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# ch14 - Chapter 14 Financing with Debt E 14-3 Accounting for...

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Chapter 14 Financing with Debt E 14-3 Accounting for Mortgages 1. Total assets would increase by \$1,200,000 (Building \$1,500,000 increase and Cash \$300,000 decrease). Total liabilities would increase by \$1,200,000. 2. 2/1/2006 Interest expense: \$1,200,000 × 0.08 × 1/12 = \$8,000 Payment to principal: \$8,805.17 – \$8,000.00 = \$805.17 3/1/2006 Interest expense: (\$1,200,000 – \$805.17) × 0.08 × 1/12 = \$7,994.63 Payment to principal: \$8,805.17 – \$7,994.63 = \$810.54 E 14-4 Mortgage Amortization Schedule 1. Monthly Principal Interest Outstanding Month Payment Paid Paid Balance \$100,000 July \$1,075 \$ 242 \$ 833 99,758 August 1,075 244 831 99,514 September 1,075 246 829 99,268 October 1,075 248 827 99,020 November 1,075 250 825 98,770 December 1,075 252 823 98,518 Totals \$6,450 \$1,482 \$4,968 2. Interest of \$4,968 will be paid during the last six months of 2006. 3. By the end of 2006 the balance of the mortgage will have been reduced by \$1,482 to \$98,518. E 14-6 Issuing Bonds at Par, Premium, or Discount a. The bonds were issued at a discount because the stated rate of interest was less than the market rate of interest. b. The bonds were issued at a premium because the stated rate of interest was higher than the market rate of interest. c. The bonds were issued at a discount because the stated rate of interest was less than the market rate of interest. d. The bonds were issued at par because the stated rate of interest and market rate of interest rate were the same on the date of issuance. E 14-7 Issuance of Bonds 1. Cash received from the bond issue: \$1,000,000 × 1.08 = \$1,080,000 2. The bonds were sold at a premium.

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3. The stated rate is higher than the market rate, as evidenced by the fact that the bonds were issued at a premium.
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ch14 - Chapter 14 Financing with Debt E 14-3 Accounting for...

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