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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)
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)
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)
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)
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)
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)
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)
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
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
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
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
Calculator Output
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
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
Calculator Output
Requirement 2
Face amount. The issue price is $26,000,000.
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$26,000,000
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
Chapter 9 - Long-Term Liabilities
Exercise 9-20 (LO 9-8)
Requirement 1
Total
Liabilities
÷
Stockholders’
Equity
=
Debt to Equity
Ratio
Requirement 2
Net Income +
Interest + Taxes
÷
Interest
=
Times Interest
Earned Ratio
E-Travel
$588,159
÷
$94,233
=
6.2
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 15
Debit
Credit
Salaries Expense
28,900
Cash
28,900
(Pay for salaries)
January 30
Debit
Credit
Cash
65,000
130,000
Accounts Receivable
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)
(c) January 31
Debit
Credit
Salaries Expense
26,100
Salaries Payable
26,100
(Adjust salaries 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
Notes Payable (Current)
17,411
Notes Payable (Long-term)
81,192
Common Stock
200,000
Retained Earnings
155,400
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
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
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
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)
Requirement 7
(a) The debt to equity ratio is:
(b) The times interest earned ratio is:
(c) Based on the debt to equity ratio and the times interest earned ratio, ratio, Freedom Fireworks
