Chpt_14_Solutions - EXERCISE 14-3 (15–20 minutes) 1....

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Unformatted text preview: EXERCISE 14-3 (15–20 minutes) 1. Simon Company: (a) 1/1/07 Cash.................................................... ............................................................. 200,000 Bonds Payable......................... 200,000 (b) 7/1/07 Bond Interest Expense..................... 4,500 ($200,000 X 9% X 3/12) Cash........................................... 4,500 (c) 12/31/07 Bond Interest Expense..................... 4,500 Interest Payable........................ 4,500 2. GarFunkle Company: (a) 6/1/07 Cash.................................................... ............................................................. 105,000 Bonds Payable......................... 100,000 Bond Interest Expense............ 5,000 ($100,000 X 12% X 5/12) (b) 7/1/07 Bond Interest Expense..................... 6,000 Cash........................................... 6,000 ($100,000 X 12% X 6/12) EXERCISE 14-3 (Continued) (c) 12/31/07 Bond Interest Expense..................... 6,000 Interest Payable........................ 6,000 Note to instructor: Some students may credit Interest Payable on 6/1/07. If they do so, the entry on 7/1/07 will have a debit to Interest Payable for $5,000 and a debit to Bond Interest Expense for $1,000. EXERCISE 14-6 (15–20 minutes) Schedule of Discount Amortization Straight-Line Method Year Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Jan. 1, 2007 $1,855,816.00 Dec. 31, 2007 $200,000 $228,836.80 $28,836.80* 1,884,652.80 Dec. 31, 2008 200,000 228,836.80 28,836.80 1,913,489.60 Dec. 31, 2009 200,000 228,836.80 28,836.80 1,942,326.40 Dec. 31, 2010 200,000 228,836.80 28,836.80 1,971,163.20 Dec. 31, 2011 200,000 228,836.80 28,836.80 2,000,000.00 *$28,836.80 = ($2,000,000 – $1,855,816) ÷ 5. EXERCISE 14-7 (15–20 minutes) The effective-interest or yield rate is 12%. It is determined through trial and error using Table 6-2 for the discounted value of the principal ($1,134,860) and Table 6- 4 for the discounted value of the interest ($720,956); $1,134,860 plus $720,956 equals the proceeds of $1,855,816. (A financial calculator may be used to determine the rate of 12%.) Schedule of Discount Amortization...
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This note was uploaded on 11/12/2011 for the course ACCT 2015 taught by Professor Dr,moore during the Spring '10 term at University of the West Indies at Mona.

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Chpt_14_Solutions - EXERCISE 14-3 (15–20 minutes) 1....

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