E14-9 (con tin ued)
2. (continued)
Dec. 31 Interest Expense 1,616.67
3. 2012
Feb. 1 Interest Expense* 485
1 Bonds Payable 20,000
E14-10
1. BURR MOTOR COMPANY
Bond Interest Expense and
Discount Amortization Schedule
Effective Interest Method
11% Bonds Sold to Yield 12%
Date
Cash
Credita
Interest
Expense
Debitb
Unamortized
Discount
Creditc
Book Value
of Bondsd
09/01/09
$48,197.62
2. a. Effective Interest Method
2009
Sept. 1 Cash 48,197.62
Discount on Bonds Payable 1,802.38
E14-10 (continued)
2. (continued)
b. Straight-Line Method
2009
Sept. 1 Cash 48,197.62
E14-11
2011
Mar. 31 Interest Expense 42,000
E14-11 (continued)
*Call price ($1,500,000 x 1.07) $1,605,000
Less: Face value $1,500,000
E14-12 (AICPA adapted solution)
CONE COMPANY
Computation of Gain on Extinguishment of Debt
July 1, 2011
Book value of bonds on December 1, 2008 $2,300,000
E14-13
1.
a. 2011
E14-13 (continued)
1. (continued)
b. 2011
July 3 Bonds Payable 500,000
2. Before conversion
After conversion: Book value method
After conversion: Market value method
3. Cash 487,500
Bonds Payable 465,000a
E14-14 (AICPA adapted solution)
1. Cash 11,000,000
Bonds Payable 10,000,000
E14-14 (continued)
2. Bonds Payable 4,000,000
Premium on Bonds Payable (Schedule 1) 320,000
Schedule 1
Computation of Unamortized Premium
on Bonds Converted
Premium on bonds payable on January 1, 2009 $1,000,000
Schedule 2
Computation of Common Stock
Resulting from Conversion
Number of shares convertible on January 1, 2009
14-27
E14-15
2011
July 1 Bonds Payable 200,000
E14-16
2. Cash ($20 x 4,000) 80,000
14-28
E14-17 (AICPA adapted solution)
Cash 3,000,000
Discount on Bonds Payable 200,000
E14-18
1. 2010
Jan. 1 Cash 7,694.68
Discount on Notes Payable 2,305.32
Notes Payable 10,000.00
E14-19
2010
14-29
E14-19 (continued)
Dec. 31 Interest Expense ($47,663.85 x 0.12) 5,719.66
Discount on Notes Payable 5,719.66
E14-20
1. 2010
Jan. 1 Asset ($18,000 x 0.711780*) 12,812.04
Discount on Notes Payable 5,187.96
Notes Payable 18,000.00
E14-20 (continued)
4. 2012
Dec. 31 Notes Payable 18,000.00
E14-21
2. 2010
Dec. 31 Interest Expense ($68,301.30 x 0.10) 6,830.13
Discount on Notes Payable 6,830.13
E14-21 (continued)
3. 2013
Dec. 31 Notes Payable 100,000.00
Cash 100,000.00
E14-22
1. 2010
Jan. 1 Equipment 72,054.94
Discount on Notes Payable 17,945.06
2.4018313 is found as the factor for n=3 under 12%
in Table 4 of the TVM Module.
2. 2010 2011 2012
Note payable (beg. of year) $90,000.00 $60,000.00 $30,000.00
3. 2010
Dec. 31 Notes Payable 30,000.00
Interest Expense (see schedule) 8,646.59
E14-22 (continued)
3. (continued)
2012
E14-23
2010
Jan. 1 Notes Receivable 150,000.00
Gain on Sale of Land
($123,966.90 – $120,000.00) 3,966.90
2011
Dec. 31 Discount on Notes Receivable 13,636.41
Interest Revenue 13,636.41*
14-33
E14-24
1. 2010
Jan. 1 Notes Receivable 25,000
Accumulated Depreciation 7,000
2. 2010
Dec. 31 Discount on Notes Receivable 2,391.58
3. 2012
Jan. 1 Cash 25,000
Notes Receivable 25,000
1. 2010
Jan. 1 Notes Receivable 60,000.00
Loss on Sale of Land 1,963.38b
14-34
E14-25 (continued)
2. 2010
Dec. 31 Cash 20,000.00
Discount on Notes Receivable 5,764.39
Interest Revenue
($48,036.62 x 0.12) 5,764.39
E14-26
Note to Instructor: This exercise contains material from Chapter 7 and a note
(Note 2) that bears interest, but not at a fair rate.
E14-26 (continued)
Jan. 12 Interest Receivable
($10,000 x 0.10 x 10/360) 28
Interest Revenue 28
Cash 9,969a
E14-27 (AICPA adapted solution)
PITT COMPANY
Income Before Income Taxes on Sale of Patent
For the Years Ended December 31, 2010 and 2011
2010 2011
Gain on Sale
Sales price ($12,000 x 3.60) $43,200
E14-27 (continued)
Schedule 2: Computation of Interest Revenue for 2011
E14-28
1. Present value of principal = $200,000 x Present value of a single sum
for 5 years at 9% (from the TVM Module)
= $200,000 x 0.649931
2. 2010
Dec. 31 Bad Debt Expense 31,664.07a
Allowance for Doubtful Notes 31,664.07
a$200,000 carrying value – $168,335.93
14-37
E14-28 (continued)
2. (continued)
2013
Dec. 31 Cash 18,000.00
Interest Revenue 18,000.00
E14-29
1. Present value of principal = $500,000 x Present value of a single sum
for 8 years at 6% (from the TVM Module)
= $500,000 x 0.627412
2. 2010
Dec. 31 Bad Debt Expense 80,190.57a
Allowance for Doubtful Notes 80,190.57
14-38
E14-29 (continued)
2. (continued)
2013
Jan. 1 Allowance for Doubtful Accounts 28,302.12d
Bad Debt Expense 28,302.12
dThe present value of the cash payments must now equal the
Dec. 31 Cash 30,000.00
Interest Revenue 30,000.00
14-39
E14-29 (continued)
2. (continued)
2016
Dec. 31 Cash 30,000.00
Interest Revenue 30,000.00
E14-30
Determination of effective interest rate on restructuring agreement:
*Factors from Tables 4 and 3 of the TVM Module
Schedule to Compute Interest Expense
Date
Cash
Credita
Interest
Expense
Debitb
Notes
Payable
Debitc
Carrying Value
of Noted
E14-30 (continued)
bPrevious carrying value x 0.04
E14-31
1. Carrying value of debt ($300,000 + $66,000) $366,000
2. Carrying value of debt $366,000
Fair value of land (342,000)