•
170 outof170points(100%)
1.
award:
10 out of
10.00
Tano issues bonds with a par value of $180,000 on January 1, 20 13. The bonds' annual contract rate is
8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years.
The annual market rate at the date of issuance is 10%, and the bonds are sold for $170,862.
1. What is the amount of the discount on these bonds at issuance?
Discount
9,1 38.I
$
2. How much total bond interest expense will be recognized over the life of these bonds?
iTotal bond interest expense over fife of bonds:
Amount repaid:
6.1 payments of
7,200.I $
$
43,200
--~
Par value at maturity
180,000.I
223,200
Total repaid
---
Less amount borrowed
170,862.I
Total bond interest expense
$
3. Use the straight-line method to amortize the discount for these bonds.
Semiannual PeriodEnd
01/01/20 13
Unamortized
Discount
$
carrying Value
9,1 38,./ $
170,862.I
06/30/20 13
7,615.,I
172,385.I
12/3112013
6,092,./
173,908.I
06/30120 14
4,569,./
175,43 1.I
12/31/20 14
3,046,./
176,954.I
06/30120 15
1,523
178,477
12/3 112015
$
0
$
180,000
2.
award:
10 out of
10.00
Prepare the journal entries for the issuance of th e bonds in both OS 14-1 and OS 14-2. Assume that
both bonds are issued for cash on January 1, 20 13.
1. Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest
payments. On the issue date, the annual market rate forthese bonds is 10%, which implies a selling
price of 87 112. The straight·line method is use d to allocate interest expense.
General Journal
Date
Jan. 1, 20 11
./
J.cash
Discount on bonds payable
Bonds payable
-
Debit
./
Credit
218,750./
31,250./1
./]
250,000./
2. Garcia Company issues 10%, 15·year bonds with a par value of $240,000 and semiannual interest
payments. On the issue date, the annual market rate forthese bonds is 8%, which implies a selling
price of 11 7 1/4 . The effective interest method is used to allocate interest expense.
Date
Jan. 1, 20 11
General Journal
II
Gash
Bonds payable
Premium on bonds payable
Debit
./
./
./
Credit
28 1,400./1
240,000./
41,400./
m.vard:
3.
10 out of
10.00
.................. ··points·· .....................................................................................................................................................................................................................
Sylvestor Company issues 10%, five-year bonds, on December 31, 20 12, with a par value of $100,000
and semiannual interest payments.
Semiannual Period-End
Unamortized Discount
Carrying Value
(0) 1213 112012
$ 7,360
6,624
$ 92,640
(1) 6130120 13
(2) 12/3112013
5,888
93,376
94, 11 2
Use the above bond amortization table and prepare journal entries to record the following.
(a) The issuance of bonds on December 31, 20 12.
Date
Dec. 31
Debit
General Journal
Cash
Discount on bonds payable
Bonds payable
.I
.I
.I
Credit
92,640./
7,360./
100,000./
(b) The first interest payment on June 30, 20 13.
Date
Jun 30
Debit
General Journal
_[Bond interest expense
.I
Gash
./
Discount on bonds payable
vii
Credit
5,736./J
5,000./
I
736./
(c) The second interest payment on December 31, 20 13.
Date
Dec.3 1
Debit
General Journal
Bond interest expense
Cash
Discount on bonds payable
.I
.I
.I
Credit
5,736./
'-
5,000./
736./
4.
award:
10 out of
10.00
Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest
payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling
price of 117 V4. The effective interest method is used to allocate interest expense.
1. What are the issuer's cash proceeds from issuance of these bonds?
~,;;
sh~
pr;,.;
o,;;
ce;,.;e;,.;
d;,.;
s___ $
28 1,400.I
2. What total amount of bond interest expense will be recognized over the life of these bonds?
:rotaI bond interest expense over Die of bonds:
Amount repaid:
---30.I payments of
$
12,000.1 $
360,000
--~--
Par value at maturity
240,000V"
Total repayments
600,000
Less amount borrowed
28 1,400.I
Total bond interest expense
$
318,600
3. What is the amount of bond interest expense recorded on the first interest payment date?
Bond interest expense
$
11,256.I
• P<•• IQuestion #5 (of 17)
•
I
nexn
·····················points ·················································································· ····················································································································· ··
On January 1, 20 13, Eagle borrows $100,000 cash by signing a four-year, 7% installment note. The
note requires four equal total payments of accrued interest and principal on December 31 of each year
from 20 13 through 20 16. ( Tab!e 0.1, Table 0.2, Table a.3, and Table a.4) (Use appropriate factor(s) from the
tables provided.)
Prepare the journal entries for Eagle to record the loan on January 1, 20 13, and the four payments from
December 31, 20 13, through December 31, 2-0 16.
I Interest Rate II Notes Payable
7.0%
$
Table Value
100,000vl
3 3s72v1
cash Paid
=
I$
29.523
=~~-~--
Date
Jan 01, 20 13
Dec 31, 20 13
Gash
Notes payable
vi
vi
Interest expense
vi
vi
vi
Notes payable
Cash
Dec 31, 2014
Interest expense
Notes payable
Cash
Dec 31, 20 15
Interest expense
Notes payable
Cash
Dec 31, 20 16
Debit
General Journal
Interest expense
Notes payable
Cash
vi
vi
vi
100,000vl
100,000vl
7,000vl
22,523vl
29,523vl
5,423vlt 24,l OOvl
29,523vl
vi
vi
vi
vi
vi
vi
Credit
29,523vl
1,933vl
27,590vl
29,523vl
6.
award:
10 out of
10.00
..............poii'its ........................................................ ..
On January 1, 20 13, the $2,000,000 par value bonds of Spitz Company with a carrying value of
$2,000,000 are converted to 1,000,000 shares of$ 1.00 par value common stock.
Record the entry for the conversion of the bonds.
Genera l Journal
Date
Jan. 1, 20 11
I Bonds payable
Debit
./
Credit
2,000,000./
Common stock, $1 par
./
1,000,000./
Paid-In capital in excess of par value
./
1,000,000./
award:
10 out of
7
•
10.00
............ ··points ...................................................... · ·
Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest
payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling
price of 87 11.2. The straight·line method is used to allocate interest expense.
1. What are the issuer's cash proceeds from issuance of these bonds?
Gash proceeds
$
~~~~~~~~~
218,750.I
2. What total amount of bond interest expense will be recognized over the life of these bonds?
Total bond interest expense over life of bonds:
Amount repaid:
20.I payments of
$
10,000.11$
200,000
~
Par value at maturi~/
250,000.I
J
Total repayments
Less amount borro'Aoed
tTotal bond interest expense
450,000
218,750.I
$
, •,
231,250
3. What is the amount of bond interest expense recorded on the first interest payment d ate?
Bond interest expense
$
~~~~~~~~~--
11,563.I
award:
10 out of
8
.
·.................. 10.00
pomts ..................................................................................................·· ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..
On January 1, 2013, Eagle borrows $100,000 cash by signing a four-year, 7% installment note. The
note requires four equal total payments of accrued interest and principal on December 31 of each year
from 2013 through 20 16. (Table 0.1. Tab!e 0.2, Table 8.3, and Tab'• 0.4) (Use appropriate factor(s) from the
tables provided.)
1. Compute the amount of each of the four equal total payments.
Initial Note
Balance
Interest Rate
Amount of Each
Payment
Table Value
100,000.11
3.3872./
=
j$
29,523
2. Prepare an amortization table for this installment note. (Round your intermediate calculations to
the nearest dollar amount.)
Payments
(A)
(B)
(C)
(D)
(E)
Ending
Beginning
Debit Interest
Debit Notes
Credit
Ending
Date
Balance
Expense
Payable
cash
Balance
Period
$
20 13
100,000./ $
7,000./ $
22,523./ $
29,523./ $
77,477./
20 14
77,477./
5,423./
24,100./
29,523./
53,377./
20 15
53,377./
3,736v'
25,787./
29,523v'
27,590v'
20 16
27,590./
1,933
27,590
29,523v'
Total
J
1$
18,092 1$
100,000
'
$
118,092
0
9•
award:
10 out of
10.00
............ ··points ......................................................... · ..
WoodwicK Company issues 10%, five.year bonds, on December 31, 20 12, with a par value of
$200,000 and semiannual interest payments.
Semiannual PeriodEnd
(0) 12/3112012
(1) 6/30/20 13
(2) 12/31/20 13
Unamortized Premium
$16,222
Carrying Value
$2 16,222
214,600
212,978
14,600
12,978
Use the above straight·line bond amortization table and prepare journal entries for the following.
(a) The issuance of bonds on December 31, 20 12.
(b)The first interest payment on June 30, 20 13.
(c)The second interest payment on December 3 1, 20 13.
Genera l Journal
Date
Dec 31, 20 12
Cash
Premium on bonds payable
Bonds payable
Jun 30, 2013
Bond interest expense
Premium on bonds payable
Cash
Dec 31, 20 13
Bond interest expense
Premium on bonds payable
Cash
Debit
./ 216,222./
./
./f - - ./
./
./
8,378./
./
./
./
8,378./
Credit
16.222./
200,000./
1,622./
10,000./
1,622./
10,000./
10.
8'1Nard:
10 out of
10.00
On July 1, 2013, Advocate Company exercises. an $8,000 call option (plus par value) on its outstanding
bonds that have a carrying value of $416,000 and a par value of $400,000. The company exercises the
call option after the semiannual interest is paid on June 30, 20 13.
Record the entry to retire the bonds.
General Journal
Dllte
Jul01
Bonds payable
Premium on bonds payable
Cash
Gain on retirement of bonds
Debit
400,000./
16,000./
Credit
11.
sward:
10 out of
10.00
··························points ··
Dobbs Company issues 5%, two-year bonds, on December 31, 20 13, with a par value of $200,000 and
semiannual interest payments.
Semiannual PeriodEnd
(0) 12/31/2013
(1) 6/30/20 14
(2) 12/3112014
(3) 6/3012015
(4) 12/31/20 15
Unamortized Discount
Carrying Value
$12,000
9,000
6,000
3,000
0
$188,000
191,000
194,000
197,000
200,000
Use the above straight-line bond amortization table and prepare journal entries for the following.
Required :
(a)The issuance of bonds on December 31, 201 3.
Genera IJournal
Date
Dec 31, 20 13
Cash
Discount on bonds payable
Bonds payable
-~--
Debit
./
./
./
Credit
188,000./
12,000./
200,000./
(b)The first through fourth interest payments on each June 30 and December 31.
General Journal
Date
Jun 30, 20 14
Bond interest expense
Discount on bonds payable
Gash
- -
Dec 31, 20 14
Bond interest expense
Discount on bonds payable
Cash
Debit
./
./
./
8,000./
./
./
./
8,000./
Credit
3,000./
5,000./
3,000./
5,000./
I
Jun 30, 20 15
Bond interest expense
Discount on bonds payable
Gash
Dec 31, 20 15 I
Bond interest expense
Discount on bonds payable
Cash
./
./
./
8,000./
./
./
./
8,000./
3,000./
5,000./
3,000./
5,000./
(c)Record the payment to retire tl1e bonds on December 31, 20 15.
Date
Dec 31, 20 15
------
General Journal
Bonds payable
Cash
Debit
./
./
Credit
200,000./
200,000./
award:
10 out of
12
• 10.00
............ ··points .......................................................................................................................................... ..
On January 1, 20 13, Boston Enterprises issues bonds that have a $3,400,000 par value, mature in 20
years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.
1. How much interest will Boston pay (in cash) to the bondholders every six months?
x
3,400,000.,I
$
____
Semiannual
Rate
Par (maturityl Value
4.5%.,I
-----~-
Semiannual cash
Interest P ment
__
=_,_$
153,000
2. Prepare journal entries for the following.
(a)The issuance of bonds on January 1, 20 13.
General Journal
Date
Jan 01, 20 13
Debit
.,I
.,I
Cash
Bonds payable
Credit
3,400,000.,I
3,400,000.,I
(b) The first interest payment on June 30, 20 13.
Gene~al Journal
Date
June 30, 2013
1--
Bono interest expens-e
Debit
./
Credit
153,000./
Cash
153,000.,I
(c) The second interest payment on December 3 1, 20 13.
General Journal
Date
Dec 3 1, 20 13
Bond interest expense
Cash
Debit
.,I
.,I
Credit
153,000.,I
153,000.,I
3. Prepare the journal entry for issuance of bonds assuming.
(a) The bonds are issued at 98.
Date
Jan 01, 20 13
Gash
General Journal
--
Discount on bonds payable
Bonds payable
Debit
.,I
.,I
.,I
Credit
3,332,000.,I
68,000.,I
3,400,000.,I
(b) The bonds are issued at 102.
General Journal
Date
Jan 01, 20 13
Gash
Bonds payable
l
Premium on bonds payable
-~--
Debit
.,I
.,I
.,I
Credit
3,468,000./
~
3,400,000.,I
68,000.,I
----
13.
award:
10 out of
10.00
· ·· ·· ·· ·· ····poifits · ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ··· ·
Quatro Co. issues bonds dated January 1, 20 13, with a par value of $400,000. The bonds' annual
contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds
mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold
for $409,850.
1. What is the amount of the premium on these bonds at issuance?
Premium
9,850./
$
2. How much total bond interest expense will be recognized over the life of these bonds?
ifotal bond interest expense over life of bonds:
Amount repaid:
-~--
6./ payments of
---
26,000./ $
$
Par value at maturi~/
Total repaid
156,000
400,000./
----
556,000
Less amount borrowed
- -1$
Total bond interest expense
409,850./
_J46J 50
3. Prepare an amortization table for these bonds; use the straight-line method to amortize the
premium. (Round your intermediate calculations to the nearest dollar amount.)
Unamortize
Semiannual PeriodEnd
01/0112013
$
carrying Value
9,850./ $
409,850./
06/30/20 13
8,208.,I
408,208./
12/3 112013
6,566.,I
406,566./
06/30/20 14
4,924.,I
404,924
1213112014
3,282.,I
403,282
06/30/20 15
1,~
40 1,640
12/3 112015
400,000
14 •
award:
10 out of
10.00
· · · · · · ...points · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·
Atlanta Company
Total liabilities
Total equity
Compute the
$ 429,000
572,000
debt-to-equi~/
Spokane
Company
$ 548,000
1,827 ,000
ratio for each of the following companies.
Debt to equilV ratio
Choose Nwnerator:
11-~~~~~~...-~~~
Total liabilities
I
vi
Atlanta Company
429,000./
Spokane Company
548,000./
Choose Denominator:
Total equi~/
Which company appears to have a riskier financing structure? Explain.
0 Spokane Company
® Atlanta Company
;J
./ Debt·to-equi!y ratio
572,000./
0.75
1,827,000./
0.30
15.
8'1Nard:
10 out of
10.00
Select the phrase that best fits each term of the description A through H .
Description
IRecords and tracks the bondholders' names.
A
...l
Items
Registered bond
8.
Is unsecured; backed only by the issuer's cre<lit standing.
Debenture
C.
.Has varying maturi~/ dates for amounts owed .
Serial bond
D.
!Identifies rights and responsibilities of the issuer and the bondholders.
Bond indenture
E
lean be exchanged for shares of the issuer's stock.
Convertible bond
nregistered; interest is paid to whoever possesses t~m.
Maintains a separate asset account from which bondholders are paid at
1ma"'
tu"'
ri,,
~/~
· __
TP1edges specific assets of the issuer as collateral.
Bearer bond
G
•
H.
Sinking fund bond
Secured bond
.)
./
./
./
./
./
./
./
16.
8'1Nard:
10 out of
10.00
Montclair Company is considering a project that will require a $500,000 loan. It presently has total
liabilities of $220,000, and total assets of $6 10, 000.
1. Compute Montclair's (a) present debt-to-equity ratio and (b) the debt-to-equity ratio assuming it
borrows $500,000 to fund the project.
Choose Numerator:
Total liabilities
Choose Denominator:
./
Total equi~/
./ Debt-to-Equi~/ Ratio
(a)
$
220,000./
I
$
390,000./
0.56
(b)
$
720,000./
I
$
390,000./
_..185
17.
eward:
10 out of
10.00
Murray Company borrows $340,000 cash from a bank and in return signs an installment note for five
annual payments of equal amount, with the first payment due one year after the note is signed.
Compute the amount of the annual payment for each of the following annual market rates: (Table s.3)
(Use PV factors from table provided.)
Initial cash
Proceeds
Market Rate
(a)
(b)
I-
(C)
tI
PY Factor
4.0%
$
340,000./
I
8.0%
$
340,000./
I
./
./
12.0%
$
340,000./
I
./
II
4.45 18./1 =
=
3.6048./ =
3.9927./
Amount of annual
payment
1$
,$
•$
76,374
85, 155
94,3191
J