Ch09HWSol(6th) - Chapter 9 HW Assignment E9-4 5 7 9 11 14...

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Chapter 9 HW Assignment: E9-4, 5, 7, 9, 11, 14, 20; P9-1, 3, 9, 16, 21 Solutions E9-4 a. $746,320 Interest expense would be the effective rate times the present value of the bonds at the beginning of the 2008 fiscal year: 0.08 × $9,329,000 = $746,320. b. $9,375,320 The net liability is the present value of the bonds on September 30, 2008. It can be computed by adjusting the beginning-of-year present value by the amortization for the year. The amount of discount amortized in 2008 would be the interest expense minus the amount of interest paid: $746,320 − $700,000 = $46,320. The net liability (bonds payable) reported on the balance sheet would be $9,329,000 + $46,320 = $9,375,320. c. $7,671,000 The total expense for the bonds over 10 years would be the interest paid for the period, which is $7,000,000 ($700,000 × 10 years) plus the original discount that is amortized over the 10 years, which is $671,000 ($10,000,000 − $9,329,000). Thus, the total expense would be $7,000,000 + $671,000 = $7,671,000. E9-5 a. Income statement: The income statement would report a gain on extinguishment of debt of $11,400 ($186,400 − $175,000). This would raise net income by the same amount (ignoring taxes). b. Balance sheet: The balance sheet would report $175,000 less cash and $186,400 less long-term liabilities. Retained earnings would be $11,400 higher because of the gain on sale reported on the income statement. c. Statement of cash flows: The financing activities section of the statement of cash flows would report a cash outflow of $175,000 from buying back debt. If the indirect approach is used to report operating activities, the net income number would be $11,400 higher (ignoring taxes). E9-7 a. $629,503 Proof: PV of bonds = PV of annuity (interest) + PV of maturity value PV = $42,000 × 4.91732 (Table 4, 6 periods, 6%) $206,527 + $600,000 × 0.70496 (Table 3, 6 periods, 6%) 422,976 $629,503 Chapter 9 HW Solutions Page 1
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b. A B C D E F Year PV at Beginning of Year Interest Incurred (Column B × Interest Rate) Amount Paid Amortization of Principal (Column C – Column D) Value at End of Year (Column B + Column E) 1 629,503 37,770 42,000 (4,230) 625,273 2 625,273 37,516 42,000 (4,484) 620,789 3 620,789 37,247 42,000 (4,753) 616,036 4 616,036 36,962 42,000 (5,038) 610,998 5 610,998 36,660 42,000 (5,340) 605,658 6 605,658 36,339 42,000 (5,661) 600,000* Totals 222,494 252,000 (29,506) *Ignore the $3 rounding error.
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