# Chapter 12 - Accounting

```Long-Term Liabilities
Chapter 12
Exercises
Journalizing Bond Transactions
In-Class Exercises (Form groups and work exercises):
Exercise No.
E12-22
Page
730
Journalizing Bond Transactions
(Use the format, as reflected on the next slide, to
complete this exercise)
Journalizing Bond Transactions
General Journal
Date
Description
Exercise
E12-22
Debit
Page
730
Journalizing Bond
Transactions
Credit
Bond Pricing
Exercise E12-22:
Clark issued \$50,000 of 10-year, 9% bonds payable on January 1,
2014. Clark pays interest each January 1 and July 1 and amortizes
discount or premium by the straight-line method. The company can
issue its bond payable under various conditions.
Requirements:
1.
Journalize Clark’s issuance of the bonds and first semiannual
interest payment, assuming the bonds were issued at face value.
2.
Journalize Clark’s issuance of the bonds and first semiannual
interest payment, assuming the bonds were issued at 95.
3.
Journalize Clark’s issuance of the bonds and first semiannual
interest payment, assuming the bonds were issued at 106.
Journalizing Bond Transactions
Bonds issued at face value
\$50,000 x .09 x 6/12 = \$2,250
Journalizing Bond Transactions
Bonds issued at .95
\$50,000 x .95 = \$47,500
Journalizing Bond Transactions
Bonds issued at .95
\$50,000 - \$47,500 = \$2,500
Journalizing Bond Transactions
Bonds issued at .95
?
\$2,500 ÷ 20 = \$125
Journalizing Bond Transactions
Bonds issued at .95
\$2,250 + \$125 = \$2,375
Journalizing Bond Transactions
Bonds issued at 1.06
\$50,000 x 1.06 = \$53,000
Journalizing Bond Transactions
Bonds issued at 1.06
\$53,000 - \$50,000 = \$3,000
Journalizing Bond Transactions
Bonds issued at 1.06
?
\$3,000 ÷ 20 = \$150
Journalizing Bond Transactions
Bonds issued at 1.06
\$2,250 - \$150 = \$2,100
Journalizing Bond Transactions
End of Exercise
Journalizing Bond Transactions
In-Class Exercises (Form groups and work exercises):
Exercise No.
E12-28
Page
731
Present Value of Bonds Payable
(Use the format, as reflected on the next slide, to
complete this exercise)
Pricing Bonds Using Present Value
Prepare this schedule for each of the three stated requirements.
Pricing Bonds Using Present Value
Exercise E12-28:
Interest rates determine the present value selling price of bonds.
(Round all numbers to the nearest whole dollar)
Requirements:
1.
Determine the present vale of 7-year bonds payable, with a face
value of \$91,000, and stated (contract) interest rate of 14%. The
market rate is 14% at issuance.
2.
Same bonds payable as in Requirement 1, but the market interest
rate is 16%.
3.
Same bonds payable as in Requirement 1, but the market interest
rate is 12%.
4.
Note: First, determine the periodic interest payment, using the
contract rate of interest.
Pricing Bonds Using Present Value
Determining Bond Interest Payment
First, we need to calculate the semi-annual interest
payment to be made to the bondholders.
Equation: Principal x contract rate / 2
\$91,000 x .14 = \$12,740 / 2 = \$6,370
Pricing Bonds Using Present Value
Pricing Bonds Using Present Value
Pricing Bonds Using Present Value
Pricing Bonds Using Present Value
End of Exercise
Effective Interest Amortization Method

In-Class Exercise (Form groups and work exercise):
Exercise No.
E12B-29
Page
732 Effective Interest Amortization
Method
(Use the format, as reflected on the next slide, to
complete the exercise)
Effective Interest Amortization Method
Exercise E12B-29:


Journalize issuance of the bond and the first semiannual interest
payment under each of the three assumptions in Exercise E12A-28.

The company amortizes bond premium and discount by the
effective-interest amortization method.
Effective Interest Amortization Method
Market Rate = 14%
Effective Interest Amortization Method
Market Rate = 16%
\$91,000 - \$83,454 = \$7,546
Effective Interest Amortization Method
Market Rate = 16%
\$83,454 x .08 = \$6,676
Effective Interest Amortization Method
Market Rate = 16%
\$6,676 - \$6,370 = \$306
Effective Interest Amortization Method
Market Rate = 12%
\$99,431 - \$91,000 = \$8,431
Effective Interest Amortization Method
Market Rate = 12%
\$99,431 x .06 = \$5,966
Effective Interest Amortization Method
Market Rate = 12%
\$6,370 - \$5,966 = \$404
Effective Interest Amortization Method
End of Exercise
```
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