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Week_6_homework - SOLUTIONS TO EXERCISES EXERCISE 16-1(1520...

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SOLUTIONS TO EXERCISES EXERCISE 16-1 (15–20 minutes) 1.Cash ($10,000,000 X .99) ........................................ 9,900,000 Discount on Bonds Payable ................................... 100,000 Bonds Payable ....................................................... 10,000,000 Unamortized Bond Issue Costs ............................. 70,000 Cash ....................................................................... 70,000 2.Cash ......................................................................... 9,800,000 Discount on Bonds Payable ................................... 600,000 Bonds Payable ....................................................... 10,000,000 Paid-in Capital—Stock Warrants ....................... 400,000 Value of bonds plus warrants ($10,000,000 X .98) $9,800,000 Value of warrants
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(100,000 X $4) 400,000 Value of bonds $9,400,000 3.Debt Conversion Expense ...................................... 75,000 Bonds Payable ......................................................... 10,000,000 Discount on Bonds Payable .................................. 55,000 Common Stock ...................................................... 1,000,000 Paid-in Capital in Excess of Par .......................... 8,945,000* Cash ....................................................................... 75,000 *[($10,000,000 – $55,000) – $1,000,000] EXERCISE 16-3 (10–15 minutes) Conversion recorded at book value of the bonds: Bonds Payable ................................................................... 400,000 Premium on Bonds Payable ............................................. 6,000 Preferred Stock (400 X 20 X $50) ................................ 400,000 Paid-in Capital in Excess of Par- Preferred Stock ......................................................... 6,000
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EXERCISE 16-6 (25–35 minutes) (a)December 31, 2010 Bond Interest Expense ..................................................... 117,000 Premium on Bonds Payable ($60,000 X 1/20) ........................................................... 3,000 Cash ($3,000,000 X 8% X 6/12) ..................................... 120,000 (b)January 1, 2011 Bonds Payable ................................................................... 600,000 Premium on Bonds Payable ............................................. 9,600 Common Stock [8 X $100 X ($600,000/$1,000)] ................................. 480,000 Paid-in Capital in Excess of Par .................................... 129,600 Total premium ($3,000,000 X .02) $60,000 Premium amortized ($60,000 X 2/10) 12,000 Balance $48,000
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Bonds converted ($600,000 ÷ $3,000,000) 20% Related premium ($48,000 X 20%) 9,600
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EXERCISE 16-6 (Continued) (c) March 31, 2011 Bond Interest Expense ..................................................... 11,700 Premium on Bonds Payable ($9,600 ÷ 8 years) X 3/12 ............................................. 300 Bond Interest Payable ($600,000 X 8% X 3/12) .............................................. 12,000 March 31, 2011 Bonds Payable ................................................................... 600,000 Premium on Bonds Payable ............................................. 9,300 Common Stock ................................................................ 480,000 Paid-in Capital in Excess of Par .................................... 129,300 Premium as of January 1, 2011 for $600,000 of bonds $9,600 $9,600 ÷ 8 years remaining X 3/12 (300 ) Premium as of March 31, 2011 for $600,000 of bonds $9,300 (d)June 30, 2011
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Bond Interest Expense ..................................................... 70,200 Premium on Bonds Payable ............................................. 1,800 Bond Interest Payable ($600,000 X 8% X 1/4)*** ............................................ 12,000 Cash ........................................................................... 84,000* [Premium to be amortized: ($60,000 X 60%) X 1/20 = $1,800, or $28,800** ÷ 16 (remaining interest and amortization periods) = $1,800] *Total to be paid: ($1,800,000 X 8% ÷ 2) + $12,000 = $84,000 **Original premium $60,000 2009 amortization (6,000) 2010 amortization (6,000) Jan. 1, 2011 write-off (9,600) Mar. 31, 2011 amortization (300) Mar. 31, 2011 write-off
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