14-41
E14-32
1. Present value of principal = $200,000 x Present value of a single
sum for 3 years at 12%
E14-33
1. Fair value of stock (10,000 x $35) $350,000
Carrying value of note ($300,000 + $66,000) (366,000)
2. Fair value of land $342,000
Carrying value of note (366,000)
14-42
E14-34
(Premium Amortization Schedule for Serial Bonds on next page)
1. 2009
July 1 Cash 318,000
Bonds Payable 300,000
Premium on Bonds Payable 18,000
2011
4. Jan. 1 Interest Expense 15,900
Premium on Bonds Payable 3,600
Cash 19,500
14-43
E13-34 (contingued)
NICHOLSEN CORPORATION
Interest Expense and Premium Amortization
Schedule for Serial Bonds
Straight-Line (Bonds Outstanding) Method
Date
Fraction of
Premium
Amortizeda
Cash
Creditb
Premium
Amortization
Debitc
Interest
Expense
Debitd
Unamortized
Premiume
Bonds
Payable
Debitf
Bonds
Outstandingg
07/1/09
01/1/10
6/30
$ 19,500
$3,600
$15,900
$18,000
14,400
$ 300,000
300,000
E14-34 (continued)
E13-34 (contingued)
LEWIS COMPANY
Interest Expense and Premium Amortization
Schedule for Serial Bonds
Effective Interest Method
13% Bonds Sold to Yield 12%
Date
Cash
Credita
Interest
Expense
Debitb
Premium
Amortization
Debitc
Unamortized
Premiumd
Bonds
Payable
Debite
Book Value
of Bondsf
01/01/09
$4,650.74
$204,650.74
E14-35
1. (continued)
E14-35 (continued)
2. 2009
Jan. 1 Cash 204,650.74
Premium on Bonds Payable 4,650.74
Bonds Payable 200,000.00
2011
Dec. 31 Interest Expense 14,639.27
Bonds Payable 40,000.00
Premium on Bonds Payable 960.73
Cash 55,600.00
14-46
E14-36 (AICPA adapted solution)
1. MYKOO CORPORATION
Schedule of Total Amount Received for Serial Bond
Present value of interest to be paid at the end
of each year for 5 years at an annual yield
of 12% computed as follows:
Date
Bonds
Outstanding
Interest
at 10%
Present Value
Factor at 12%
Present Value
of Interest
Payments
13-47
E13-36 (continued
2.
MYKOO CORPORATION
Amortization of Bond Discount
Interest (Effective Rate) Method
Year
(A)
Carrying Value
of Bonds
($1,000,000
– E – F)
(B)
Effective
Interest Expense
(12% x A)
(C)
Interest
Payments
(D)
Amortization of
Bond Discount
(B – C)
(E)
Bond Discount
Balance
(E – D)
(F)
Cumulative
Principal
Payments
Issue
$953,502
$46,498
14-47
E14-36 (continued)
2.
SOLUTIONS TO PROBLEMS
P14-1
2009
Jan. 1 Cash 100,604.79
BAKER CORPORATION
Bond Interest Expense and
Premium Amortization Schedule
Effective Interest Method
13% Bonds Sold to Yield 12%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Premium
Debitc
Book Value
of Bondsd
01/01/09
$103,604.79
Dec. 31 Interest Expense ($12,432.58 + $600) 13,032.58
Premium on Bonds Payable 567.42
14-49
P14-1 (continued)
2010
Dec. 31 Interest Expense ($12,364.48 + $600) 12,964.48
Premium on Bonds Payable 635.52
Cash 13,000.00
Deferred Bond Issue Costs 600.00
P14-2
June 30, 2010 issuance:
14-50
P14-2 (continued)
December 31, 2010 issuance:
P14-3
1. DORSETT CORPORATION
Bond Interest Expense and
Premium Amortization Schedule
Effective Interest Method
13% Bonds Sold to Yield 12%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Premium
Debitc
Book Value
of Bondsd
01/01/09
06/30/09
12/31/09
$39,000
39,000
$36,885.13
36,758.24
$2,114.87
2,241.76
$614,752.24
612,637.37
610,395.61
2. 2011
14-51
P14-3 (continued)
Sept. 30 Bonds Payable 600,000.00
P14-4
1. BATSON CORPORATION
Bond Interest Expense and
Premium Amortization Schedule
Straight-Line Method
Date
Cash
Credita
Unamortized
Premium
Debitb
Interest
Expense
Debitc
Book Value
of Bondsd
04/01/10
$851,705.70
14-52
P14-4 (continued)
2. BATSON COMPANY
Bond Interest Expense and
Premium Amortization Schedule
Effective Interest Method
12% Bonds Sold to Yield 10%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Premium
Debitc
Book Value
of Bondsd
04/01/10
09/30/10
03/31/11
$48,000
48,000
$42,585.29
42,314.55
$5,414.72
5,685.45
$851,705.70
846,290.98
840,605.53
3. a. 2010
Dec. 31 Interest Expense ($41,536.79 ÷ 2) 20,768.39
Premium on Bonds Payable
4. a. 2011
June 30 Interest Expense ($41,536.79 ÷ 2) 20,768.39
14-53
P14-4 (continued)
4.a. (continued)
June 30 Bonds Payable 800,000.00
b. 2011
June 30 Interest Expense ($42,030.28 ÷ 2) 21,015.14
Premium on Bonds Payable
14-54
P14-5
1. DONALDSON INCORPORATED
Bond Interest Expense and
Discount Amortization Schedule
Effective Interest Method
12% Bonds Sold to Yield 14%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Discount
Creditc
Book Value
of Bondsd
01/01/09
06/30/09
12/31/09
$30,000
30,000
$32,910.04
33,113.75
$2,910.04
3,113.75
$470,143.47
473,053.51
476,167.26
2. 2011
July 1 Bonds Payable 500,000.00
14-55
P14-6
1. WILKERSON CORPORATION
Bond Interest Expense and
Discount Amortization Schedule
Straight-Line Method
Date
Cash
Credita
Unamortized
Discount
Creditb
Interest
Expense
Debitc
Book Value
of Bondsd
10/01/10
03/31/11
$67,500
$1,866.04
$69,366.04
$ 985,071.68
986,937.72
a$1,000,000 x 0.135 x ½ year
2. WILKERSON INCORPORATED
Bond Interest Expense and
Discount Amortization Schedule
Effective Interest Method
13.5% Bonds Sold to Yield 14%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Discount
Creditc
Book Value
of Bondsd
10/01/10
03/31/11
09/30/11
$67,500
67,500
$68,955.02
69,056.87
$1,455.02
1,556.87
$ 985,071.68
986,526.70
988,083.57
14-56
P14-6 (continued)
2. (continued)
a$1,000,000 x 0.135 x ½ year
bPrevious book value x 0.14 x ½ year
3. a. 2010
Dec. 31 Interest Expense ($69,366.04 ÷ 2) 34,683.02
4. Straight-line method
Net income = [$500,000 – ($69,366.04 ÷ 2) – $69,366.04 –
($69,366.04 ÷ 2)] x (1 – 0.3)
5. a. 2011
June 30 Interest Expense ($69,366.04 ÷ 2) 34,683.02
P14-6 (continued)
5.a. (continued)
June 30 Bonds Payable 1,000,000.00
Interest Payable 33,750.00
Discount on Bonds Payable
($13,062.28 – $933.02) 12,129.26
6. Straight-line method
= 3.60
Effective interest method
P14-7
1. a. 2009
Jan. 1 Cash 385,279.91
c. 2011
July 1 Bonds Payable 400,000.00
Loss on Bond Redemption* 28,424.61
BAXTER CORPORATION
Bond Interest Expense and
Discount Amortization Schedule (Partial)
Effective Interest Method
11% Bonds Sold to Yield 12%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Discount
Creditc
Book Value
of Bondsd
01/01/09
06/30/09
$22,000
$23,116.80
$1,116.80
$385,279.91
386,396.71
14-59
P14-7 (continued)
2. If the company was required to reflect the current yield each year, the value of
the bonds would be computed on each balance sheet date by computing the
present value of the remaining cash flows at the current market yield. The
P14-8
1. a. 2011
Mar. 1 Bonds Payable 300,000
Premium on Bonds Payable * 19,200
$300,000
P14-8 (continued)
1. (continued)
b. 2011
Mar. 1 Bonds Payable 300,000
Premium on Bonds Payable 19,200
2. The conversion feature would probably have to be valued by estimating the
difference in the yields between the convertible bond and an equivalent bond
3. Before conversion
After conversion: Book value method