Chapter 9 – Long-Term Liabilities
PROBLEMS: SET A
Problem 9-1A (LO 9-2)
Requirement 1
January 1, 2021
Building
360,000
Requirement 2
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
$3,483.25
Requirement 3
January 31, 2021
Interest Expense ($300,000 × 7% × 1/12)
1,750.00
Notes Payable (difference)
1,733.25
3,483.25
Requirement 4
Total payments on the loan are $417,990. Since actual payments on the loan are
9-42 Financial Accounting, 5e
Problem 9-2A (LO 9-2)
Requirement 1
January 1, 2021
Cash
2,000,000
Notes Payable
2,000,000
(Issue a note payable)
Requirement 2
Date
Cash
Paid
Interest
Expense
Decrease in
Carrying Value
Carrying
Value
2,000,000
12/31/2021
12/31/2023
Requirement 3
December 31, 2021
Interest Expense
160,000
Notes Payable
616,067
Cash
776,067
(Pay annual installment on note)
December 31, 2022
Interest Expense
Notes Payable
December 31, 2023
Interest Expense
Notes Payable
Chapter 9 – Long-Term Liabilities
Problem 9-3A (LO 9-3, 9-8)
Requirement 1
Assets
=
Liabilities
+
Stockholders’
Equity
Requirement 2
Requirement 3
($ in millions)
Lease Asset
16
Requirement 4
Yes.
The revised debt to equity ratio of 2.34 is greater than the 2.0 ratio required in the
bond agreement.
Total
=
Chapter 9 – Long-Term Liabilities
9-44 Financial Accounting, 5e
Problem 9-4A (LO 9-5)
Requirement 1
January 1, 2021
Cash
600,000
Bonds Payable
600,000
(Issue bonds at face amount)
June 30, 2021
Interest Expense
(Pay semiannual interest)
December 31, 2021
Interest Expense
(Pay semiannual interest)
Requirement 2
January 1, 2021
Cash
544,795
Discount on Bonds Payable
55,205
Bonds Payable
600,000
(Issue bonds at a discount)
June 30, 2021
24,516
December 31, 2021
24,539
(Pay semiannual interest)
Chapter 9 – Long-Term Liabilities
Requirement 3
January 1, 2021
Cash
664,065
Bonds Payable
600,000
Premium on Bonds Payable
64,065
(Issue bonds at a premium)
June 30, 2021
Premium on Bonds Payable (difference)
December 31, 2021
Chapter 9 – Long-Term Liabilities
9-46 Financial Accounting, 5e
Problem 9-5A (LO 9-5)
1. Discount
2. $37,281,935
Chapter 9 – Long-Term Liabilities
Problem 9-6A (LO 9-5)
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Requirement 2
January 1, 2021
Cash
841,464
Requirement 3
June 30, 2021
Interest Expense ($841,464 × 9% × ½)
37,866
December 31, 2021
Interest Expense ($843,330 × 9% × ½)
37,950
Chapter 9 – Long-Term Liabilities
9-48 Financial Accounting, 5e
Problem 9-7A (LO 9-5, 9-7)
Requirement 1
Face amount. The issue price is $1,300,000.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$1,300,000
2. Interest payment
3. Periods to maturity
PV
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Chapter 9 – Long-Term Liabilities
Requirement 2
Discount. The issue price is $1,187,602.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$1,300,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
PV
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Requirement 3
Premium. The issue price is $1,427,403.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$1,300,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
PV
Chapter 9 – Long-Term Liabilities
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Chapter 9 – Long-Term Liabilities
Problem 9-8A (LO 9-8)
Requirement 1
($ in millions)
Total
Liabilities
÷
Stockholders’
Equity
=
Debt to Equity
Ratio
Bahama Bay
$5,724
÷
$3,137
=
1.82
Caribbean Key
÷
=
Requirement 2
($ in millions)
Net
Income
÷
Average
Total Assets
=
Return on
Assets Ratio
Bahama Bay
$562
÷
$9,210.5*
=
6.1%
Caribbean Key
÷
=
Requirement 3
($ in millions)
Net Income +
Interest + Taxes
÷
Interest
=
Times Interest
Earned Ratio
Bahama Bay
÷
=
Caribbean Key
÷
=
Chapter 9 – Long-Term Liabilities
9-52 Financial Accounting, 5e
PROBLEMS: SET B
Problem 9-1B (LO 9-2)
Requirement 1
January 1, 2021
Building
610,000
500,000
Requirement 2
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Monthly
Payment
Carrying
Value
(2) – (3)
Prior Carrying
Value – (4)
Requirement 3
January 31, 2021
Interest Expense ($500,000 × 9% × 1/12)
3,750.00
Notes Payable (difference)
1,321.33
Requirement 4
Over the 15 year mortgage, $412,839 is interest expense and $500,000 goes to
Chapter 9 – Long-Term Liabilities
Problem 9-2B (LO 9-2)
Requirement 1
January 1, 2021
Cash
9,000,000
Notes Payable
Requirement 2
Date
Cash
Paid
Interest
Expense
Decrease in
Carrying Value
Carrying
Value
9,000,000
12/31/2021
2,657,053
6,972,947
12/31/2023
2,657,053
2,483,227
12/31/2023
2,657,053
Requirement 3
December 31, 2021
Interest Expense
630,000
Notes Payable
2,027,053
Cash
2,657,053
December 31, 2022
Interest Expense
488,106
Notes Payable
2,168,947
Cash
2,657,053
December 31, 2023
Interest Expense
336,280
Notes Payable
2,320,773
December 31, 2024
Interest Expense
173,826
Notes Payable
2,483,227
Cash
2,657,053
Problem 9-3B (LO 9-3, 9-8)
Requirement 1
Assets
=
Liabilities
+
Stockholders’
Equity
Requirement 2
Total
Liabilities
÷
Stockholders’
Equity
=
Debt to Equity Ratio
$152 million
÷
$49 million
=
3.10
Requirement 3
Requirement 4
Yes.
The revised debt to equity ratio of 3.63 is greater than the 3.25 ratio required in the
bond agreement.
Total
Chapter 9 – Long-Term Liabilities
Problem 9-4B (LO 9-5)
Requirement 1
January 1, 2021
Cash
3,000,000
Bonds Payable
3,000,000
(Issue bonds at face amount)
June 30, 2021
Interest Expense
135,000
135,000
(Pay semiannual interest)
December 31, 2021
Interest Expense
135,000
(Pay semiannual interest)
Requirement 2
January 1, 2021
Cash
2,813,067
Discount on Bonds Payable
186,933
Bonds Payable
3,000,000
(Issue bonds at a discount)
June 30, 2021
140,653
135,000
December 31, 2021
140,936
(Pay semiannual interest)
Chapter 9 – Long-Term Liabilities
Requirement 3
January 1, 2021
Cash
3,203,855
Bonds Payable
3,000,000
Premium on Bonds Payable
203,855
(Issue bonds at a premium)
June 30, 2021
128,154
December 31, 2021
127,880
135,000
Problem 9-5B (LO 9-5)
1. Premium
Chapter 9 – Long-Term Liabilities
Problem 9-6B (LO 9-5)
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Requirement 2
January 1, 2021
Cash
1,098,002
Bonds Payable
1,000,000
Premium on Bonds Payable
Requirement 3
June 30, 2021
Interest Expense ($1,098,002 × 6% × ½)
32,940
Premium on Bonds Payable (difference)
2,060
Interest Expense ($1,095,942 × 6% × ½)
Premium on Bonds Payable (difference)
2,122
Chapter 9 – Long-Term Liabilities
9-58 Financial Accounting, 5e
Problem 9-7B (LO 9-5, 9-7)
Requirement 1
Face amount. The issue price is $850,000.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$850,000
2. Interest payment
3. Periods to maturity
PV
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying
Chapter 9 – Long-Term Liabilities
Requirement 2
Discount. The issue price is $789,597.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$850,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
PV
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
Carrying Value
Prior Carrying