• 170 outof170points(100%)

1 . award: 10 out of 10.00

Tano issues bonds with a par value of $180,000 on January 1, 2013. 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 $ 9,138.I

2. How much total bond interest expense will be recognized over the life of these bonds?

3.

iTotal bond interest expense over fife of bonds:

Amount repaid:

6.1 payments of --~

Par value at maturity

Total repaid

Less amount borrowed

Total bond interest expense

$ 7,200.I $

$

43,200

180,000.I

223,200 ---170,862.I

Use the straight-line method to amortize the discount for these bonds.

Semiannual Period- Unamortized carrying Value End Discount

01/01/2013 $ 9,138,./ $ 170,862.I

06/30/2013 7,615.,I 172,385.I

12/3112013 6,092,./ 173,908.I

06/3012014 4,569,./ 175,431.I

12/31/2014 3,046,./ 176,954.I

06/3012015 1,523 178,477

12/3112015 $ 0 $ 180,000

2. award: 10 out of 10.00

Prepare the journal entries for the issuance of the bonds in both OS 14-1 and OS 14-2. Assume that both bonds are issued for cash on January 1, 2013.

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 used to allocate interest expense.

Date General Journal Debit Credit

Jan. 1, 2011 J.cash ./ 218,750./

Discount on bonds payable ./ 31,250./1

Bonds payable ./] 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 II General Journal Debit Credit

Jan. 1, 2011 Gash ./ 281,400./1

Bonds payable ./ 240,000./

Premium on bonds payable ./ 41,400./

3. m.vard: 10 out of 10.00 ... ... ... ... ... ... ··points·· .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .

Sylvestor Company issues 10%, five-year bonds, on December 31, 2012, with a par value of $100,000 and semiannual interest payments.

Semiannual Period-End

(0) 1213112012

(1) 613012013 (2) 12/3112013

Unamortized Discount

$ 7,360

6,624 5,888

Carrying Value

$ 92,640

93,376 94, 112

Use the above bond amortization table and prepare journal entries to record the following.

(a) The issuance of bonds on December 31, 2012.

Date General Journal Debit

Dec. 31 Cash .I 92,640./

Discount on bonds payable .I 7,360./

Bonds payable .I (b) The first interest payment on June 30, 2013.

Date General Journal Debit

Jun 30 _[Bond interest expense .I 5,736./J

Gash ./ Discount on bonds payable vii I

(c) The second interest payment on December 31, 2013.

Date General Journal Debit

Dec.31 Bond interest expense .I 5,736./ '-

Cash .I Discount on bonds payable .I

Credit

100,000./

Credit

5,000./

736./

Credit

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 ___ $ 281,400.I

2. What total amount of bond interest expense will be recognized over the life of these bonds?

:rota I bond interest expense over Die of bonds:

Amount repaid: ----30.I payments of $

--~--

Par value at maturity

Total repayments

Less amount borrowed

Total bond interest expense

12,000.1 $

$

360,000

240,000V"

600,000

281,400.I

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<•• I Question #5 (of 17) • I nexn

·· ··· ··· ··· ··· ··· ··· ·points ·· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ·· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ··· ·· 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 2016. (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, 2013, and the four payments from December 31, 2013, through December 31, 2-016.

I Interest Rate II Notes Payable Table Value cash Paid

3 3s72v1 = I$ 29.523 7.0% $ 100,000vl =~~-~--

Date General Journal Debit Credit

Jan 01, 2013 Gash vi 100,000vl

Notes payable vi 100,000vl

Dec 31, 2013 Interest expense vi 7,000vl

Notes payable vi 22,523vl

Cash vi 29,523vl

Dec 31, 2014 Interest expense vi 5,423vlt-

Notes payable vi 24,l OOvl

Cash vi 29,523vl

Dec 31, 2015 Interest expense vi Notes payable vi

Cash vi 29,523vl

Dec 31, 2016 Interest expense vi 1,933vl

Notes payable vi 27,590vl

Cash vi 29,523vl

award:

6 10 out of . 10.00 .............. poii'its ........................................................ ..

On January 1, 2013, 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.

Date

Jan. 1, 2011

General Journal I Bonds payable

Common stock, $1 par

Paid-In capital in excess of par value

Debit Credit

./ 2,000,000./

./ 1,000,000./

./ 1,000,000./

award:

7 10 out of • 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

Total repayments J 450,000

Less amount borro'Aoed 218,750.I ,•,

tTotal bond interest expense $ 231,250

3. What is the amount of bond interest expense recorded on the first interest payment date?

Bond interest expense $ 11,563.I ~~~~~~~~~--

award:

8 10 out of . 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 2016. (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.

Interest Rate Initial Note Balance

100,000.11

Table Value Amount of Each Payment

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)

Period

Ending Beginning Debit Interest Debit Notes Credit

Date Balance Expense Payable cash

2013 $ 100,000./ $ 7,000./ $ 22,523./ $ 29,523./ $

2014 77,477./ 5,423./ 24,100./ 29,523./

2015 53,377./ 3,736v' 25,787./ 29,523v'

2016 27,590./ 1,933 27,590 29,523v'

Total J 1$ 18,092 1$ 100,000 ' $ 118,092

(E)

Ending

Balance

77,477./

53,377./

27,590v'

0

award:

9 10 out of • 10.00

............ ··points ......................................................... · .. WoodwicK Company issues 10%, five.year bonds, on December 31, 2012, with a par value of $200,000 and semiannual interest payments.

Semiannual Period-End

(0) 12/3112012

(1) 6/30/2013 (2) 12/31/2013

Unamortized Premium

$16,222

14,600 12,978

Carrying Value

$216,222

214,600 212,978

Use the above straight·line bond amortization table and prepare journal entries for the following.

(a) The issuance of bonds on December 31, 2012. (b)The first interest payment on June 30, 2013. (c)The second interest payment on December 3 1, 2013.

Date

Dec 31, 2012

Jun 30, 2013

Dec 31, 2013

Genera l Journal Cash

Premium on bonds payable

Bonds payable

Bond interest expense

Premium on bonds payable

Cash

Bond interest expense

Premium on bonds payable

Cash

Debit Credit

./ 216,222./

./ 16.222./

./ 200,000./ f---

./ 8,378./

./ 1,622./

./ 10,000./

./ 8,378./

./ 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, 2013.

Record the entry to retire the bonds.

Dllte

Jul01

General Journal 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, 2013, with a par value of $200,000 and semiannual interest payments.

Semiannual Period-End

(0) 12/31/2013 (1) 6/30/2014 (2) 12/3112014 (3) 6/3012015 (4) 12/31/2015

Unamortized Discount

$12,000 9,000 6,000 3,000

0

Carrying Value

$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, 2013.

Date

Dec 31, 2013

Genera I Journal

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.

Date General Journal

Jun 30, 2014 Bond interest expense

Discount on bonds payable

Gash

- -Dec 31, 2014 Bond interest expense

Discount on bonds payable

Cash

Jun 30, 2015 Bond interest expense

Discount on bonds payable

Gash

Dec 31, 2015 I Bond interest expense

Discount on bonds payable

Cash

(c)Record the payment to retire tl1e bonds on December 31, 2015.

Date

Dec 31, 2015

General Journal ------Bonds payable

Cash

Debit Credit

./ 8,000./

./ 3,000./

./ 5,000./

./ 8,000./

./ 3,000./

./ 5,000./

I ./ 8,000./

./ 3,000./

./ 5,000./

./ 8,000./

./ 3,000./

./ 5,000./

Debit Credit

./ 200,000./

./ 200,000./

award:

12 10 out of • 10.00 ............ ··points .......................................................................................................................................... ..

On January 1, 2013, 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?

Par (maturityl Value

$ 3,400,000.,I x

Semiannual Rate

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, 2013.

Date General Journal Jan 01, 2013 Cash

Bonds payable

(b)The first interest payment on June 30, 2013.

Date

June 30, 2013 1--

Gene~al Journal Bono interest expens-e

Cash

(c)The second interest payment on December 3 1, 2013.

Date

Dec 31, 2013

General Journal Bond interest expense

Cash

3. Prepare the journal entry for issuance of bonds assuming.

(a) The bonds are issued at 98.

Date

Jan 01, 2013

General Journal --Gash

Discount on bonds payable

Bonds payable

(b)The bonds are issued at 102.

Date General Journal Jan 01, 2013 Gash

Bonds payable

l Premium on bonds payable -~--

Debit Credit

.,I 3,400,000.,I

.,I 3,400,000.,I

Debit Credit

./ 153,000./

153,000.,I

Debit Credit

.,I 153,000.,I

.,I 153,000.,I

Debit

.,I 3,332,000.,I

.,I 68,000.,I

.,I

Debit

.,I 3,468,000./

.,I

.,I

Credit

3,400,000.,I

Credit

3,400,000.,I

68,000.,I ~ ----

13. award: 10 out of 10.00

· ·· ·· ·· ·· ····poifits · ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ·· ··· · Quatro Co. issues bonds dated January 1, 2013, 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 $ ---

Par value at maturi~/ ----Total repaid

26,000./ $ 156,000

400,000./

556,000

409,850./ Less amount borrowed

Total bond interest expense --1$ _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.)

Semiannual Period- Unamortize carrying Value End 01/0112013 $ 9,850./ $ 409,850./

06/30/2013 8,208.,I 408,208./

12/3112013 6,566.,I 406,566./

06/30/2014 4,924.,I 404,924

1213112014 3,282.,I 403,282

06/30/2015 1 ,~ 401,640

12/3112015 400,000

award:

14 10 out of • 10.00

· · · · · · ... points · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Total liabilities Total equity

Atlanta Company

$ 429,000 572,000

Spokane Company $ 548,000

1,827 ,000

Compute the debt-to-equi~/ ratio for each of the following companies.

Debt to equilV ratio

Choose Nwnerator: I Choose Denominator: 11-~~~~~~...-~~~

Atlanta Company

Spokane Company

Total liabilities vi 429,000./

548,000./

Total equi~/

Which company appears to have a riskier financing structure? Explain.

0 Spokane Company ® Atlanta Company

./ Debt·to-equi!y ratio ;J 572,000./ 0.75

1,827,000./ 0.30

15. 8'1Nard: 10 out of 10.00

Select the phrase that best fi ts each term of the description A through H .

A

8.

Description

I Records and tracks the bondholders' names.

Is unsecured; backed only by the issuer's cre<lit standing.

C. . Has varying maturi~/ dates for amounts owed.

D. !Identifies rights and responsibilities of the issuer and the bondholders.

E lean be exchanged for shares of the issuer's stock.

nregistered; interest is paid to whoever possesses t~m.

G Maintains a separate asset account from which bondholders are paid at • 1 ma"'tu"'ri,,~/~·· __

H. TP1edges specific assets of the issuer as collateral.

.. Items .) .l Registered bond

Debenture ./ Serial bond ./ Bond indenture ./ Convertible bond ./ Bearer bond ./ 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 $610, 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: Choose Denominator:

Total liabilities ./ 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.)

Market Rate Initial cash PY Factor II Amount of annual

Proceeds payment

(a) t- 4.0% $ 340,000./ I ./ 4.4518./1 = 1$ 76,374

(b) 8.0% $ 340,000./ I ./ 3.9927./ = ,$ 85, 155 J

I-(C) I 12.0% $ 340,000./ I ./ 3.6048./ = •$ 94,3191