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CHAPTER 15

 

Long-Term Liabilities

 

SOLUTIONS TO BRIEF EXERCISES

 

 

BRIEF EXERCISE 15-1

 

 

 

Issue Sto= ck

Issue Bon= d

 

 

 

  

 

Income before interest and taxes

Interest ($2,000,000 X 8%)

Income before income taxes

Income tax expense (30%)

Net income (a)

 

Outstanding shares (b)

Earnings per share (a) ÷ (b)

 

$700,000<= /p>

       &nbs= p;     0

 70= 0,000

  210,000

$490,0= 00

&nbs= p;

 70= 0,000

   $0.70

 

$700,000<= /p>

  160,000

 54= 0,000

  162,000

$378,0= 00

&nbs= p;

 50= 0,000

   $0.76

 

Net income is higher if s= tock is used. However, earnings per share is lower than earnings per share if bonds= are used because of the additional shares of stock that are outstanding.

 

 

BRIEF EXERCISE 15-2

 

(a)   Jan.  1    = Cash..........................................= .............. 3,000,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ..................      3,000,000

        &= nbsp;           &nbs= p;             =   (3,000 X $1,000)

 

(b)   July  1    = Bond Interest Expense....................= .    120,000

        &= nbsp;           &nbs= p;             = Cash..........................................= ........................       120,000

        &= nbsp;           &nbs= p;             =   ($3,000,000 X 8% X 1/2)

 

(c)   Dec. 31     Bond Interest Expense....................= .    120,000

        &= nbsp;           &nbs= p;             = Bond Interest Payable....................= ..............       120,000

        &= nbsp;           &nbs= p;             =   ($3,000,000 X 8% X 1/2)

 

 

BRIEF EXERCISE 15-3

 

(a)   Jan.  1    = Cash ($2,000,000 X .97)..................=      1,940,000

        &= nbsp;           &nbs= p;     Discount on Bonds Payable.........         &= nbsp;  60,000

        &= nbsp;           &nbs= p;             = Bonds Payable........................         &= nbsp;           &nbs= p;       2,000,000

 

(b)   Jan.  1    = Cash ($2,000,000 X 1.04)................ =    2,080,000

        &= nbsp;           &nbs= p;             = Bonds Payable........................         &= nbsp;           &nbs= p;       2,000,000

        &= nbsp;           &nbs= p;             = Premium on Bonds Payable. &= nbsp;           &nbs= p;            &= nbsp;       80,000

 

 

BRIEF EXERCISE 15-4

 

1.     Jan.  1&= nbsp;    Cash (1,000 X $1,000)....................= ...... 1,000,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ..................      1,000,000

 

2.     July  1&= nbsp;    Cash ($800,000 X 1.02)...................= ...    816,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ..................         800,000

        &= nbsp;           &nbs= p;             = Premium on Bonds Payable........................         &= nbsp; 16,000

 

3.     Sept.  1&= nbsp;   Cash ($200,000 X .98)....................= ....    196,000

        &= nbsp;           &nbs= p;     Discount on Bonds Payable....................= .. 4,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ..................         200,000

 

 

BRIEF EXERCISE 15-5

 

Bonds Payable.............................= ..............................      1,000,000

Loss on Bond Redemption..................= ...................         70= ,000

  ($1,010,000 – $940,000)

        Discount on Bonds Payable....................= .......         &= nbsp;           &nbs= p;          60,000

        Cash ($1,000,000 X 101%).................= ..............         &= nbsp;           &nbs= p;       1,010,000

 

BRIEF EXERCISE 15-6

 

 

Semiannual

Interest

Period

 

(A)

 

Cash

Payment

 

(B)

Interest

Expense

(D) X 5%

 

(C)

Reduction

of Principal

(A) – (B)

 

(D)

Principal

Balance

(D) – (C)

 

 

 

 

 

 

 

 

 

Issue Date

1

 

 

$48,145

 

 

$30,000

 

 

$18,145

 

$600,000

 581,855

 

Dec.  31&= nbsp;    Cash..........................................= ......................       600,000

        &= nbsp;           &nbs= p;      Mortgage Notes Payable....................         &= nbsp;           &nbs= p;    600,000

 

June 30 &= nbsp;   Interest Expense.............................= .............        30,0= 00

        &= nbsp;          Mortgage Notes Payable.......................= .....        18,1= 45

        &= nbsp;           &nbs= p;      Cash..........................................= ..............         &= nbsp;           &nbs= p;     48,145

 <= /o:p>

 

BRIEF EXERCISE 15-7

 

1.     Rent Expense..........................................= .................        80,0= 00

        &= nbsp;       Cash..........................................= .........................         &= nbsp;           &nbs= p;     80,000

 

2.     Leased Asset—Building................= .........................       700,000

        &= nbsp;       Lease Liability...........................= .......................         &= nbsp;           &nbs= p;    700,000

 

 

BRIEF EXERCISE 15-8

 

        Bonds payable, due 2010...................= ...................     $500,000

        Less:  Discount on bonds payable......................         45,000  $455,000

        Notes payable, due 2013...................= .....................         &= nbsp;           &nbs= p;   80,000

        Lease liability...........................= .................................         &= nbsp;           &nbs= p;      70,000<= /p>

        &= nbsp;       Total long-term liabilities...............= ................         &= nbsp;           &nbs= p; $605,000

&= nbsp;

 

*BRIEF EXERCISE 15-9

 

(b)            =             &nb= sp;            =             &nb= sp;         i =3D 10%

?

 

 

 

 

 

 

$10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        &= nbsp;        0        &= nbsp; 1        &= nbsp; 2        &= nbsp; 3        &= nbsp; 4        &= nbsp; 5        &= nbsp; 6        &= nbsp; 7        &= nbsp; 8

 

Discount rate from Table 15 A-1 is .46651 (8 periods at 10%). Present value of $10,000 to be received in 8 periods disco= unted at 10% is therefore $4,665.10 ($10,000 X .46651).

 

(b)            =             &nb= sp;            =             &nb= sp;          i =3D 8%

 

            =             ?=         $20,000   $20,000   $20,000   = $20,000   $20,000   $20,000

 

 

 

 

 

 

 

&nbs= p;

&nbs= p;

&nbs= p;

&nbs= p;

&nbs= p;

&nbs= p;

&nbs= p;

&nbs= p;

        &= nbsp;           &nbs= p;   0        &= nbsp;    1        &= nbsp;    2        &= nbsp;    3        &= nbsp;    4        &= nbsp;    5        &= nbsp;    6

 

        Discount rate f= rom Table 15 A-2 is 4.62288 (6 periods at 8%). Present value of 6 payments of $20,000 each discounted at 8% is therefore $92,457.60 ($20,000 X 4.62288).<= /p>

 

 

*BRIEF EXERCISE 15-10

 

(a)   Interest Expense..........................................= .................  46,884

        &= nbsp;       Discount on Bonds Payable....................= .........................        1,8= 84

        &= nbsp;       Cash..........................................= .............................................       45,000

 

(b)   Interest expense is gr= eater than interest paid because the bonds sold at a discount which must be amort= ized over the life of the bonds. The bonds = sold at a discount because investors demanded a market interest rate high= er than the contractual interest rate.

 

(c)   Interest expense increases each period because the bond carrying val= ue increases each period. As the market interest rate is applied to this bond carrying amount, interest expe= nse will increase.

 

*BRIEF EXERCISE 15-11

 

(a)   Jan.  1    = Cash (.96 X $5,000,000)..................= .      4,800,000

        &= nbsp;           &nbs= p;     Discount on Bonds Payable..........      200,000

        &= nbsp;           &nbs= p;             = Bonds Payable.........................         &= nbsp;           &nbs= p;      5,000,000

 

 <= /o:p>

(b)   July  1    = Bond Interest Expense................... =         235,000

        &= nbsp;           &nbs= p;             = Discount on Bonds Payable.. =             &nb= sp;            =      10,000

        &= nbsp;           &nbs= p;             =   ($200,000 ÷ 20)

        &= nbsp;           &nbs= p;             = Cash..........................................= ..         &= nbsp;           &nbs= p;        225,000

        &= nbsp;           &nbs= p;             =   ($5,000,000 X 9% X 1/2)

 

 

*BRIEF EXERCISE 15-12

 

(a)   Cash (1.02 X $3,000,000)...................................      3,060,000

        &= nbsp;       Bonds Payable.............................= ..............         &= nbsp;           &nbs= p;      3,000,000

        &= nbsp;       Premium on Bonds Payable....................=         &= nbsp;           &nbs= p;         60,000

 

(b)   Bond Interest Expense.....................................        144,000

        Premium on Bonds Payable....................= ........         &#= 8194;6,000

          ($60,000 ÷ 10)

        &= nbsp;       Cash ($3,000,000 X 10% X 1/2)............= ....         &= nbsp;           &nbs= p;        150,000

 

SOLUTIONS TO EXERCISES

 

 

EXERCISE 15-1

 

<= span style=3D'mso-tab-count:1'>  1.&= nbsp;   True.

<= span style=3D'mso-tab-count:1'>  2.&= nbsp;   True.

  3.    False. When seeking long-term financing, an advantage of issuing bonds over issuing common stock is that tax savings r= esult.

<= span style=3D'mso-tab-count:1'>  4.&= nbsp;   True.

<= span style=3D'mso-tab-count:1'>  5.&= nbsp;   False. Unsecured bonds are also known = as debenture bonds.

<= span style=3D'mso-tab-count:1'>  6.&= nbsp;   False. Bonds that mature in installments are called serial bonds.

<= span style=3D'mso-tab-count:1'>  7.&= nbsp;   True.

<= span style=3D'mso-tab-count:1'>  8.&= nbsp;   True.

<= span style=3D'mso-tab-count:1'>  9.&= nbsp;   True.

10.    True.

 

 

EXERCISE 15-2

 

 

Plan One<= /p>

Issue Sto= ck

 

Plan Two<= /p>

Issue Bon= ds

 

  

 

 

 

Income before interest and taxes

Interest ($2,700,000 X 10%)

Income before taxes

Income tax expense (30%)

Net income

Outstanding shares

Earnings per share

$800,000

         —      =

 800,000

  240,000

$560,000

 150,000

   $3.73

 

$800,000<= /p>

  270,000

 53= 0,000

 = ;159,000

$371,0= 00

 = ; 90,000

 &#= 8194; $4.12

 

 

EXERCISE 15-3

 

(a)   Jan.  1    = Cash..........................................= ..................... 500,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= .....................      500,000

 

(b)   July  1    = Bond Interest Expense....................= ........   25,000

        &= nbsp;           &nbs= p;             = Cash ($500,000 X 10% X 1/2)..............= .............      25,000

 

(c)   Dec. 31     Bond Interest Expense....................= ........   25,000

        &= nbsp;           &nbs= p;             = Bond Interest Payable....................= ..................      25,000

EXERCISE 15-4

 

(a)   Jan.  1    = Cash..........................................= ..................... 300,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= .....................      300,000

 

(b)   July  1    = Bond Interest Expense....................= ........   12,000

        &= nbsp;           &nbs= p;             = Cash ($300,000 X 8% X 1/2)...............= ..............      12,000

 

(c)   Dec. 31     Bond Interest Expense....................= ........   12,000

        &= nbsp;           &nbs= p;             = Bond Interest Payable....................= ..................      12,000

 

 

EXERCISE 15-5

 

(a)            =             &nb= sp;            =             &nb= sp;           2008=

        Jan.    1     Cash............................................................. 400= ,000

        &= nbsp;           &nbs= p;            &= nbsp; Bonds Payable.............................= ....................      400,000

 <= /o:p>

(b)        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;     

        July    1     Bond Interest Expense.............................  18,000

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($400,000 X 9% X 1/2)...............= .............       18,000

 <= /o:p>

(c)        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;      

        Dec.  31&= nbsp;    Bond Interest Expense....................= .........  18,000

        &= nbsp;           &nbs= p;            &= nbsp; Bond Interest Payable....................= ................      18,000

(d)        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;  2018

        Jan.    1     Bonds Payable........................................... 400,000

        &= nbsp;           &nbs= p;            &= nbsp; Cash..........................................= ..........................      400,000

 

 

EXERCISE 15-6

 

At 100

&nbs= p;

(a)   (1)      Cash..........................................= ........................ 1,000,000

        &= nbsp;           &nbs= p;    Bonds Payable.............................= .............................    1,000,000

 

At 98

&nbs= p;

        (2)      Cash..........................................= ......................      980,000

        &= nbsp;         Discount on Bonds Payable....................= ..        20,00= 0

        &= nbsp;           &nbs= p;    Bonds Payable.............................= ..........         &= nbsp;           &nbs= p; 1,000,000

 

At 103

&nbs= p;

        (3)      Cash..........................................= ........................ 1,030,000

        &= nbsp;           &nbs= p;    Bonds Payable.............................= .............................    1,000,000

        &= nbsp;           &nbs= p;    Premium on Bonds Payable....................= ...............         30,000

 

Retirement of bonds at maturity

&nbs= p;

(b)        &= nbsp;    Bonds Payable.............................= .................   1,000,000

        &= nbsp;           &nbs= p;    Cash..........................................= ...............         &= nbsp;           &nbs= p; 1,000,000

 

Retirement of bonds before maturity at 98

&nbs= p;

(c)        &= nbsp;     Bonds Payable.............................= ................... 1,000,000

        &= nbsp;         Premium on Bonds Payable....................= ............ 9,000

        &= nbsp;           &nbs= p;    Cash..........................................= ...................................       980,000

        &= nbsp;           &nbs= p;    Gain on Bond Redemption..................= ....................         29,000

 

Conversion of bonds into common stock

&nbs= p;

(d)        &= nbsp;    Bonds Payable.............................= .................   1,000,000

        &= nbsp;           &nbs= p;    Common Stock...............................= .......         &= nbsp;           &nbs= p;     300,000

        &= nbsp;           &nbs= p;    Paid-in Capital in Excess of Par Value.....             =             &nb= sp; 700,000

 

 

EXERCISE 15-7

 

(a)   (1)     Cash..........................................= ............................. 485,000

        &= nbsp;         Discount on Bonds Payable....................= ............ 15,000

        &= nbsp;           &nbs= p;    Bonds Payable.............................= ...............................     500,000

 

        (2)     Semiannual intere= st payments ...........................= ...........   $200,000

        &= nbsp;           = ($20,000* X 10)

        &= nbsp;         Plus: Bond discount.......................= ..................................        15,000

        &= nbsp;         Total cost of borrowing...................= .................................   $215,000

 

        &= nbsp;         *($500,000 X .08 X 6/12)

 

= OR

 

        &= nbsp;         Principal at maturity.........................= .................................   $500,000

        &= nbsp;         Semiannual interest payments ..................= ....................     200,000

        &= nbsp;           = ($20,000 X 10)

        &= nbsp;         Cash to be paid to bondholders...........= ..........................     700,000

        &= nbsp;         Cash received from bondholders...........= .......................     485,000

        &= nbsp;         Total cost of borrowing...................= .................................   $215,000

 

(b)   (1)     Cash..........................................= ............................. 525,000

        &= nbsp;           &nbs= p;    Bonds Payable.............................= ...............................     500,000

        &= nbsp;           &nbs= p;    Premium on Bonds Payable....................= .................        25,00= 0

 

        (2)     Semiannual intere= st payments ...........................= ...........   $200,000

        &= nbsp;           = ($20,000 X 10)

        &= nbsp;         Less: Bond Premium........................= ................................        25,000

        &= nbsp;         Total cost of borrowing...................= .................................   $175,000

 

= OR

 

        &= nbsp;         Principal at maturity.........................= .................................   $500,000

        &= nbsp;         Semiannual interest payments ..................= ....................     200,000

        &= nbsp;           = ($20,000 X 10)

        &= nbsp;         Cash to be paid to bondholders...........= ..........................     700,000

        &= nbsp;         Cash received from bondholders...........= .......................     525,000

        &= nbsp;         Total cost of borrowing...................= .................................   $175,000

 

 

EXERCISE 15-8

 

(a)   Jan.  1    = Bond Interest Payable....................= ............. 72,000

        &= nbsp;           &nbs= p;             = Cash..........................................= ..........................       72,000

 

(b)   Jan   1     Bonds Payable..........................................= .. 600,000

        &= nbsp;           &nbs= p;     Loss on Bond Redemption..................= ....... 24,000

        &= nbsp;           &nbs= p;             = Cash ($600,000 X 1.04)...................= .................   624,000

 

(c)   July   1   &= nbsp; Bond Interest Expense....................= .......   45,000

        &= nbsp;           &nbs= p;             = Cash ($1,000,000 X 9% X 1/2).............= ............     45,000

 

 

EXERCISE 15-9

 

1.     June 30 &= nbsp;   Bonds Payable.............................= ............. 130,000

        &= nbsp;           &nbs= p;      Loss on Bond Redemption..................= ...  15,100

        &= nbsp;           &nbs= p;        ($132,600 – $117,500)

        &= nbsp;           &nbs= p;            &= nbsp; Discount on Bonds Payable....................= .....      12,500

        &= nbsp;           &nbs= p;            &= nbsp;   ($130,000 – $117,500)

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($130,000 X 102%)...................= .............     132,600

 

2.     June 30 &= nbsp;   Bonds Payable.............................= ............. 150,000

        &= nbsp;           &nbs= p;      Premium on Bonds Payable................... =   1,000

        &= nbsp;           &nbs= p;            &= nbsp; Gain on Bond Redemption..................= ..........       4,000

        &= nbsp;           &nbs= p;            &= nbsp;  ($151,000 – $147,000)

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($150,000 X 98%)....................= ...............     147,000

 

3.     Dec.  31&= nbsp;    Bonds Payable.............................= .............  20,000

        &= nbsp;           &nbs= p;            &= nbsp; Common Stock...............................= .................       3,000

        &= nbsp;           &nbs= p;            &= nbsp;   ($5 X 20* X 30)

        &= nbsp;           &nbs= p;            &= nbsp; Paid-in Capital in Excess of

        &= nbsp;           &nbs= p;            &= nbsp;   Par Value...............................= .......................      17,000

 

        *($20,000 ÷ $1,000)

 

Note:  As per the textbook, the market value of the stock is ignored in the conversio= n.

 

EXERCISE 15-10

 

2008

Issuance of= Note

Dec.  31&= nbsp;    Cash..........................................= ........................... 240,000

        &= nbsp;           &nbs= p;      Mortgage Notes Payable.......................= .................      240,000

 

2009

First Installment Payment

June 30 &= nbsp;   Interest Expense.............................= .................   12,000

        &= nbsp;           &= #8194;($240,000 X 10% X 6/12)

        &= nbsp;          Mortgage Notes Payable.......................= ...........   8,000

        &= nbsp;           &nbs= p;      Cash..........................................= ..................................       20,000

 

Second Installment Payment

Dec.  31&= nbsp;    Interest Expense.............................= .................   11,600

        &= nbsp;           &= #8194;[($240,000 – $8,000) X 10% X 6/12]

        &= nbsp;          Mortgage Notes Payable.......................= ...........   8,400

        &= nbsp;           &nbs= p;      Cash..........................................= ..................................       20,000

 <= /o:p>

 

EXERCISE 15-11

 

January 1, = 2008

(a)      Cash..........................................= ..................................... 300,000

        &= nbsp;           Mo= rtgage Notes Payable.......................= .........................      300,000

June 30, 2008

        &= nbsp; Interest Expense.............................= .............................. 12,000

        &= nbsp;   ($300,000 X 8% X 6/12)

        &= nbsp; Mortgage Notes Payable.......................= ........................ 8,000

        &= nbsp;           Ca= sh..........................................= ..........................................        20,00= 0

December 31, 2008

        &= nbsp; Interest Expense.............................= .......................        11,68= 0

        &= nbsp;   ($292,000 X 8% X 6/12)

        &= nbsp; Mortgage Notes Payable.......................= ...............          = 8,320

        &= nbsp;           Ca= sh..........................................= ......................         &= nbsp;           &nbs= p;      20,000

EXERCISE 15-11 (Continued)

 

(b)   Current: $17,652

  =             <= /span>[$20,000 – ($283,680 X 8% X 6/12)] + [$20,000 – ($275,027 X 8% X 6/12)]

 

  =       Long-term: $266,028 [($300,000 – $8,000 – $8,320) – $17,652]

 

 

EXERCISE 15-12

 

(a)        &= nbsp;           &nbs= p; Car Rental Expense......................= ............     500

        &= nbsp;           &nbs= p;             = Cash..........................................= .........................        ̳= 4;   500

 

(b)   Jan.  1    = Leased Equipment...........................= ........... 74,606

        &= nbsp;           &nbs= p;             = Lease Liability...........................= .........................        74,60= 6

 <= /o:p>

 

EXERCISE 15-13

 

        Long-term liabilities

        &= nbsp;       Bonds payable, due 2013...................= ............. $180,000        &= nbsp;           

        &= nbsp;       Add:  Premium on bonds payable..................    32,000    $212,000

        &= nbsp;       Lease liability...........................= .............................................        89,500

        &= nbsp;           &nbs= p;   Total long-term liabilities...............= ............................   $301,500

(a)   Total assets............................................................... <= /span>        &= nbsp;          $1,000,0= 00

        Less:  Total liabilities..............................................         &= nbsp;               620,000

        Total stockholders’ equity..........= ...........................         &= nbsp;          $   380,000

 

(b)

Debt to total assets ratio

=3D

Total liabilities=

=3D

$620,000

 =3D 62%

Total assets

$1,000,000

 

(c)

Times interest earned ratio

=3D

Net income + Income = tax expense + Interest expense

Interest expense

 

 

=3D

$150,000 + $100,000 + $7,000

=3D

36.7 times

$7,000

*EXERCISE 15-15

 

Present value of principal ($200,000 X .61391)        &= nbsp;           &nbs= p;  $122,782

Present value of interest ($8,000 X 7.72173)= ..............         &= nbsp;           &nbs= p;      61,774

Market price of bonds..........................................= ..........         &= nbsp;           &nbs= p;  $184,556

 

 

*EXERCISE 15-16

 

(a)   Jan.   1   &= nbsp; Cash..........................................= ..................... 562,613

        &= nbsp;           &nbs= p;     Discount on Bonds Payable....................= .  37,387

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= .....................      600,000

 

(b)   July  1    = Bond Interest Expense....................= ..........  28,131

        &= nbsp;           &nbs= p;       ($562,613 X 5%)

        &= nbsp;           &nbs= p;             = Discount on Bonds Payable....................= .......        1,1= 31

        &= nbsp;           &nbs= p;             = Cash ($600,000 X 9% X 1/2)...............= ..............       27,000

 <= /o:p>

(c)   Dec. 31     Bond Interest Expense....................= ..........  28,187

        &= nbsp;           &nbs= p;       [($562,613 + $1,131) X 5%]

        &= nbsp;           &nbs= p;             = Discount on Bonds Payable....................= .......        1,1= 87

        &= nbsp;           &nbs= p;             = Bond Interest Payable....................= ..................       27,000

 

*EXERCISE 15-16 (Continued)

 

 

 

*EXERCISE 15-17

 

(a)   Jan.  1    = Cash..........................................= .................     318,694

        &= nbsp;           &nbs= p;             = Premium on Bonds Payable.........         &= nbsp;           &nbs= p;   18,694

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ...         &= nbsp;           &nbs= p;  300,000

 

(b)   July  1    = Bond Interest Expense....................= ......      15,935

        &= nbsp;           &nbs= p;       ($318,694 X 5%)

        &= nbsp;           &nbs= p;     Premium on Bonds Payable.................        ̳= 4; 565

        &= nbsp;           &nbs= p;             = Cash..........................................= .........         &= nbsp;           &nbs= p;   16,500

        &= nbsp;           &nbs= p;             =   ($300,000 X 11% X 1/2)

 

(c)   Dec. 31     Bond Interest Expense....................= ......      15,906

        &= nbsp;           &nbs= p;       [($318,694 – $565) X 5%]

        &= nbsp;           &nbs= p;     Premium on Bonds Payable.................        ̳= 4; 594

        &= nbsp;           &nbs= p;             = Bond Interest Payable....................=         &= nbsp;           &nbs= p;   16,500

 

 

*EXERCISE 15-17 (Continued)

 

 

 

*EXERCISE 15-18

 

(a)   Jan.  1    = Cash ($400,000 X 103%)...................= ....      412,000

        &= nbsp;           &nbs= p;             = Premium on Bonds Payable........         &= nbsp;           &nbs= p;    12,000

        &= nbsp;           &nbs= p;             = Bonds Payable.............................= ..         &= nbsp;           &nbs= p;   400,000

 

(b)   July  1    = Bond Interest Expense....................= .....       17,700

        &= nbsp;           &nbs= p;     Premium on Bonds Payable................        = 194; 300

        &= nbsp;           &nbs= p;       ($12,000 X 1/40)

        &= nbsp;           &nbs= p;             = Cash ($400,000 X 9% X 1/2)..........         &= nbsp;           &nbs= p;    18,000

 

(c)   Dec.  31    = Bond Interest Expense....................= ....       17,700

        &= nbsp;           &nbs= p;      Premium on Bonds Payable...............        = 194; 300

        &= nbsp;           &nbs= p;            &= nbsp; Bond Interest Payable.................         &= nbsp;           &nbs= p;    18,000

 

        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;       2028

(d)   Jan.   1   =   Bonds Payable.............................= .........      400,000

        &= nbsp;           &nbs= p;            &= nbsp; Cash..........................................= .......         &= nbsp;           &nbs= p;   400,000

 

 

*EXERCISE 15-19

 

(a)            =             &nb= sp;            =             &nb= sp;           2007=

        Dec.  31&= nbsp;    Cash..........................................= ...............      730,000

        &= nbsp;           &nbs= p;      Discount on Bonds Payable...............       70,000

        &= nbsp;           &nbs= p;            &= nbsp; Bonds Payable.............................= .         &= nbsp;           &nbs= p;   800,000

 

        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;  2008

        June 30 &= nbsp;   Bond Interest Expense....................= ....       47,500

        &= nbsp;           &nbs= p;            &= nbsp; Discount on Bonds Payable.......         &= nbsp;           &nbs= p;     3,500

        &= nbsp;           &nbs= p;            &= nbsp;   ($70,000 ÷ 20)

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($800,000 X 11% X 1/2)...... =         &= nbsp;           &nbs= p;    44,000

 

        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;  2008

        Dec.  31&= nbsp;    Bond Interest Expense....................= ....       47,500

        &= nbsp;           &nbs= p;            &= nbsp; Discount on Bonds Payable.......         &= nbsp;           &nbs= p;     3,500

        &= nbsp;           &nbs= p;            &= nbsp; Cash ($800,000 X 11% X 1/2)...... =         &= nbsp;           &nbs= p;    44,000

 

        &= nbsp;           &nbs= p;            &= nbsp;           &nbs= p;            &= nbsp;  2017

        Dec.  31&= nbsp;    Bonds Payable.............................= .........      800,000

        &= nbsp;           &nbs= p;            &= nbsp; Cash..........................................= .......         &= nbsp;           &nbs= p;   800,000

 

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