Chapter_15_Solutions_7e

# Chapter_15_Solutions_7e - Chapter 15 Long-Term Liabilities...

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Chapter 15 Long-Term Liabilities Quick Check Answers: 1. d 3. c 5. d 7. a 9. c 2. b 4. a 6. c 8. b 10. a Explanations: 2. b. \$103,500 = \$100,000 × 1.035 5. d. Discount price because the market interest rate (8%) exceeds the stated interest rate (7%). 6. c. For bonds issued at a premium, interest expense is less than the cash interest payments because the company received more cash when it issued the bonds than it will pay back at maturity. The premium on the bonds decreases interest expense over the life of the bonds. 7. a.Carrying amount of the bonds after 5 years is computed as follows: Maturity amount of the bonds…………. \$500,000 Less: Discount on the bonds (\$40,000 × 5/10)…………………. .. (20,000 ) Carrying amount of the bonds…………. \$480,000 Chapter 15 Long-Term Liabilities 157

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8. b. Interest expense = \$46,000 Stated interest = \$40,000 (\$500,000 × .08) Discount amortization = \$6,000 [(\$500,000 \$440,000) / 10] Interest expense = \$46,000 (\$40,000 + \$6,000) 10. a. Loss = \$1,000 [Cash paid \$103,000 Carrying value of the bonds \$102,000 (\$100,000 + Premium \$2,000)] Accounting 7/e Solutions Manual 158
Short Exercises (5 min.) S 15-1 a. Discount b. Premium c. Par value d. Discount (5 min.) S 15-2 a. \$77,750 (\$100,000 × .7775) b. \$103,800 (\$100,000 × 1.038) c. \$92,600 (\$100,000 × .926) d. \$102,500 (\$100,000 × 1.025) (5 min.) S 15-3 Allied will pay the same amount—\$100,000—at maturity for all four bonds. \$100,000 is the maturity value of each bond. Chapter 15 Long-Term Liabilities 159

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(10 min.) S 15-4 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT 2008 a. Jan. 1 Cash 100,000 Bonds Payable 100,000 Issued bonds payable. b. July 1 Interest Expense (\$100,000 × .065 × 1/2) 3,250 Cash 3,250 Paid semiannual interest. 2018 c. Jan. 1 Bonds Payable 100,000 Cash 100,000 Paid off bonds payable at maturity. (5 min.) S 15-5 a. \$965,000 (\$1,000,000 × .965) b. \$1,000,000 c. \$30,000 (\$1,000 × .06 × 6/12) Accounting 7/e Solutions Manual 160
(5 min.) S 15-6 The market interest rate was closest to 8%. This is clear from the discount price of 93. A discount occurs only when the market interest rate (say 8%) exceeds the stated interest rate (7%). (5-10 min.) S 15-7 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT 2006 a. Jan. 1 Cash (\$50,000 × .90) 45,000 Discount on Bonds Payable 5,000 Bonds Payable 50,000 Issued bonds payable at a discount. b. July 1 Interest Expense 2,250 Discount on Bonds Payable (\$5,000/20) 250 Cash (\$50,000 × .08 × 6/12) 2,000 Paid interest and amortized discount. Chapter 15 Long-Term Liabilities 161

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(10 min.) S 15-8 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT 2009 a. Jan. 1 Cash (\$80,000 × 1.10) 88,000 Bonds Payable 80,000 Premium on Bonds Payable 8,000 Issued bonds payable at a premium. b. July
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Chapter_15_Solutions_7e - Chapter 15 Long-Term Liabilities...

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