FM9e_SM10 - CHAPTER 10Solutions LONG-TERM LIABILITIES...

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Ch10 SE1 to SE3 CHAPTER 10—Solutions LONG-TERM LIABILITIES Chapter 10, SE 1. 1. Advantage 2. Disadvantage 3. Disadvantage 4. Advantage 5. Advantage Chapter 10, SE 2. a. 4 b. 7 c. 1 d. 3 e. 2 f. 6 g. 5 Chapter 10, SE 3. Interest for 1 Monthly Month at 0.6667%* Reduction Unpaid Balance Month Payment on Unpaid Balance in Debt at End of Period 0 $150,000 1 $1,200 $1,000 $200 149,800 2 1,200 999 ** 201 149,599 3 1,200 997 ** 203 149,396 * 8% ÷ 12 = 0.006667 **Rounded.
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Ch10 SE4 Chapter 10, SE 4. Choice A Present value of 40 periodic payments at 6% (from Table 2*) $32,000 x 15.046 #VALUE! Present value of a single payment at the end of 40 periods at 6% (from Table 1*) $600,000 x 0.097 58,200 Total present value of Choice A #VALUE! Choice B Present value of 30 periodic payments at 6% (from Table 2*) $30,000 x 13.765 #VALUE! Present value of a single payment at the end of 30 periods at 6% (from Table 1*) $600,000 x 0.174 #VALUE! Total present value of Choice B #VALUE! Total present value of both bonds #VALUE! *From the appendix on present value tables.
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Ch10 SE5 Chapter 10, SE 5. 2009 Apr. 1 Cash 7,840,000 Unamortized Bond Discount 160,000 Bonds Payable 8,000,000 Issued 8.5%, 5-year bonds at 98 $8,000,000 x 0.98 = $7,840,000 Oct. 1 Bond Interest Expense 356,000 Unamortized Bond Discount 16,000 Cash 340,000 To pay semiannual interest and amortize discount $160,000 ÷ ( 5 years x 2 ) = $16,000 $8,000,000 x 0.085 x 6 / 12 = $340,000 2010 Apr. 1 Bond Interest Expense 356,000 Unamortized Bond Discount 16,000 Cash 340,000 To pay semiannual interest and amortize discount $160,000 ÷ ( 5 years x 2 ) = $16,000 $8,000,000 x 0.085 x 6 / 12 = $340,000
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Ch10 SE6 Chapter 10, SE 6. 2010 Mar. 1 Cash 424,000 Unamortized Bond Premium 24,000 Bonds Payable 400,000 Sold 9.5%, 20-year bonds at 106 Aug. 31 Bond Interest Expense 18,868 Unamortized Bond Premium 132 Bond Interest Payable 19,000 To record accrued semiannual interest and amortize premium on 9.5%, 20-year bonds ( $400,000 x 0.095 x 6 / 12 ) – ( $424,000 x 0.089 x 6 / 12 ) = $19,000 $18,868 = $132 Sept. 1 Bond Interest Payable 19,000 Cash 19,000 Paid semiannual interest
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Ch10 SE7 to SE8 Chapter 10, SE 7. Dec. 1 Bonds Payable 120,000 Loss on Retirement of Bonds #VALUE! Unamortized Bond Discount 3,150 Cash #VALUE! Retired 8% bonds at call price of 104 $120,000 x 1.04 = #VALUE! $120,000 x $5,250 = $3,150 $200,000 Chapter 10, SE 8. 2009 Mar. 1 Bonds Payable 1,200,000 Unamortized Bond Discount 24,000 Common Stock 240,000 Additional Paid-in Capital 936,000 Converted $1,200,000 of 6% bonds into common stock at the rate of 20 shares for each $1,000 bond 1,200 x 20shares = 24,000 shares 24,000 shares x $10 = $240,000 $1,200,000 x $40,000 = $24,000 $2,000,000 $1,200,000 – ( $24,000 + $240,000 ) = $936,000
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Ch10 SE9 Chapter 10, SE 9. 1. Entries prepared in journal form 2010 Sept. 1 Cash 412,000 Bond Interest Expense 12,000 Bonds Payable # 400,000 Sold $400,000 of 9%, 10-year bonds at face value plus accrued interest $400,000 x 0.09 x 4 / 12 = $12,000 Nov. 1 Bond Interest Expense 18,000 Cash 18,000 Made semiannual interest payment $400,000 x 0.09 x 6 / 12 = $18,000 2. Bond interest expense calculated The bond interest expense for the year ended December 31, 2010, is 8 months' interest minus 4 months' interest, or $24,000 $12,000 = $12,000. The interest ex- the bonds were actually outstanding. pense can also be calculated using the formula $400,000 x 0.09 x 4/12, the time
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Ch10 SE10 Chapter 10, SE 10. 2010 Oct. 1 Cash 480,000 Unamortized Bond Discount 20,000 Bonds Payable 500,000 Issued $500,000 of 9% bonds at 96 Dec. 31 Bond Interest Expense 12,000 Unamortized Bond Discount 750 Bond Interest Payable 11,250 To record accrued bond interest expense and amortize bond discount ( $480,000 x 0.10 x 3 / 12 ) ( $500,000 x 0.09 x 3 / 12 ) = $12,000 $11,250 = $750 2011 Apr. 1 Bond Interest Expense 12,000 Bond Interest Payable 11,250 Unamortized Bond Discount
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