Solution to Suggested QS & Exercise-Chapter 10

Solution to Suggested QS & Exercise-Chapter 10 - 2...

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Quick Study 10-3 (10 minutes) 2013 Jan. 1 Cash ................................................................................. 218,750 Discount on Bonds Payable .......................................... 31,250 Bonds Payable .......................................................... 250,000 To record issuing bonds at a discount. Jan. 1 Cash ................................................................................. 281,400 Bonds Payable .......................................................... 240,000 Premium on Bonds Payable .................................... 41,400 To record issuing bonds at a premium. Quick Study 10-6 (10 minutes) 2013 July 1 Bonds Payable ................................................................ 400,000 Premium on Bonds Payable .......................................... 16,000 Gain on Retirement of Bonds* ................................ 8,000 Cash ........................................................................... 408,000 To record retirement of bonds before maturity. *$8,000 = $416,000 - $408,000 Exercise 10-1 (15 minutes) 1. Semiannual cash interest payment = $3,400,000 x 9% x 1/2 = $153,000 2. Journal entries 2013 (a) Jan. 1 Cash ................................................................................. 3,400,000 Bonds Payable .......................................................... 3,400,000 Sold bonds at par. (b) June 30 Bond Interest Expense .................................................. 153,000 Cash ........................................................................... 153,000 Paid semiannual interest on bonds. (c)
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Dec. 31 Bond Interest Expense .................................................. 153,000 Cash ........................................................................... 153,000 Paid semiannual interest on bonds. 3 . 2013 (a) Jan. 1 Cash* ............................................................................... 3,332,000 Discount on Bonds Payable .......................................... 68,000 Bonds Payable .......................................................... 3,400,000 Sold bonds at 98. *($3,400,000 x 0.98) (b) Jan. 1 Cash* ............................................................................... 3,468,000 Premium on Bonds Payable .................................... 68,000 Bonds Payable .......................................................... 3,400,000 Sold bonds at 102. *($3,400,000 x 1.02)
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Exercise 10-3 B (30 minutes) 1. Discount = Par value - Issue price = $500,000 - $463,140 = $36,860
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Unformatted text preview: 2. Total bond interest expense over the life of the bonds Amount repaid Six payments of $22,500*. ...................... $135,000 Par value at maturity. .............................. 500,000 Total repaid. ............................................. 635,000 Less amount borrowed. ............................ (463,140 ) Total bond interest expense. .................... $171,860 *$500,000 x 0.09 x ½ = $22,500 or Six payments of $22,500. .......................... $135,000 Plus discount. ............................................ 36,860 Total bond interest expense. .................... $171,860 3. Effective interest amortization table Semiannual Interest Period-End (A) Cash Interest Paid [4.5% x $500,000] (B) Bond Interest Expense [6% x Prior (E)] (C) Discount Amortization [(B) - (A)] (D) Unamortized Discount [Prior (D) - (C)] (E) Carrying Value [$500,000 - (D)] 1/01/2013 $36,860 $463,140 6/30/2013 $ 22,500 $ 27,788 $ 5,288 31,572 468,428 12/31/2013 22,500 28,106 5,606 25,966 474,034 6/30/2014 22,500 28,442 5,942 20,024 479,976 12/31/2014 22,500 28,799 6,299 13,725 486,275 6/30/2015 22,500 29,176 6,676 7,049 492,951 12/31/2015 22,500 29,549 * 7,049 500,000 $135,000 $171,860 $36,860 *Adjusted for rounding. Exercise 10-6 (20 minutes) 2013 (a) Dec. 31 Cash. ................................................................................ 186,534 Discount on Bonds Payable. ......................................... 13,466 Bonds Payable. ......................................................... 200,000 Sold bonds at discount. 2014 (b) June 30 Bond Interest Expense. ................................................. 7,684 Discount on Bonds Payable**. ................................ 1,684 Cash*. ........................................................................ 6,000 Paid semiannual interest and record amor-tization. *$200,000 x6% x1/2 **13,466 - $11,782 (c) Dec. 31 Bond Interest Expense. ................................................. 7,684 Discount on Bonds Payable**. ................................ 1,684 Cash*. ........................................................................ 6,000 Paid semiannual interest and record amor-tization. *$200,000 x6% x1/2 **$11,782 - $10,098...
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