Exercise 11- 8
Sept. 30 Payroll Taxes Expense ...........................................
FICA—Social Security Taxes Payable.............
FICA—Medicare Taxes Payable .......................
Federal Unemployment Taxes Payable ...........
State Unemployment Taxes Payable...............
To record employer payroll taxes.
83.40
49.60
11.60
4.80
17.40
Problem 14-5A
Part 1
Ten payments of $8,125* .......................... $ 81,250
Par value at maturity .................................. 250,000
Total repaid ................................................. 331,250
Less amount borrowed .............................. (255,333)
Total bond interest expense...................... $ 75,917
*$250,000 x 0.065 x ½ =$8,125
or:
Ten payments of $8,125 ............................ $ 81,250
Less premium ............................................
(5,333)
Total bond interest expense..................... $ 75,917
Part 2
(A)
(B)
Semiannual Cash Interest
Bond Interest
Interest
Paid
Expense
Period-End [3.25% x $250,000] [3% x Prior (E)]
(C)
(D)
Premium
Unamortized
Amortization
Premium
[(A) - (B)]
1/01/2013
(E)
Carrying
Value
[Prior (D) - (C)] [$250,000 + (D)]
$5,333
$255,333
6/30/2013
$ 8,125
$ 7,660
$ 465
4,868
254,868
12/31/2013
8,125
7,646
479
4,389
254,389
6/30/2014
8,125
7,632
493
3,896
253,896
12/31/2014
8,125
7,617
508
3,388
253,388
6/30/2015
8,125
7,602
523
2,865
252,865
12/31/2015
8,125
7,586
539
2,326
252,326
6/30/2016
8,125
7,570
555
1,771
251,771
12/31/2016
8,125
7,553
572
1,199
251,199
6/30/2017
8,125
7,536
589
610
250,610
12/31/2017
8,125
7,515*
610
0
250,000
$81,250
$75,917
$5,333
*Adjusted for rounding.
Part 3
2013
June 30
Bond Interest Expense .................................................
7,660
Premium on Bonds Payable .........................................
465
Cash .........................................................................
8,125
To record six months’ interest and
premium amortization.
2013
Dec. 31
Bond Interest Expense .................................................
7,646
Premium on Bonds Payable .........................................
479
Cash .........................................................................
8,125
To record six months’ interest and
premium amortization.
Part 4
As of December 31, 2015
Cash Flow
Table
Par value ...................... B.1
Interest (annuity) ......... B.3
Price of bonds .............
Table Value*
0.8885
3.7171
Amount
$250,000
8,125
Present Value
$222,125
30,201
$252,326
* Table values are based on a discount rate of 3% (half the annual original
market rate) and 4 periods (semiannual payments).
Comparison to Part 2 Table
This present value ($252,326) equals the carrying value of the bonds
in column (E) of the amortization table ($252,326). This shows a
general rule: The bond carrying value at any point in time equals the
present value of the remaining cash flows using the market rate at
the time of issuance.