$250,000 + (D)]
1/01/2016
$5,333
$255,333
6/30/2016
$ 8,125
$ 7,660
$ 465
4,868
254,868
12/31/2016
8,125
7,646
479
4,389
254,389
6/30/2017
12/31/2017
8,125
7,617
3,388
253,388
6/30/2018
12/31/2018
8,125
7,586
2,326
252,326
6/30/2019
12/31/2019
7,553
1,199
251,199
6/30/2020
8,125
7,536
250,610