Solutions to Long-term Liabilities Problems

Solutions to Long-term Liabilities Problems - Solutions to...

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Solutions to Long-Term Liabilities Practice Problems EXERCISE 14-3 (15–20 minutes) 1. Divac Company: (a) 1/1/10 Cash . ............................................................. 300,000 Bonds Payable . .................................. 300,000 (b) 7/1/10 Interest Expense ($300,000 X 9% X 3/12) . ............................. 6,750 Cash . ................................................... 6,750 (c) 12/31/10 Interest Expense . ......................................... 6,750 Interest Payable . ................................ 6,750 2. Verbitsky Company: (a) 6/1/10 Cash . ............................................................. 210,000 Bonds Payable . .................................. 200,000 Interest Expense ($200,000 X 12% X 5/12) . ................ 10,000 (b) 7/1/10 Interest Expense . ......................................... 12,000 Cash ($200,000 X 12% X 6/12) . ................ 12,000 (c) 12/31/10 Interest Expense . ......................................... 12,000 Interest Payable . ................................ 12,000 Note to instructor : Some students may credit Interest Payable on 6/1/10. If they do so, the entry on 7/1/10 will have a debit to Interest Payable for $10,000 and a debit to Interest Expense for $2,000.
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EXERCISE 14-8 (15–20 minutes) (a) Printing and engraving costs of bonds . ........................................... $ 15,000 Legal fees . ........................................................................................... 49,000 Commissions paid to underwriter . .................................................... 60,000 Amount to be reported as Unamortized Bond Issue Costs . ................................................................................................ $124,000 The Unamortized Bond Issue Costs, $124,000, should be reported as a deferred charge in the Other Assets section on the balance sheet. (b) Interest paid for the period from January 1 (July 1) to June 30 (December 31), 2010; $2,500,000 X 10% X 6/12 . ................................................................... $125,000 Less: Premium amortization for the period from January 1 (July 1) to June 30 (December 31), 2010 [($2,500,000 X 1.04) – $2,500,000] ÷ 20 . ................................. 5,000 Interest expense to be recorded on July 1 (December 31), 2010 . ......................................................................... $120,000 (c) Carrying amount of bonds on June 30, 2010 . .................................. $562,500 Effective-interest rate for the period from June 30 to October 31, 2010 (.10 X 4/12) . ..................................................... X.033333 Interest expense to be recorded on October 31, 2010. .................... $ 18,750 * *Alternative computation: $562,500 X .10 X 4/12
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EXERCISE 14-10 (15–20 minutes) (a) January 1, 2010 Cash . ....................................................................... 860,651.79 Premium on Bonds Payable. ...................... 60,651.79 Bonds Payable . ........................................... 800,000.00
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Solutions to Long-term Liabilities Problems - Solutions to...

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