Chapter 14
Problem 14-3A (30 minutes)
a.
PV of face amount (FV = –$540,000; N = 6; I/Y = 13 ÷ 2)........................... $370,080
PV of interest annuity (PMT = –$32,400*; N = 6; I/Y = 13 ÷ 2).................... 156,849
$526,929
*$540,000 × 12% × 6/12 = $32,400
Calculator keystrokes:
N = 3 years x 2 periods per year = 6
FV = -540,000
PMT = -32,400
I/Y = 13% ÷ 2 periods per year = 6.5
Compute PV (where PV = $526,929)
b.
(a) (b) (c ) (d) (e)
Cash Period
Interest Interest Discount Unamortized
Paid Expense Amort. Discount Carrying Value
Period $540,000 x (e) x 13%
Ending 12% x 6/12 x 6/12 (b) - (a) $540,000 - (d)
June 1/23 13,071 526,929
Dec. 1/ 23 32,400 34,250 1,850 11,221 528,779
June 1/24 32,400 34,371 1,971 9,250 530,750
Dec. 1/24 32,400 34,499 2,099 7,151 532,849
June 1/25 32,400 34,635 2,235 4,916 535,084
Dec. 1/25 32,400 34,780 2,380 2,536 537,464
June 1/26 32,400 34,936* 2,536 0 540,000
Totals 194,400 207,471 13,071
* adjusted for rounding
Problem 14-4A (25 minutes)
Part 1
a.
2023
June 1 Cash...................................................................................... 526,929
Discount on Bonds Payable................................................... 13,071
Bonds Payable............................................................. 540,000
Issued bond at discount.
b.
Dec. 1 Bond Interest Expense.......................................................... 34,250
Discount on Bonds Payable........................................ 1,850
Cash............................................................................ 32,400
Record payment of interest.
c.
2024
Jan. 31 Bond Interest Expense (34,371 × 2/6)................................... 11,457
Discount on Bonds Payable (1,971 × 2/6)................... 657
Interest Payable (32,400 × 2/6)................................... 10,800
Record accrual of interest.
d.
2024
June 1 Interest Payable..................................................................... 10,800
Bond Interest Expense (34,371 × 4/6)................................... 22,914
Discount on Bonds Payable (1,971 × 4/6)................... 1,314
Cash............................................................................ 32,400
Record payment of interest.
Part 2
Non-current liabilities:
Bonds payable, 12%, due June 1, 2026.................................................. $540,000
Less: Discount on bonds payable.......................................................... 6,406*
$533,594
*$7,151 – ($2,235 × 2/6 = $745) = $6,406
Problem 14-8A (45 minutes)
Part 1
Ten payments of $19,125 ..................................... $ 191,250
Maturity amount..................................................... 450,000
Total repaid............................................................ $641,250
Less: Amount borrowed........................................ 459,125
Total interest expense........................................... $ 182,125
or :
Ten payments of $19,125..................................... $ 191,250
Less: Premium..................................................... 9,125
Total interest expense........................................... $ 182,125
Part 2
Cash Period
Period Interest Interest Premium Unamortized Carrying
Ending Paid Expense Amort. Premium Value
Jan. 1/23 9,125 459,125
June 30/23 19,125 18,365 760 8,365 458,365
Dec. 31/23 19,125 18,335 790 7,575 457,575
June 30/24 19,125 18,303 822 6,753 456,753
Dec. 31/24 19,125 18,270 855 5,898 455,898
June 30/25 19,125 18,236 889 5,009 455,009
Dec. 31/25 19,125 18,200 925 4,084 454,084
June 30/26 19,125 18,163 962 3,122 453,122
Dec. 31/26 19,125 18,125 1,000 2,122 452,122
June 30/27 19,125 18,085 1,040 1,082 451,082
Dec. 31/27 19,125 18,043 1,082 0 450,000
Totals 191,250 182,125 9,125
Problem 14-8A (concluded)
Part 3
2023
June 30 Bond Interest Expense..................................................................... 18,365
Premium on Bonds Payable............................................................. 760
Cash............................................................................................ 19,125
To record six months’ interest and premium
amortization.
Dec. 31 Bond Interest Expense..................................................................... 18,335
Premium on Bonds Payable............................................................. 790
Cash............................................................................................ 19,125
To record six months’ interest and premium
amortization.
Part 4
December 31, 2025
Table Present
Cash Flow Table Value Amount Value
Par value.....................................................................................
14A.1 0.8548 $450,000 $384,660
Interest (annuity).........................................................................
14A.2 3.6299 19,125 69,422
Total............................................................................................ *$454,082
The table values are based on a discount rate of 4% (half the annual original market rate) and 4
periods/payments.
Except for a small rounding error, this present value equals the carrying value of the bonds in
column (e) of the amortization table. The balance at any point in time equals the present value
of the remaining cash flows.
*Using the PV function on a calculator will result in a bond price of $454,084
Calculator keystrokes:
N = 2 years x 2 periods per year = 4
FV = -450,000
PMT = -19,125
I/Y = 8% ÷ 2 periods per year = 4
Compute PV
Problem 14-9A (30 minutes)
Part 1
a.
Total issue price* $615,986
..................................................................................................................
*Calculator keystrokes:
N = 3 years × 2 periods per year = 6
FV = –600,000
PMT = –24,000
I/Y = 7% ÷ 2 periods/year = 3.5
Compute PV (where PV = $615,986)
b.
Cash
Period Interest Period Interest Premium Unamortized
Ending Paid Expense Amort. Premium Carrying Value
Mar. 1/23 15,986 615,986
Sept. 1/23 24,000 21,560 2,440 13,546 613,546
Mar. 1/24 24,000 21,474 2,526 11,020 611,020
Sept. 1/24 24,000 21,386 2,614 8,406 608,406
Mar. 1/25 24,000 21,294 2,706 5,700 605,700
Sept. 1/25 24,000 21,200 2,800 2,900 602,900
Mar. 1/26 24,000 *21,100 2,900 0 600,000
Totals 144,000 128,014 15,986
* adjusted for rounding
c.
2023
Mar. 1 Cash.................................................................................................
615,986
Premium on Bonds Payable................................................... 15,986
Bonds Payable....................................................................... 600,000
To record issuance of bond.
Apr. 30 Bond Interest Expense.....................................................................
7,187
Premium on Bonds Payable.............................................................
813
Interest Payable...................................................................... 8,000
To record accrual of interest on bond;
24,000 x 2/6 = 8,000; 2,440 x 2/6 = 813.
Sept. 1 Interest Payable................................................................................
8,000
Bond Interest Expense.....................................................................
14,373
Premium on Bonds Payable.............................................................
1,627
Cash....................................................................................... 24,000
To record payment of interest;
2,440 x 4/6 = 1,627; 21,560 x 4/6 = 14,373.
Problem 14-9A (concluded)
Part 2
a.
Total issue price*................................................................................... $ 592,200
*Calculator keystrokes:
N = 3 years × 2 periods per year = 6
FV = –600,000
PMT = –24,000
I/Y = 8.5% ÷ 2 periods/year = 4.25
Compute PV (where PV = $592,200)
b.
(a) (b) (c) (d) (e)
Cash Period
Period Interest Interest Discount Unamortized Carrying
Ending Paid Expense Amort. Discount Value
Mar. 1/23 7,800 592,200
Sept. 1/23 24,000 25,169 1,169 6,631 593,369
Mar. 1/24 24,000 25,218 1,218 5,413 594,587
Sept. 1/24 24,000 25,270 1,270 4,143 595,857
Mar. 1/25 24,000 25,324 1,324 2,819 597,181
Sept. 1/25 24,000 25,380 1,380 1,439 598,561
Mar. 1/26 24,000 25,439 1,439 0 600,000
Totals 144,000 151,800 7,800
c.
2023
Mar. 1 Cash.................................................................................................
592,200
Discount on Bonds Payable.............................................................
7,800
Bonds Payable....................................................................... 600,000
To record issuance of bond.
Apr. 30 Bond Interest Expense.....................................................................
8,390
Discount on Bonds Payable................................................... 390
Interest Payable...................................................................... 8,000
To record accrual of bond interest;
24,000 x 2/6 = 8,000; 1,169 x 2/6 = 390.
Sept. 1 Interest Payable................................................................................
8,000
Bond Interest Expense.....................................................................
16,779
Discount on Bonds Payable................................................... 779
Cash....................................................................................... 24,000
To record payment of bond interest;
1,169 x 4/6 = 779; 25,169 x 4/6 = 16,779.
d.
Sept. 1 Bonds Payable.................................................................................
180,000
Loss on Retirement of Bonds...........................................................
5,589
Cash....................................................................................... 183,600
Discount on bonds payable.................................................... 1,989
To record retirement of 30% of shares at 102
Cash paid = 30% *600,000*1.02 = 183,600
Discount on bond payable = 6,631 * 30% = 1,989
Loss on retirement of bond = (183,600 + 1,989) – 180,000 = 5,589
Or alternatively;
Loss = Cash paid – 30% of carry value (593,369 * 0.3) = 183,600 – 178,011 = 5,589
