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
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