Chapter 14 – Bonds and Long-Term Notes
Exercise 14-7
1. Price of the bonds at January1, 2012
Interest
$7,500,000¥ x 13.76483 * = $103,236,225
Principal
$150,000,000 x 0.17411 ** = 26,116,500
Present value (price) of the bonds $129,352,725
¥ 5% x $150,000,000 *
present value of an ordinary annuity of $1: n=30, i=6% (Table 4)
** present value of $1: n=30, i=6% (Table 2)
2. January 1, 2012
Cash (price determined above) ............................... 129,352,725
Discount on bonds payable (difference)..............
20,647,275
Bonds payable (principal amount)..................... 150,000,000
3. June 30, 2012
Interest expense (6% x $129,352,725).............................. 7,761,164
Discount on bonds payable (difference).................... 261,164
Cash (5% x $150,000,000)....................................... 7,500,000
4. December 31, 2012
Interest expense (6% x $(129,352,725+261,164))............ 7,776,833
Discount on bonds payable (difference).................... 276,833
Cash (5% x $150,000,000)....................................... 7,500,000
Exercise 14-10
1. Price of the bonds at January 1, 2012
Interest $22,500¥ x 6.46321 * = $145,422
Principal $500,000 x 0.67684 ** = 338,420
Present value (price) of the bonds $483,842
¥ 4.5% x $500,000
* present value of an ordinary annuity of $1: n=8, i=5% (Table 4)
** present value of $1: n=8, i=5% (Table 2)
2. January 1, 2012 Cash (price determined above) .......................... 483,842
Discount on bonds payable (difference)......... 16,158
Bonds payable (principal amount)................ 500,000
3. Amortization schedule
Cash
Effective
Increase in
Outstanding
Interest
Interest
Balance
Balance
4.5% x Principal 5% x Outstanding Balance Discount Reduction
483,842
1 22,500
.05 (483,842) = 24,192
1,692
485,534
2 22,500 .
05 (485,534) = 24,277
1,777
487,311
3 22,500
.05 (487,311) = 24,366
1,866
489,177
4 22,500
.05 (489,177) = 24,459
1,959
491,136
5 22,500
.05 (491,136) = 24,557
2,057
493,193
6 22,500
.05 (493,193) = 24,660
2,160
495,353
7 22,500
.05 (495,353) = 24,768
2,268
497,621
8 22,500
.05 (497,621) = 24,879*
2,379
500,000
180,000
196,158
16,158 *
rounded.
4. June 30, 2012
Interest expense (5% x $483,842)....................... 24,192
Discount on bonds payable (difference) ..... 1,692
Cash (4.5% x $500,000) ............................... 22,500
5. December 31, 2015
Interest expense (5% x $497,621)....................... 24,879*
Discount on bonds payable (difference) ..... 2,379
Cash (4.5% x $500,000) ............................... 22,500
* rounded value from amortization schedule
Bonds payable .................................................... 500,000
Cash ......................................................... 500,000