Su06Ch14_Solutions

Su06Ch14_Solutions - Chapter 14 Homework Problems 1...

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Unformatted text preview: Chapter 14 Homework Problems 1 EXERCISE 14-9 (a) 1. June 30, 2005 Cash ................................................................................ 4,300,920.00 Bonds Payable....................................................... 4,000,000.00 Premium on Bonds Payable................................. 300,920.00 2. December 31, 2005 Bond Interest Expense........................................................ 258,055.20 ($4,300,920.00 X 12% X 6/12) Premium on Bonds Payable ............................................... 1,944.80 Cash........................................................................ 260,000.00 ($4,000,000 X 13% X 6/12) 3. June 30, 2006 Bond Interest Expense........................................................ 257,938.51 [($4,300,920.00 $1,944.80) X 12% X 6/12] Premium on Bonds Payable ............................................... 2,061.49 Cash........................................................................ 260,000.00 4. December 31, 2006 Bond Interest Expense........................................................ 257,814.82 [($4,300,920.00 $1,944.82 $2,061.49) X 12% X 6/12] Premium on Bonds Payable ............................................... 2,185.18 Cash........................................................................ 260,000.00 EXERCISE 14-9 (Part b) (b) Long-term Liabilities: Bonds payable, 13% (due on June 30, 2025) $4,000,000.00 Premium on Bonds Payable* 294,728.53 Book value of bonds payable $4,294,728.53 *($4,300,920.00 $4,000,000) ($1,944.80 + $2,061.49 + $2,185.18) = $294,728.53 EXERCISE 14-9 (Part c) (c) 1. Interest expense for the period from January 1 to June 30, 2006 from (a) 3. $257,938.51 Interest expense for the period from July 1 to December 31, 2006 from (a) 4. 257,814.82 Amount of bond interest expense reported for 2006 $515,753.33 2. The amount of bond interest expense reported in 2006 will be greater than the amount that would be reported if the straight-line method of amortization were used. Under the straight-line method, the amortization of bond premium is $15,046 ($300,920/20). Bond interest expense for 2006 is the difference between the amortized premium, $15,046, and the actual interest paid, $520,000 ($4,000,000 X 13%). Thus, the amount of bond interest expense is $504,954, which is smaller than the bond interest expense under the effective interest method. 3. Total interest to be paid for the bond ($4,000,000 X 13% X 20) $10,400,000 Principal due in 2025 4,000,000 Total cash outlays for the bond 14,400,000 Cash received at issuance of the bond (4,300,920 ) Total cost of borrowing over the life of the bond $10,099,080 4. They will be the same. Chapter 14 Homework Problems 2 EXERCISE 14-10 (15-20 minutes) (a) January 1, 2004 Cash ............................................................................................. 537,907.37 Premium on Bonds Payable.............................................. 37,907.37 Bonds Payable....................................................................Bonds Payable....
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This note was uploaded on 04/06/2008 for the course ACC 302 taught by Professor Ahaha during the Spring '07 term at Central Mich..

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Su06Ch14_Solutions - Chapter 14 Homework Problems 1...

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