Present value of interest payable semiannually 25000 X 558238 139560 Proceeds

Present value of interest payable semiannually 25000

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Present value of interest payable semiannually ($25,000 X 5.58238) ....................................................... 139,560 Proceeds from sale of bonds .......................................... (472,090 ) Discount on bonds payable ............................................ $ 27,910 9/1/17 Interest Expense ............................................................... 28,325
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Discount on Bonds Payable ................................... 3,325 Cash .......................................................................... 25,000 12/31/17 Interest Expense ............................................................... 19,017 Discount on Bonds Payable ($3,525 X 4/6) ......................................................... 2,350 Interest Payable ($25,000 X 4/6) ............................. 16,667 3/1/18 Interest Expense ............................................................... 9,508 Interest Payable ................................................................ 16,667 Discount on Bonds Payable ($3,525 X 2/6) ......................................................... 1,175 Cash .......................................................................... 25,000 9/1/18 Interest Expense ............................................................... 28,736 Discount on Bonds Payable ................................... 3,736 Cash .......................................................................... 25,000 12/31/18 Interest Expense ............................................................... 19,308 Discount on Bonds Payable ($3,961 X 4/6) ......................................................... 2,641 Interest Payable ....................................................... 16,667 2. Titania Co. Date Cash Paid Interest Expense Premium Amortized Carrying Amount of Bonds 6/1/17 $425,853 12/1/17 $24,000* $21,293 $2,707 423,146 6/1/18 24,000 21,157 2,843 420,303 12/1/18 24,000 21,015 2,985 417,318 6/1/19 24,000 20,866 3,134 414,184 12/1/19 24,000 20,709 3,291 410,893 6/1/20 24,000 20,545 3,455 407,438
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12/1/20 24,000 20,372 3,628 403,810 6/1/21 24,000 20,190** 3,810 400,000 *($400,000 X 12% X 1/2) **$.50 adjustment due to rounding. 6/1/17 Cash ................................................................................... 425,853 Premium on Bonds Payable ................................... 25,853 Bonds Payable ......................................................... 400,000 Maturity value of bonds payable ..................................... $400,000 Present value of $400,000 due in 8 periods at 5% ($400,000 X .67684) ........................................................ $270,736 Present value of interest payable semiannually ($24,000 X 6.46321) ........................................................ 155,117 Proceeds from sale of bonds ........................................... (425,853 ) Premium on bonds payable ............................................. $ 25,853 12/1/17 Interest Expense ............................................................... 21,293 Premium on Bonds Payable ............................................ 2,707 Cash ($400,000 X .12 X 6/12) ................................... 24,000 12/31/17 Interest Expense ($21,157 X 1/6) ..................................... 3,526 Premium on Bonds Payable ($2,843 X 1/6) .................................................................. 474 Interest Payable ($24,000 X 1/6) ............................. 4,000 6/1/18 Interest Expense ($21,157 X 5/6) ..................................... 17,631 Interest Payable ................................................................ 4,000 Premium on Bonds Payable ($2,843 X 5/6) .................................................................. 2,369 Cash .......................................................................... 24,000 10/1/18 Interest Expense ($21,015 X .3* X 4/6) ....................................................... 4,203
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Premium on Bonds Payable ($2,985 X .3 X 4/6) ........................................................... 597 Cash .......................................................................... 4,800 *$120,000 ÷ $400,000 = .3 10/1/18 Bonds Payable .................................................................. 120,000 Premium on Bonds Payable ............................................ 5,494 Gain on Redemption of Bonds ............................... 4,294* Cash .......................................................................... 121,200 *Reacquisition price $126,000 – ($120,000 X 12% X 4/12) $121,200 Net carrying amount of bonds redeemed: Par value $120,000 Unamortized premium [.3 X ($25,853 – $2,707 – $2,843)] – $597 5,494 (125,494 ) Gain on redemption $ (4,294 ) 12/1/18 Interest Expense ($21,015 X .7*) ...................................... 14,711 Premium on Bonds Payable ($2,985 X .7) .................................................................... 2,089 Cash ($24,000 X .7) .................................................. 16,800 *($400,000 – $120,000) ÷ $400,000 = .7 12/31/18 Interest Expense ($20,866 X .7 X 1/6) .............................. 2,434 Premium on Bonds Payable ($3,134 X .7 X 1/6) ........................................................... 366 Interest Payable ($24,000 X .7 X 1/6) ............................................... 2,800 6/1/19 Interest Expense ($20,866 X .7 X 5/6) .............................. 12,172
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Interest Payable ................................................................ 2,800 Premium on Bonds Payable ($3,134 X .7 X 5/6) ........................................................... 1,828 Cash ($24,000 X .7) .................................................. 16,800 12/1/19 Interest Expense ($20,709 X .7) ....................................... 14,496 Premium on Bonds Payable ($3,291 X .7) .................................................................... 2,304 Cash ($24,000 X .7) .................................................. 16,800 LO: 1, 2, 4, Bloom: AP, Difficulty: Moderate, Time: 50-65, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: None
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*PROBLEM 14-12 (a) It is a troubled debt restructuring. (b) 1. No entry. 2. Bad Debt Expense ................................................... 237,311* Allowance for Doubtful Accounts .................. 237,311 *Calculation of loss. Pre-restructure carrying amount $600,000 Present value of restructured cash flows: Present value of $600,000 due in 10 years at 12%, interest payable annually ($600,000 X .32197) ......................................................... $193,182 Present value of $30,000 interest payable annually for 10 years at 12% ($30,000 X 5.65022) ......................................................... 169,507 (362,689 ) Creditor’s loss on restructuring of debt ......................... $237,311 (c) Losses are calculated based upon the discounted present value of future cash flows. However, the debtor’s gain is calculated using the undiscounted cash flows. This does not fairly state the economic benefits derived by the debtor as a result of the restructuring.
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