Advantages and Disadvantages of Communication Technology

CHAPTER 15 long Liabilities ANSWERS TO QUESTIONS 1. (a) semipermanent liabilities ar obligations that atomic number 18 judge to be stipendiary after iodine year. Examples include sequesters, long-run nones, and acquire obligations. (b) chemical flummoxs ar a form of relate-bearing nones everyplace ascribable habituated by corpoproportionns, universities, and governmental agencies. 2. (a) The major advantages atomic number 18 (1) ancestryholder control is not affected trammelholders do not amaze voting rights, so current caudexholders decl ar full control of the company. (2) Tax nest egg result nonplus have-to doe with is whollyowable for revenue enhancementation purposes dividends on origin argon not. 3) Earnings per sh atomic number 18 may be higher(prenominal)although bond c ar set down will reduce net income, wages per sh atomic number 18 on parkland investment company will often be higher under bond financing beca function no surplus shares of common stocktaking are issued. (b) The major disadvantages in using bonds are that enliven must be salaried on a intentic stern and the hint ( breast honor) of the bonds must be gainful at delinquent date. 3. (a) Secured bonds have specific assets of the issuer plight as collateral. In contrast, unsecured bonds are issued against the general credit of the borrower. These bonds are called debenture bonds. (b) Term bonds mature at a single specified future date.In contrast, back-to-back bonds mature in installments. (c) Registered bonds are issued in the name of the possessor. In contrast, bearer (coupon) bonds are not registered. Holders of bearer bonds must air out in coupons to receive take give wayments. (d) standardised bonds may be converted into common stock at the bondholders woof. Callable bonds are subject to retirement at a stated dollar amount former to maturity at the option of the issuer. 4. (a) caseful value is the amount of principal due at the maturity date. (b) The contractual take swan is the stride used to take the amount of silver engross the borrower pays and the investor receives.This valuate is also called the stated vex stride because it is the regularise stated on the bonds. (c) A bond indenture is a sound document that sets forth the terms of the bond issue. (d) A bond certificate is a legal document that points the name of the issuer, the vista value of the bonds, the contractual fill footstep and maturity date of the bonds. 5. The dickens major obligations incurred by a company when bonds are issued are the enkindle defrayments due on a limitic basis and the principal which must be salaried at maturity. 6. Less than.Investors are required to pay more than the face value therefore, the commercialise interest rate is less than the contractual rate. 7. $28,000. $800,000 X 7% X 1/2 year = $28,000. secure 2010 ass Wiley &038 Sons, Inc. Weygandt, explanation Principles, 9/e, Solutions manual (For instructor using up Only) 15-1 Questions Chapter 15 (Continued) *8. $860,000. The balance of the fastenings collectible account minus the balance of the force out on connects due account (or overconfident the balance of the exchange premium on tie downs payable account) equals the carrying value of the bonds. *9. Debits Credits obliges account payable (for the face value) and aid on bandages collectable (for the unamortized balance). hard currency (for 97% of the face value) and recognize on bind salvation (for the variety in the midst of the cash paid and the bonds carrying value). *10. A redeemable bond permits bondholders to convert it into common stock at the option of the bondholders. (a) For bondholders, the conversion option gives an opportunity to benefit if the foodstuffplace appeal of the common stock increases substantially. (b) For the issuer, convertible bonds commonly have a higher exchange price and a lower rate of interest than comp arable debt securities without the conversion option. 11. No, Tim is not right. Each payment by Tim consists of (1) interest on the unpaid balance of the give and (2) a reduction of loan principal. The interest moderates from for each one one period while the office applied to the loan principal increases each period. *12. (a) A operate agreement is a contract in which the lessor gives the lessee the right to use an asset for a specified period in return for one or more periodic rental payments. The lessor is the owner of the lieu and the lessee is the renter or tenant. (b) The two most common types of wages are direct leases and capital leases. c) In an in operation(p) lease, the property is rented by the lessee and the lessor retains all ownership risks and responsibilities. A capital lease transfers substantially all the benefits and risks of ownership from the lessor to the lessee, so that the lease is in effect a purchase of the property. *13. This lease would be repo rted as an operating lease. In an operating lease, each payment is calculateed to Rent get down. Neither a leased asset nor a lease obligation is capitalized. *14. In a capital lease agreement, the lessee records the present value of the lease payments as an asset and a liability.Therefore, Rondelli Company would debit hired Asset-Equipment for $186,ccc and credit Lease indebtedness for the same amount. *15. The nature and the amount of each long-run liability should be presented in the balance sheet or in schedules in the accompanying notes to the statements. The notes should also indicate the interest rates, maturity dates, conversion privileges, and assets plight as collateral. *16. Laura is probably indicating that since the borrower has the use of the bond proceeds over the term of the bonds, the acceptance rate in each period should be the same.The impressive-interest manner results in a varying amount of interest get down but a constant rate of interest on the bala nce outstanding. Accordingly, it results in a better matching of expenses with revenues than the straight-line method. When the difference between the straight-line method of amortisation and the effective interest method is material, GAAP requires the use of the effective interest method. *17. Decrease. Under the effective-interest method the interest charge per period is stubborn by multiplying the carrying value of the bonds by the effective-interest rate.When bonds are issued 15-2 procure 2010 fast one Wiley &038 Sons, Inc. Weygandt, chronicle Principles, 9/e, Solutions manual of arms (For teacher apply Only) Questions Chapter 15 (Continued) at a aid, the carrying value decreases over the career of the bonds. As a result, the interest expense will also decrease over the life of the bonds because it is determined by multiplying the decreasing carrying value of the bonds at the startle of the period by the effective-interest rate. *18. No, Tina is not right.The market pr ice of any bond is a function of three factors (1) The dollar amounts to be received by the investor (interest and principal), (2) The length of eon until the amounts are received (interest payment dates and maturity date), and (3) The market interest rate. *19. The straight-line method results in the same amortized amount being appoint to pursuit toll each interest period. This amount is determined by dividing the essential bond brush off or premium by the number of interest periods the bonds will be outstanding. *20. $28,000. worry expense is the interest to be paid in cash less the premium amortization for the year. property to be paid equals 8% X $400,000 or $32,000. full premium equals 5% of $400,000 or $20,000. Since this is to be amortized over 5 eld (the life of the bonds) in equal amounts, the amortization amount is $20,000 ? 5 = $4,000. Thus, $32,000 $4,000 or $28,000 equals interest expense for 2010. 21. PepsiCo redeemed (paid) $579 million of semipermanent deb t. copyright 2010 deception Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions manual(a) (For teacher Use Only) 15-3 SOLUTIONS TO skeleton exemplarS abbreviated arrange 15-1 Issue Stock Outstanding shares (b) Earnings per share (a) ? (b) $700,000 0 700,000 210,000 $490,000 $700,000 60,000 540,000 162,000 $378,000 700,000 $0. 70 Income in the lead interest and taxes affair ($2,000,000 X 8%) Income before income taxes Income tax expense (30%) benefit income (a) Issue bond certificate 500,000 $0. 76 Net income is higher if stock is used. However, stipend per share is lower than earnings per share if bonds are used because of the additional shares of stock that are outstanding. apprize manage 15-2 (a) Jan. 1 (b) July 1 (c) Dec. 31 15-4 property . wedges payable (3,000 X $1,000) . 3,000,000 truss chase cost . property ($3,000,000 X 8% X 1/2). 20,000 bail avocation expense . stay put interest payable ($3,000,000 X 8% X 1/2). 120,000 procure 2 010 flush toilet Wiley &038 Sons, Inc. 3,000,000 120,000 Weygandt, Accounting Principles, 9/e, Solutions manual 120,000 (For instructor Use Only) apprise come 15-3 (a) Jan. 1 (b) Jan. 1 interchange ($2,000,000 X . 97). drop on flummoxs payable.. sequesters payable . 1,940,000 60,000 capital ($2,000,000 X 1. 04).. Bonds collectable . superior on Bonds due .. 2,080,000 2,000,000 2,000,000 80,000 BRIEF accomplishment 15-4 1. 2. 3. Jan. 1 July 1Sept. 1 notes (1,000 X $1,000). Bonds due . 1,000,000 cash ($800,000 X 1. 02).. Bonds collectable . pension on Bonds account payable .. 816,000 interchange ($200,000 X . 98) . ignore on Bonds collectible.. Bonds collectible . 196,000 4,000 1,000,000 800,000 16,000 200,000 BRIEF operate 15-5 Bonds account payable. breathing out on Bond redemption ($1,010,000 $940,000) . subtraction on Bonds collectible . funds ($1,000,000 X 101%) .. Copyright 2010 throne Wiley &038 Sons, Inc. 1,000,000 Weygandt, Accounting Principl es, 9/e, Solutions manual(a) 70,000 60,000 1,010,000 (For instructor Use Only) 15-5 BRIEF make 15-6 (A) periodic arouse Period Issue duration 1 Dec. 31 June 30 hard currency pay $48,145 (B) cheer write down (D) X 5% $30,000 (C) decline of dealer (A) (B) (D) drumhead Balance (D) (C) $18,145 $600,000 581,855 silver . owe posts due 600,000 come to cost ..mortgage Notes collectable . hard currency 30,000 18,145 600,000 48,145 BRIEF ferment 15-7 1. 2. Rent outlay hard cash.. 80,000 Leased Asset construct . Lease indebtedness. 700,000 80,000 700,000 BRIEF calculate 15-8 Long-term liabilities Bonds payable, due 2012 .. Less discount on bonds payable ..Notes payable, due 2015. Lease liability. supply long-term liabilities . 15-6 Copyright 2010 derriere Wiley &038 Sons, Inc. $500,000 45,000 $455,000 80,000 70,000 $605,000 Weygandt, Accounting Principles, 9/e, Solutions manual(a) (For teacher Use Only) *BRIEF operate 15-9 (b) i = 10% ? $10,000 0 1 2 3 4 5 6 7 8 give the axe rate from Table 15 A-1 is . 46651 (8 periods at 10%). familiarise value of $10,000 to be received in 8 periods discounted at 10% is therefore $4,665. 10 ($10,000 X . 46651). (b) = 8% ? 0 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 1 2 3 4 5 6 Discount rate from Table 15 A-2 is 4. 62288 (6 periods at 8%). indicate value of 6 payments of $20,000 each discounted at 8% is therefore $92,457. 60 ($20,000 X 4. 62288). *BRIEF EXERCISE 15-10 (a) disport cost .. Discount on Bonds due money .. 46,884 1,884 45,000 (b) touch expense is greater than interest paid because the bonds sold at a discount which must be amortized over the life of the bonds.The bonds sold at a discount because investors demanded a market interest rate higher than the contractual interest rate. (c) bet expense increases each period because the bond carrying value increases each period. As the market interest rate is applied to this bond carrying amount, interest expense will increase. Copyrigh t 2010 lav Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual (For teacher Use Only) 15-7 *BRIEF EXERCISE 15-11 (a) Jan. 1 (b) July 1 currency (. 96 X $5,000,000) . Discount on Bonds collectable .. Bonds account payable . ,800,000 200,000 Bond enliven cost .. Discount on Bonds payable ($200,000 ? 20) . funds ($5,000,000 X 9% X 1/2) .. 235,000 5,000,000 10,000 225,000 *BRIEF EXERCISE 15-12 (a) cash in (1. 02 X $3,000,000).. Bonds collectible. indemnity on Bonds payable 3,060,000 (b) Bond entertain write down . agio on Bonds collectible ($60,000 ? 10). hard currency ($3,000,000 X 10% X 1/2) .. 144,000 15-8Copyright 2010 hind end Wiley &038 Sons, Inc. 3,000,000 60,000 6,000 Weygandt, Accounting Principles, 9/e, Solutions Manual 150,000 (For instructor Use Only) SOLUTIONS FOR DO IT REVIEW EXERCISES DO IT 15-1 1. 2. 3. 4. 5. False. owe bonds and sinking fund bonds are both examples of secured bonds. False. Convertible bonds burn down be co nverted into common stock at the bondholders option callable bonds can be retired by the issuer at a set amount prior to maturity. True. True. True. DO IT 15-2 (a) Cash Bonds Payable .. superior on Bonds Payable.. (To record sale of bonds at a premium) 312,000 300,000 12,000 (b) Long-term liabilities Bonds payable Plus Premium on bonds payable $300,000 12,000 $312,000 DO IT 15-3 Loss on Bond Redemption. Bonds Payable Discount on Bonds Payable Cash (To record redemption of bonds at 99)Copyright 2010 backside Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual 6,000 400,000 10,000 396,000 (For instructor Use Only) 15-9 DO IT 15-4 Cash .. Mortgage Notes Payable. (To record mortgage loan) interestingness disbursal Mortgage Notes Payable .. Cash (To record semiannual payment on mortgage) 50,000 350,000 10,500* 7,357 17,857 * stake expense = $350,000 X 6% X 6/12 DO IT 15-5 (a) Leased AssetEquipment Lease liability. (To record leased asset and lease li ability) 192,000 192,000 (b) The debt to total assets ratio = $1,100,000 ? $1,800,000 = 61%. This ratio means that 61% of the total assets were provided by creditors. The higher the percentage of debt to total assets, the greater the risk that the company may be unable to meet its maturing obligations. 15-10 Copyright 2010 nates Wiley &038 Sons, Inc.Weygandt, Accounting Principles, 9/e, Solutions Manual (For instructor Use Only) SOLUTIONS TO EXERCISES EXERCISE 15-1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. True. True. False. When seeking long-term financing, an advantage of bare bonds over issuing common stock is that tax nest egg result. True. False. Unsecured bonds are also cognize as debenture bonds. False. Bonds that mature in installments are called serial bonds. True. True. True. True. EXERCISE 15-2 stick out One Issue Stock Income before interest and taxes Interest ($2,700,000 X 10%) Income before taxes Income tax expense (30%) Net income Outstanding sharesEarnings per share Plan cardinal Issue Bonds $800,000 800,000 240,000 $560,000 150,000 $3. 73 $800,000 270,000 530,000 159,000 $371,000 90,000 $4. 12 EXERCISE 15-3 (a) Jan. 1 (b) July 1 (c) Dec. 31 Cash.. Bonds Payable . 500,000 Bond Interest outgo . Cash ($500,000 X 10% X 1/2) 25,000 Bond Interest Expense . Bond Interest Payable . 25,000 Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual 500,000 25,000 25,000 For teacher Use Only) 15-11 EXERCISE 15-4 (a) Jan. 1 (b) July 1 (c) Dec. 31 Cash .. Bonds Payable . 300,000 Bond Interest Expense .. Cash ($300,000 X 8% X 1/2) .. 12,000 Bond Interest Expense .. Bond Interest Payable . 12,000 300,000 12,000 12,000 EXERCISE 15-5 (a) Jan. 1 2010 Cash. Bonds Payable 400,000 400,000 (b) July 1 Bond Interest Expense.Cash ($400,000 X 9% X 1/2). 18,000 Bond Interest Expense. Bond Interest Payable 18,000 18,000 (c) Dec. 31 (d) Jan. 15-12 1 2020 Bonds Payable.. Cash .. Copyright 2010 John Wiley &038 Sons, Inc. 18,000 400,0 00 Weygandt, Accounting Principles, 9/e, Solutions Manual 400,000 (For teacher Use Only) EXERCISE 15-6 At 100 (a) (1) Cash .. 1,000,000 Bonds Payable 1,000,000 At 98 (2)Cash .. Discount on Bonds Payable .. Bonds Payable 980,000 20,000 1,000,000 At 103 (3) Cash .. 1,030,000 Bonds Payable 1,000,000 Premium on Bonds Payable.. 30,000 Retirement of bonds at maturity (b) Bonds Payable .. Cash. 1,000,000 1,000,000 Retirement of bonds before maturity at 98 (c)Bonds Payable 1,000,000 Premium on Bonds Payable 9,000 Cash.. Gain on Bond Redemption . 980,000 29,000 spiritual rebirth of bonds into common stock (d) Bonds Payable .. commonplace Stock . gainful-in Capital in supererogatory of Par prise. Copyright 2010 John Wiley &038 Sons, Inc. 1,000,000 Weygandt, Accounting Principles, 9/e, Solutions Manual 300,000 700,000 (For Instructor Use Only) 15-13 EXERCISE 15-7 (a) (1) 2) Cash.. Discount on Bonds Payable .. Bonds Payable .. 485,000 15,000 500,000 periodic interest payments ($20,000* X 10) .. Plus Bond discount.. Total cost of acceptation. $200,000 15,000 $215,000 *($500,000 X . 08 X 6/12) OR Principal at maturity biennial interest payments ($20,000 X 10).Cash to be paid to bondholders.. Cash received from bondholders Total cost of borrowing. (b) (1) (2) Cash.. Bonds Payable .. Premium on Bonds Payable . $500,000 200,000 700,000 485,000 $215,000 525,000 periodical interest payments ($20,000 X 10). Less Bond Premium. Total cost of borrowing. 500,000 25,000 $200,000 25,000 $175,000OR Principal at maturity semiannual interest payments ($20,000 X 10). Cash to be paid to bondholders.. Cash received from bondholders Total cost of borrowing. 15-14 Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual $500,000 200,000 700,000 525,000 $175,000 (For Instructor Use Only) EXERCISE 15-8 (a) Jan. 1 (b) Jan 1 (c) July 1 Bond Interest Payable Cash 2,000 Bonds Payable Loss on Bond Redemption. Cash ($600,000 X 1. 04) 600,000 24,00 0 Bond Interest Expense . Cash ($1,000,000 X 9% X 1/2).. 45,000 72,000 624,000 45,000 EXERCISE 15-9 1. 2. 3. June 30 June 30 Dec. 31 Bonds Payable . Loss on Bond Redemption ($132,600 $117,500).. Discount on Bonds Payable ($130,000 $117,500) Cash ($130,000 X 102%) 130,000 Bonds Payable .Premium on Bonds Payable. Gain on Bond Redemption ($151,000 $147,000) Cash ($150,000 X 98%).. 150,000 1,000 Bonds Payable . Common Stock ($5 X 20* X 30) salaried-in Capital in Excess of Par Value .. 20,000 15,100 12,500 132,600 4,000 147,000 3,000 17,000 *($20,000 ? $1,000) Note As per the textbook, the market value of the stock is ignored in the conversion. Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 5-15 EXERCISE 15-10 Dec. 31 June 30 Dec. 31 2010 Issuance of Note Cash .. Mortgage Notes Payable. 2011 First episode Payment Interest Expense ($240,000 X 10% X 6/12) Mortgage Notes Payable .. Cash. Second instalment P ayment Interest Expense ($240,000 $8,000) X 10% X 6/12 Mortgage Notes Payable .. Cash. 240,000 240,000 12,000 ,000 20,000 11,600 8,400 20,000 EXERCISE 15-11 (a) January 1, 2010 Cash .. Mortgage Notes Payable .. 300,000 300,000 June 30, 2010 Interest Expense ($300,000 X 8% X 6/12).. Mortgage Notes Payable .. Cash .. 12,000 8,000 20,000 declination 31, 2010 Interest Expense ($292,000 X 8% X 6/12).. Mortgage Notes Payable ..Cash .. 15-16 Copyright 2010 John Wiley &038 Sons, Inc. 11,680 8,320 Weygandt, Accounting Principles, 9/e, Solutions Manual 20,000 (For Instructor Use Only) EXERCISE 15-11 (Continued) (b) modern $17,652 $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) simple machine Rental Expense. Cash (b) Jan. 1 500 Leased Asset-Equipment Lease Liability .. 4,606 500 74,606 EXERCISE 15-13 Long-term liabilities Bonds payable, due 2015 . $180,000 Add Premium on bonds payable .. 32,000 L ease liability .. Total long-term liabilities $212,000 89,500 $301,500 Note Bond Interest Payable is a current liability EXERCISE 15-14 (a) Total assets . Less Total liabilities Total stockholders equity . (b) Debt to total assets ratio $1,000,000 620,000 $ 380,000 Total liabilities $620,000 = = 62% Total assets $1,000,000 (c) Times interest earned ratio = Net income + Income tax expense + Interest expense Interest expense = Copyright 2010 John Wiley &038 Sons, Inc. $150,000 + $100,000 + $7,000 = 36. 7 times $7,000 Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 15-17 *EXERCISE 15-15 Present value of principal ($200,000 X . 61391) .. Present value of interest ($8,000 X 7. 72173) marketplace price of bonds. $122,782 61,774 $184,556 *EXERCISE 15-16 a) Jan. 1 (b) July 1 (c) Dec. 31 15-18 Cash . Discount on Bonds Payable . Bonds Payable Bond Interest Expense ($562,613 X 5%) Discount on Bonds Payable Cash ($600,000 X 9% X 1/2) . Bond Interest Expens e ($562,613 + $1,131) X 5% Discount on Bonds Payable Bond Interest Payable Copyright 2010 John Wiley &038 Sons, Inc. 562,613 37,387 600,000 28,131 1,131 27,000 28,187 Weygandt, Accounting Principles, 9/e, Solutions Manual ,187 27,000 (For Instructor Use Only) Weygandt, Accounting Principles, 9/e, Solutions Manual *EXERCISE 15-16 (Continued) Copyright 2010 John Wiley &038 Sons, Inc. (b), (c) biyearly Interest Periods Issue date 1 2 (A) Interest to Be Paid (4. 5% X $600,000) 27,000 27,000 (B) Interest Expense to Be Recorded (5% X introductory Bond Carrying Value) (E X . 05) 28,131 28,187 (C) Discount amortization (B) (A) 1,131 1,187 (D) Unamortized (E) Discount Bond (D) (C) Carrying Value 37,387 36,256 35,069 562,613 563,744 564,931 (For Instructor Use Only) 15-19 *EXERCISE 15-17 (a) Jan. (b) July 1 1 (c) Dec. 31 15-20Cash Premium on Bonds Payable.. Bonds Payable .. Bond Interest Expense ($318,694 X 5%).. Premium on Bonds Payable Cash ($300,000 X 11% X 1/2). Bond Interest Ex pense ($318,694 $565) X 5% .. Premium on Bonds Payable Bond Interest Payable .. Copyright 2010 John Wiley &038 Sons, Inc. 318,694 18,694 300,000 15,935 565 16,500 15,906 594 Weygandt, Accounting Principles, 9/e, Solutions Manual 6,500 (For Instructor Use Only) Weygandt, Accounting Principles, 9/e, Solutions Manual (B) Interest Expense (A) to Be Recorded (C) (D) Semiannual Interest to (5. 0% X introductory Premium Unamortized (E) Interest Be Paid Bond Carrying Value) Amortization Premium Bond Periods (5. 5% X $300,000) (E X . 05) (A) (B) (D) (C) Carrying Value Issue date 1 2 16,500 16,500 15,935 15,906 565 594 18,694 18,129 17,535 318,694 318,129 317,535 *EXERCISE 15-17 (Continued) Copyright 2010 John Wiley &038 Sons, Inc. (b), (c) (For Instructor Use Only) 15-21 *EXERCISE 15-18 (a) Jan. 1 (b) July 1 (c) Dec. 31 (d) Jan. 1Cash ($400,000 X 103%) Premium on Bonds Payable. Bonds Payable . 412,000 Bond Interest Expense .. Premium on Bonds Payable ($12,000 X 1/40) . Cash ($400,000 X 9% X 1/2) .. 17,700 Bond Interest Expense. Premium on Bonds Payable . Bond Interest Payable 17,700 300 2030 Bonds Payable.. Cash .. 12,000 400,000 300 18,000 18,000 400,000 400,000 *EXERCISE 15-19 (a) Dec. 1 (b) June 30 (c) Dec. 31 (d) Dec. 31 15-22 2009 Cash. Discount on Bonds Payable . Bonds Payable 2010 Bond Interest Expense. Discount on Bonds Payable ($70,000 ? 20) . Cash ($800,000 X 11% X 1/2).. 2010 Bond Interest Expense. Discount on Bonds Payable .. Cash ($800,000 X 11% X 1/2).. 2019 Bonds Payable.. Cash .. Copyright 2010 John Wiley &038 Sons, Inc. 30,000 70,000 800,000 47,500 3,500 44,000 47,500 3,500 44,000 800,000 Weygandt, Accounting Principles, 9/e, Solutions Manual 800,000 (For Instructor Use Only) SOLUTIONS TO caperS PROBLEM 15-1A (a) May 1 (b) Dec. 31 2010 Cash.. Bonds Payable . Bond Interest Expense . Bond Interest Payable ($600,000 X 9% X 2/12) 600,000 600,000 9,000 9,000 (c) Current Liabilities Bonds Interest Payable.. $ Long-term Liabilities Bonds Payable, due 2015 . (d) May 1 e) Nov. 1 (f) Nov. 1 2011 Bond Interest Payable Bond Interest Expense ($600,000 X 9% X 4/12) Cash 9,000 $600,000 9,000 18,000 27,000 Bond Interest Expense . Cash ($600,000 X 9% X 1/2).. 27,000 Bonds Payable Loss on Bond Redemption. Cash ($600,000 X 1. 02) 600,000 12,000 Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual 27,000 612,000 (For Instructor Use Only) 15-23 PROBLEM 15-2A (a) Jan. 2010 Cash ($500,000 X 1. 04) . Bonds Payable Premium on Bonds Payable . 520,000 500,000 20,000 (b) Current Liabilities Bond interest payable ($500,000 X 10% X 1/2) . Long-term Liabilities Bonds payable, due 2020. Add Premium on bonds payable . (c) Jan. 1 2012 Bonds Payable .. Premium on Bonds Payable . Loss on Bond Redemption Cash ($500,000 X 1. 05) . $ 25,000 $500,000 18,000 $518,000 500,000** 16,000** 9,000* 25,000 *($525,000 $516,000) 15-24 Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Sol utions Manual (For Instructor Use Only) PROBLEM 15-3A (a) Semiannual Interest Period Cash Payment Issue Date 1 2 3 4 (b) Dec. 31 June 30 Dec. 31 $29,433 29,433 29,433 29,433 Interest Expense $16,000 15,463 14,904 14,323 Reduction of Principal Principal Balance $13,433 13,970 14,529 15,110 $400,000 386,567 372,597 358,068 342,958 2009 Cash . Mortgage Notes Payable 400,000 2010 Interest Expense ..Mortgage Notes Payable . Cash 16,000 13,433 Interest Expense .. Mortgage Notes Payable . Cash (c) 400,000 29,433 15,463 13,970 29,433 12/31/10 Current Liabilities Current portion of mortgage notes payable $ 29,639** Long-term Liabilities Mortgage notes payable, due 2019 $342,958** **($14,529 + $15,110) **($372,597 $14,529 $15,110) Copyright 2010 John Wiley &038 Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 15-25