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Ch 10 Additional Solutions - Michaele L Morrow, PhD, MPA, CPA

By Jon Warren,2014-06-27 22:53
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Ch 10 Additional Solutions - Michaele L Morrow, PhD, MPA, CPA ...

    Solution Summary Problem 1

    Requirement 1 7%, premium; 9%, discount

    Requirement 2

    a. June 30 Cash (100,000 * .94) 94,000

    Discount on Bonds Payable 6,000

     Bonds Payable 100,000

b. Dec 31 Interest Expense 4,300

    Cash (100,000 * .08 * 6/12) 4,000

    Discount on Bonds Payable 300

c. Bond carrying amount on Dec 31, 2008 = 94,300 (100,000 (6,000 -300))

    d. June 30 Interest Expense 4,300

    Cash (100,000 * .08 * 6/12) 4,000

    Discount on Bonds Payable 300

    Solution Summary Problem 2 a. April 1 Cash (100,000 * 1.048) 104,800

    Bonds Payable 100,000

    Premium on Bonds Payable 4,800

b. Oct 1 Interest Expense 2,880

    Premium on Bonds Payable (4800/40) 120

     Cash (100,000 * .06 * 6/12) 3,000

c. Dec 31 Interest Expense 1,440

    Premium on Bonds Pay (4800/40 * ?) 60

     Interest Payable (100,000 * .06 * 3/12) 1,500

d. April 1 Interest Payable (from 12/31) 1,500

    Interest Expense 1,440

    Premium on Bonds Pay (4,800/40 * ? ) 60

     Cash 3,000

    M10-2 Face amount = 500,000

    Face rate = 10%

    Market rate = 8%

    N = 10

Since this is semiannual, split the rate in half and multiply the periods by two. So,

    Face rate = 5%

    Market rate = 4%

    N = 20

    (1a) Compute interest payment: 500,000 x 0.05 = 25,000

    (1b) PV of interest payments: 25,000 x 13.5903 = 339,757.50

    (2) PV of face amount: 500,000 x 0.4564 = 228,200

Issue Price = 567,957.50

January 1, 2003 Cash 567,957.50

     Premium on Bonds Payable 67,957.50

     Bonds Payable 500,000.00

    June 30, 2003 Interest Expense 21,602.12

     Premium on Bonds Payable 3,397.88

     Cash 25,000

    (Amortization of Premium 67,957.50/20 = 3,397.88)

    December 31, 2003 Interest Expense 21,602.12

     Premium on Bonds Payable 3,397.88

     Cash 25,000

    M10-3 Face amount =300,000

    Face rate = 10%

    Market rate = 12%

    N = 10

Since this is semiannual, split the rate in half and multiply the periods by two. So,

    Face rate = 5%

    Market rate = 6%

    N = 20

    (1a) Compute interest payment: 300,000 x 0.05 = 15,000

    (1b) PV of interest payments: 15,000 x 11.4699 = 172,048.50

    (2) PV of face amount: 300,000 x 0.3118 = 93,540

Issue Price = 265,588.50

January 1, 2003 Cash 265,588.50

     Discount on Bonds Payable 34,411.50

     Bonds Payable 300,000.00

June 30, 2003 Interest Expense 16,720.58

     Discount on Bonds Payable 1,720.58

     Cash 15,000

    (Amortization of Premium 34,411.50/20 = 1,720.58)

    December 31, 2003 Interest Expense 16,720.58

     Discount on Bonds Payable 1,720.58

     Cash 15,000

    M10-4

January 1, 2003 Cash 545,000.00

     Premium on Bonds Payable 45,000.00

     Bonds Payable 500,000.00

    June 30, 2003 Interest Expense 17,750.00

     Premium on Bonds Payable 2,250.00

     Cash 20,000

Amortization of Premium 45,000/20 = 2,250 and Interest Payment 500,000 x .08 = 40,000/2 = 20,000

    M10-5

January 1, 2003 Cash 1,070,000.00

     Premium on Bonds Payable 1,000,000.00

     Bonds Payable 70,000.00

    June 30, 2003 Interest Expense 36,500.00

     Premium on Bonds Payable 3,500.00

     Cash 40,000.00

Amortization of Premium 70,000/20 = 3,550 and Interest Payment 1,000,000 x .08 = 80,000/2 = 40,000

    M10-6

    January 1, 2003 Cash 580,000.00

     Discount on Bonds Payable 20,000.00

     Bonds Payable 600,000.00

June 30, 2003 Interest Expense 31,000.00

     Discount on Bonds Payable 1,000.00

     Cash 30,000.00

Amortization of Discount 20,000/20 = 1,000 and Interest Payment 600,000 x .10 = 60,000/2 = 30,000

    M10-7

    January 1, 2003 Cash 753,000.00

     Discount on Bonds Payable 47,000.00

     Bonds Payable 800,000.00

June 30, 2003 Interest Expense 42,350.00

     Discount on Bonds Payable 2,350.00

     Cash 40,000.00

Amortization of Discount 47,000/20 = 2,350 and Interest Payment 800,000 x .10 = 80,000/2 = 40,000

    E10-10 Face amount =500,000

    Face rate = 10%

    Market rate = 10%

    N = 10

    Compute interest payment: 500,000 x 0.10 = 50,000/2 = 25,000

At Issuance Cash 500,000.00

     Bonds Payable 500,000.00

At 1st Payment Interest Expense 25,000.00

     Cash 25,000.00

Since the bond was issued at par (face value), there is no premium or discount to amortize. Therefore,

    interest expense = cash payment.

    E10-12 Case A Face amount =100,000

    Face rate = 8%

    Market rate = 8%

    N = 5

Since this is semiannual, split the rate in half and multiply the periods by two. So,

    Face rate = 4%

    Market rate = 4%

    N = 10

    Compute interest payment: 100,000 x 0.08 = 8,000/2 = 4,000

Issue Price = 100,000.00

At Issuance Cash 100,000.00

     Bonds Payable 100,000.00

At June 30 Interest Expense 4,000.00

     Cash 4,000.00

At Dec 31 Interest Expense 4,000.00

     Cash 4,000.00

    Case B Face amount =100,000

    Face rate = 8%

    Market rate = 6%

    N = 5

    Since this is semiannual, split the rate in half and multiply the periods by two. So,

    Face rate = 4%

    Market rate = 3%

    N = 10

    (1a) Compute interest payment: 100,000 x 0.04 = 4,000.00

    (1b) PV of interest payments: 4,000 x 8.5302 = 34,120.80

    (2) PV of face amount: 100,000 x 0.7441 = 74,410.00

Issue Price = 108,530.80

At Issuance Cash 108,530.80

     Premium on Bonds Payable 8,530.80

     Bonds Payable 100,000.00

At June 30 Interest Expense 3,146.92

     Premium on Bonds Payable 853.08

     Cash 4,000

    (Amortization of Premium 8,530.80/10 = 853.08)

At Dec 31 Interest Expense 3,146.92

     Premium on Bonds Payable 853.08

     Cash 4,000

    Case C Face amount =100,000

    Face rate = 8%

    Market rate = 10%

    N = 5

    Since this is semiannual, split the rate in half and multiply the periods by two. So,

    Face rate = 4%

    Market rate = 5%

    N = 10

    (1a) Compute interest payment: 100,000 x 0.04 = 4,000.00

    (1b) PV of interest payments: 4,000 x 7.7217 = 30,886.80

    (2) PV of face amount: 100,000 x 0.6139 = 61,390.00

Issue Price = 92,276.80

    At Issuance Cash 92,276.80

     Discount on Bonds Payable 7,723.20

     Bonds Payable 100,000.00

At June 30 Interest Expense 4,772.32

     Discount on Bonds Payable 772.32

     Cash 4,000.00

    (Amortization of Premium 7,723.20/10 = 772.32)

At June 30 Interest Expense 4,772.32

     Discount on Bonds Payable 772.32

     Cash 4,000.00

E10-13

    Face amount =200,000

    Face rate = 8%

    Market rate = 9%

    N = 10

(1a) Compute interest payment: 200,000 x 0.08 = 16,000.00

(1b) PV of interest payments: 16,000 x 6.4177 = 102,683.20

(2) PV of face amount: 200,000 x 0.4224 = 84,480.00

Issue Price = 187,163.20

At Issuance Cash 187,163.20

     Discount on Bonds Payable 12,836.80

     Bonds Payable 200,000.00

    Balance Sheet at Issuance

    Bonds Payable 200,000.00

    Discount on B/P (12,836.80)

    Carrying Value of B/P 187,163.20

At Dec 31st Interest Expense 17,283.68

     Discount on Bonds Payable 1,283.68

     Cash 16,000

(Amortization of Discount 12,836.80/10 = 1,283.68)

Balance Sheet at Issuance

    Bonds Payable 200,000.00

    Discount on B/P (11,553.12)

    Carrying Value of B/P 188,446.88

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