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**Unformatted text preview: **Unit 6 Chapter 14 14-2 ANSWER: 1) Par Value $1,000 Coupon Rate 10% Term 10 Current Yield 12% Interest $100 Price? PV of Interest $565 PV of Bond's Value $322 Price of Bond $887 2) Par Value $1,000 Coupon Rate 5% Current Yield 6% Term 20 Interest $50 PV of Interest $573 PV of Bond's Value $312 Price of bond $885 3) Par Value $1,000 Coupon Rate 6% Current yield 5% Term 20 Interest $60 PV of Interest $748 PV of Bond's Value $377 Price of bond $1,125 4) Par Value $1,000 Coupon Rate 6% Current yield 5% Term 40 Interest $60 PV of Interest $1,030 PV of Bond's Value $142 Price of bond $1,172 5) Par Value $1,000 Coupon Rate 6% Current yield 6% Term 40 Interest $60 PV of Interest $903 PV of Bond's Value $97 Price of bond $1,000 14-16 Required: 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error? Requirement 1 Interest expense xxx Note payable (difference) xxx Cash xxx Requirement 2 Retained earnings (overstatement of 2009-10 income) 85,000 Note payable (understatement determined above) 85,000 Requirement 3 14-19 Company A purchased a supply of electronic components from Entel Corporation on November 1, 2011. In payment for the $27 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Q: Prepare the following journal entries for Company A. First for the purchase of the components on November 1, 2011, [Component Inventory] [Notes Payable] Prepare the journal entry for the first installment payment on November 30, 2011. [Interest Expense] [Note payable] [Cash] Solution: Computation of the Journal Entries Particulars Amount Amount 1/11/2011 LCD Electronic Components A/c-------Dr $27,000,000 To Note Payable A/c $27,000,000 30/11/2011 Interest Expenses A/c--------Dr $270,000.00 Note Payable A/c--------Dr $2,128,917.29 To Cash A/c $2,398,917.29 30/11/2011 Interest Expenses A/c--------Dr $270,000.00 Note Payable A/c--------Dr $2,128,917.29 To Cash A/c $2,398,917.29 Computation of the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2011 Total Amount paid in 12 installments $28,787,007.54 Less: LCD Cost $27,000,000.00 Total Interest Amount $1,787,007.54 Income statement interest reported November Interest $270,000.00 December Interest $248,710.83 Total interest should be reported in Income statement $518,710.83 Hence Total interest should be reported in Income statement is $518,710.83 Wilkins Food Products, Inc. , acquired a packaging machine from Lawrence Spet Corporation. Lawrence completed construction of the machine on January 1, 2009. In payment for the machine Wilkins issued a three-year installment note to be paid in there equal payments at the end of each year. The payments include interest at the rate of 10%. ...

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