Chapter 9 – Long-Term Liabilities
Exercise 9-9 (LO 9-5)
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
x 4.5% Stated
Rate
Carrying Value
x 4% Market
Rate
(2) – (3)
Prior Carrying
Value – (4)
548,419
Requirement 2
January 1, 2021
Cash
549,482
Bonds Payable
500,000
June 30, 2021
Interest Expense
21,979
December 31, 2021
Interest Expense
21,958
Chapter 9 – Long-Term Liabilities
Exercise 9-10 (LO 9-5)
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)
Chapter 9 – Long-Term Liabilities
Exercise 9-11 (LO 9-5)
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
x 3.5% Stated
Rate
Carrying Value
x 4% Market
Rate
(3) – (2)
Prior Carrying
Value + (4)
562,022
Requirement 2
January 1, 2021
Cash
559,229
Discount on Bonds Payable
40,771
June 30, 2021
Interest Expense
22,369
December 31, 2021
Interest Expense
22,424
Chapter 9 – Long-Term Liabilities
9-24 Financial Accounting, 5e
Exercise 9-12 (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
644,632
Bonds Payable
600,000
Premium on Bonds Payable
44,632
(Issue bonds at a premium)
June 30, 2021
Interest Expense
(Pay semi-annual interest)
December 31, 2021
(Pay semi-annual interest)
Chapter 9 – Long-Term Liabilities
Exercise 9-13 (LO 9-5)
January 1, 2021
Cash
600,000
Bonds Payable
600,000
(Issue bonds at face amount)
Interest Expense
(Pay annual interest)
Interest Expense
(Pay annual interest)
Chapter 9 – Long-Term Liabilities
9-26 Financial Accounting, 5e
Exercise 9-14 (LO 9-5)
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Requirement 2
January 1, 2021
Cash
559,740
Discount on Bonds Payable
40,260
Bonds Payable
600,000
(Issue bonds at a discount)
December 31, 2021
Interest Expense
44,779
(Pay annual interest)
December 31, 2022
(Pay annual interest)
Chapter 9 – Long-Term Liabilities
Exercise 9-15 (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
644,161
Bonds Payable
600,000
Premium on Bonds Payable
44,161
(Issue bonds at a premium)
December 31, 2021
Interest Expense
(Pay annual interest)
December 31, 2022
(Pay annual interest)
9-28 Financial Accounting, 5e
Exercise 9-16 (LO 9-6)
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
If the market rate drops to 7%, it will cost $601,452 to retire the bonds.
Calculator Input
Bond
characteristics
Key
Amount
1. Face amount
FV
2. Interest payment each period
3. Periods to maturity
4. Market interest rate each period
Calculator Output
Issue price
PV
$601,452
December 31, 2022
Chapter 9 – Long-Term Liabilities
Exercise 9-17 (LO 9-6)
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
If the market rate increases to 8%, it will cost $568,311 to retire the bonds.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$600,000
2. Interest payment each period
3. Periods to maturity
4. Market interest rate each period
Calculator Output
Issue price
PV
$568,311
December 31, 2023
Bonds Payable
600,000
Chapter 9 – Long-Term Liabilities
9-30 Financial Accounting, 5e
Exercise 9-18 (LO 9-7)
Requirement 1
Premium. The issue price is $45,057,519
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$41,000,000
2. Interest payment
3. Periods to maturity
Calculator Output
Issue price
PV
$45,057,519
Requirement 2
Face amount. The issue price is $41,000,000.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$41,000,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
Calculator Output
Issue price
PV
$41,000,000
Chapter 9 – Long-Term Liabilities
Requirement 3
Discount. The issue price is $37,482,387
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$41,000,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
PV
Chapter 9 – Long-Term Liabilities
9-32 Financial Accounting, 5e
Exercise 9-19 (LO 9-7)
Requirement 1
Premium. The issue price is $27,934,072.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$26,000,000
2. Interest payment
3. Periods to maturity
Calculator Output
PV
Requirement 2
Face amount. The issue price is $26,000,000.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$26,000,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
Calculator Output
PV
Chapter 9 – Long-Term Liabilities
Requirement 3
Discount. The issue price is $24,233,258.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$26,000,000
2. Interest payment
3. Periods to maturity
4. Market interest rate
PV
Chapter 9 – Long-Term Liabilities
Exercise 9-20 (LO 9-8)
Requirement 1
Total
Liabilities
÷
Stockholders’
Equity
=
Debt to Equity
Ratio
E-Travel
÷
=
Pricecheck
÷
=
Requirement 2
Net Income +
Interest + Taxes
÷
Interest
=
Times Interest
Earned Ratio
E-Travel
$588,159
÷
$94,233
=
6.2
Pricecheck
$600,724
÷
$34,084
=
Chapter 9 – Long-Term Liabilities
Exercise 9-21 (LO 9-2, LO 9-8)
Requirement 1
January 1
Debit
Credit
Cash
100,000
Notes Payable (Long-term)
100,000
(Issue a long-term note payable)
January 4
Debit
Credit
Cash
31,000
Accounts Receivable
31,000
(Receive cash on account)
January 11
Debit
Credit
Accounts Payable
11,000
(Pay cash on account)
January 15
Debit
Credit
Salaries Expense
28,900
Cash
28,900
(Pay for salaries)
January 30
Debit
Credit
Cash
65,000
130,000
Accounts Receivable
Sales Revenue
(Sell inventory for cash and on account)
Cost of Goods Sold
112,500
Inventory
(Record cost of inventory sold)
January 31
Debit
Credit
Interest Expense
Notes Payable (Long-term)
Cash
($583 = $100,000 × 7% × 1/12)
Chapter 9 – Long-Term Liabilities
9-36 Financial Accounting, 5e
Exercise 9-21 (continued)
Requirement 2
(a) January 31
Debit
Credit
Depreciation Expense
800
Accumulated Depreciation
800
(Record depreciation for January)
($800 = [$120,000−$24,000] / 120 months)
(b) January 31
Debit
Credit
Bad Debt Expense
Allowance for Uncollectible Accounts
(c) January 31
Debit
Credit
Salaries Expense
26,100
Salaries Payable
26,100
(Adjust salaries payable)
(d) January 31
Debit
Credit
Income Tax Expense
Income Tax Payable
(Adjust income taxes)
Notes Payable (Long-term)
17,411
Notes Payable (Current)
17,411
(Reclassify current portion of note payable)
Chapter 9 – Long-Term Liabilities
Exercise 9-21 (continued)
Requirement 3
Freedom Fireworks
Adjusted Trial Balance
January 31, 2021
Accounts
Debit
Credit
Cash
$165,320
Accounts Receivable
133,000
Allowance for Uncollectible Accounts
$ 4,100
Inventory
39,500
Land
67,300
Buildings
120,000
Accumulated Depreciation
10,400
Accounts Payable
Salaries Payable
26,100
Income Tax Payable
Notes Payable (Current)
17,411
Notes Payable (Long-term)
81,192
Common Stock
200,000
Retained Earnings
155,400
Sales Revenue
195,000
Cost of Goods Sold
112,500
Salaries Expense
55,000
Bad Debt Expense
Depreciation Expense
Interest Expense
Income Tax Expense
$704,303
$704,303
Chapter 9 – Long-Term Liabilities
Exercise 9-21 (continued)
Requirement 3 (continued)
Accounts
Ending
Balance
Beginning balance in bold, entries during January in blue,
and adjusting entries in red.
Cash
$165,320
=
11,200+100,000+31,000−11,000−28,900+65,000−1,980
Accounts Receivable
133,000
=
34,000−31,000+130,000
Allow for Uncoll Accts
4,100
=
1,800+2,300
Inventory
=
152,000−112,500
Land
=
67,300
Buildings
120,000
=
Accumulated Depreciation
=
9,600+800
Accounts Payable
6,700
=
17,700−11,000
Salaries Payable
=
Income Tax Payable
8,000
=
Notes Payable (Current)
=
Notes Payable (Long-term)
=
100,000 – 1,397 -17,411
Common Stock
200,000
=
Retained Earnings
155,400
=
Sales Revenue
195,000
=
Cost of Goods Sold
112,500
=
Salaries Expense
=
Bad Debt Expense
2,300
=
Depreciation Expense
=
Interest Expense
=
Income Tax Expense
8,000
=
Chapter 9 – Long-Term Liabilities
Exercise 9-21 (continued)
Requirement 4
Freedom Fireworks
Multiple-Step Income Statement
For the year month ended January 31, 2021
Sales revenue
$195,000
Cost of goods sold
112,500
Gross profit
$ 82,500
Bad debt expense
Depreciation expense
Total operating expenses
Interest expense
Income tax expense
Requirement 5
Freedom Fireworks
Classified Balance Sheet
January 31, 2021
Assets
Liabilities
Cash
$165,320
Accounts payable
$ 6,700
Accounts receivable
133,000
Salaries payable
26,100
Less: Allowance
Income tax payable
Inventory
Notes payable (Current)
17,411
Total current liabilities
58,211
Notes payable (Long-term)
81,192
Total liabilities
Land
Buildings
Common stock
Less: Accumulated Depreciation
Retained earnings
*
Total assets
$510,620
$510,620
Chapter 9 – Long-Term Liabilities
9-40 Financial Accounting, 5e
Exercise 9-21 (concluded)
Requirement 6
January 31, 2021
Debit
Credit
Sales Revenue
195,000
Retained Earnings
195,000
(Close revenue accounts)
Retained Earnings
179,183
Cost of Goods Sold
112,500
Salaries Expense
Bad Debt Expense
Depreciation Expense
Interest Expense
Income Tax Expense
(Close expense accounts)
Requirement 7
(a) The debt to equity ratio is:
$139,403
$371,217
(b) The times interest earned ratio is:
(c) Based on the debt to equity ratio and the times interest earned ratio, ratio, Freedom Fireworks