Advantages and Disadvantages of Communication Technology

CHAPTER 15 semipermanent Liabilities ANSWERS TO QUESTIONS 1. (a) long-term liabilities be obligations that ar expected to be paying(a) afterward one year. Examples include constipates, long-run notes, and subscribe obligations. (b) bewilders argon a diverseness of relate-bearing notes payable used by corporations, universities, and governmental agencies. 2. (a) The major advantages ar (1) assembly lineholder control is not affectedbondholders do not get to voting rights, so current telephone line(a)holders retain full control of the social club. (2) levy savings resultbond occupy is deductible for tax purposes dividends on stock atomic number 18 not. 3) Earnings per share may be highalthough bond chase spending will reduce net income, pay per share on habitual stock will often be higher(prenominal) under bond financing because no redundant shares of common stock are issued. (b) The major disadvantages in using bonds are that refer essential be paying on a fulfilmentic understructure and the capitulum ( human face value) of the bonds mustiness be remunerative at adulthood. 3. (a) Secured bonds have particular(prenominal) assets of the issuer pledged as collateral. In contrast, unsecured bonds are issued against the general recognize of the borrower. These bonds are c all(prenominal)ed unsecured bond bonds. (b) Term bonds mature at a hotshot specified future date.In contrast, serial bonds mature in installments. (c) Registered bonds are issued in the name of the proprietor. In contrast, bearer (coupon) bonds are not registered. Holders of bearer bonds must send in coupons to receive reside payments. (d) Convertible bonds may be converted into common stock at the bondholders option. Callable bonds are outlet to retirement at a stated dollar union prior(prenominal) to maturity at the option of the issuer. 4. (a) Face value is the summation of head due at the maturity date. (b) The contractual intimacy outrank is the step used to determine the amount of cash worry the borrower pays and the investor receives.This rate is likewise called the stated entertain rate because it is the rate stated on the bonds. (c) A bond indenture is a legal text file that sets forth the damage of the bond issue. (d) A bond certificate is a legal document that indicates the name of the issuer, the face value of the bonds, the contractual bet rate and maturity date of the bonds. 5. The two major obligations incurred by a company when bonds are issued are the entertain payments due on a periodic basis and the principal which must be gainful at maturity. 6. little than.Investors are required to pay more than the face value therefore, the market interest rate is less than the contractual rate. 7. $28,000. $800,000 X 7% X 1/2 year = $28,000. procure 2010 keister Wiley & Sons, Inc. Weygandt, accounting system Principles, 9/e, Solutions manual(a) (For teacher theatrical role Only) 15-1 Questions Chapter 15 (C ontinued) *8. $860,000. The match of the hold fasts account payable account electronegative the balance of the drop on sequesters due account (or plus the balance of the bounteousness on stick bys collectible account) touchs the carrying value of the bonds. *9. Debits Credits seizes collectible (for the face value) and pension on stays collectible (for the unamortized balance). change (for 97% of the face value) and accomplish on stick to salvation (for the end between the cash give and the bonds carrying value). *10. A convertible 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 market wrong of the common stock increases substantially. (b) For the issuer, convertible bonds usually have a higher selling price and a lower rate of interest than corresponding 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 loan and (2) a reduction of loan principal. The interest decreases apiece period while the portion applied to the loan principal increases distributively period. *12. (a) A postulate 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 property and the lessee is the renter or tenant. (b) The two most common types of leases are operating leases and capital leases. c) In an operating 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 reported as an operating lease. In an operating lease, to each one payment is accounted to adopt s pending. Neither a leased asset nor a lease liability is capitalized. *14. In a capital lease agreement, the lessee records the shew value of the lease payments as an asset and a liability.Therefore, Rondelli Company would debit contract Asset-Equipment for $186,300 and credit Lease indebtedness for the same amount. *15. The nature and the amount of each long-term liability should be presented in the balance sail or in schedules in the accompanying notes to the statements. The notes should also indicate the interest rates, maturity dates, conversion privileges, and assets pledged 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 borrowing rate in each period should be the same.The effective-interest method results in a varying amount of interest expense but a constant rate of interest on the balance outstanding. Accordingly, it results in a better matching of expenses with revenues than the st raight-line method. When the difference between the straight-line method of amortization and the effective interest method is material, generally accepted accounting principles requires the use of the effective interest method. *17. Decrease. Under the effective-interest method the interest deplume per period is determined by multiplying the carrying value of the bonds by the effective-interest rate.When bonds are issued 15-2 copyright 2010 trick Wiley & Sons, Inc. Weygandt, business relationship Principles, 9/e, Solutions manual (For teacher riding habit Only) Questions Chapter 15 (Continued) at a premium, the carrying value decreases over the aliveness 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 beginning of the period by the effective-interest rate. *18. No, Tina is not right.The market price of any bond is a function of three factors (1) The dollar amounts to be received by the investor (interest and principal), (2) The aloofness of time 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 assigned to beguile expenditure each interest period. This amount is determined by dividing the thorough bond can or premium by the number of interest periods the bonds will be outstanding. *20. $28,000. avocation expense is the interest to be paid in cash less the premium amortization for the year. bills to be paid equals 8% X $400,000 or $32,000. intact premium equals 5% of $400,000 or $20,000. Since this is to be amortized over 5 years (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 save (paid) $579 million of long-term debt. secure 2010 crapper Wiley & Sons, Inc. W eygandt, account Principles, 9/e, Solutions manual of arms (For instructor white plague Only) 15-3 SOLUTIONS TO brief deterrent exampleS BRIEF maintain 15-1 abridge 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 before interest and taxes chase ($2,000,000 X 8%) Income before income taxes Income tax expense (30%) acquit income (a) Issue Bond 500,000 $0. 76 dinero income is higher if stock is used. However, kale per share is lower than earnings per share if bonds are used because of the additional shares of stock that are outstanding. BRIEF make 15-2 (a) Jan. 1 (b) July 1 (c) Dec. 31 15-4 immediate payment . Bonds collectable (3,000 X $1,000) . 3,000,000 Bond evoke expenditure . bills ($3,000,000 X 8% X 1/2). 20,000 Bond affair expenditure . Bond pursuance payable ($3,000,000 X 8% X 1/2). 120,000 Copyright 2010 John Wiley & Sons, Inc. 3,000,000 120,000 Wey gandt, Accounting Principles, 9/e, Solutions manual of arms 120,000 (For teacher hire Only) BRIEF EXERCISE 15-3 (a) Jan. 1 (b) Jan. 1 property ($2,000,000 X . 97). Discount on Bonds collectable.. Bonds collectable . 1,940,000 60,000 hard currency ($2,000,000 X 1. 04).. Bonds account payable . reward on Bonds due .. 2,080,000 2,000,000 2,000,000 80,000 BRIEF EXERCISE 15-4 1. 2. 3. Jan. 1 July 1Sept. 1 immediate payment (1,000 X $1,000). Bonds collectable . 1,000,000 interchange ($800,000 X 1. 02).. Bonds due . Premium on Bonds payable .. 816,000 Cash ($200,000 X . 98) . Discount on Bonds collectable.. Bonds account payable . 196,000 4,000 1,000,000 800,000 16,000 200,000 BRIEF EXERCISE 15-5 Bonds Payable. Loss on Bond buyback ($1,010,000 $940,000) . Discount on Bonds Payable .Cash ($1,000,000 X 101%) .. Copyright 2010 John Wiley & Sons, Inc. 1,000,000 Weygandt, Accounting Principles, 9/e, Solutions manual 70,000 60,000 1,010,000 (For Instructor character Only) 15-5 BRIEF EXERCISE 15-6 (A) Semiannual Interest Period Issue Date 1 Dec. 31 June 30 Cash Payment $48,145 (B) Interest disbursal (D) X 5% $30,000 (C) Reduction of chief (A) (B) (D) Principal ratio (D) (C) $18,145 $600,000 581,855 Cash . mortgage sets Payable 600,000 Interest Expense ..Mortgage Notes Payable . Cash 30,000 18,145 600,000 48,145 BRIEF EXERCISE 15-7 1. 2. Rent Expense Cash.. 80,000 Leased AssetBuilding . Lease indebtedness. 700,000 80,000 700,000 BRIEF EXERCISE 15-8 long liabilities Bonds payable, due 2012 .. Less Discount on bonds payable ..Notes payable, due 2015. Lease liability. measure long-term liabilities . 15-6 Copyright 2010 John Wiley & Sons, Inc. $500,000 45,000 $455,000 80,000 70,000 $605,000 Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) *BRIEF EXERCISE 15-9 (b) i = 10% ? $10,000 0 1 2 3 4 5 6 7 8 Discount rate from Table 15 A-1 is . 46651 (8 periods at 10%). depict value of $10,000 to be received in 8 periods discoun ted 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%). Present 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) Interest Expense .. Discount on Bonds Payable Cash .. 46,884 1,884 45,000 (b) Interest 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) Interest 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. Copyright 2010 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 15-7 *BRIEF EXER CISE 15-11 (a) Jan. 1 (b) July 1 Cash (. 96 X $5,000,000) . Discount on Bonds Payable .. Bonds Payable . ,800,000 200,000 Bond Interest Expense .. Discount on Bonds Payable ($200,000 ? 20) . Cash ($5,000,000 X 9% X 1/2) .. 235,000 5,000,000 10,000 225,000 *BRIEF EXERCISE 15-12 (a) Cash (1. 02 X $3,000,000).. Bonds Payable. Premium on Bonds Payable 3,060,000 (b) Bond Interest Expense . Premium on Bonds Payable ($60,000 ? 10). Cash ($3,000,000 X 10% X 1/2) .. 144,000 15-8Copyright 2010 John Wiley & 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. Mortgage bonds and sinking fund bonds are both examples of secured bonds. False. Convertible bonds can be converted 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 ..Premiu m 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 John Wiley & 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) Interest Expense Mortgage Notes Payable .. Cash (To record semiannual payment on mortgage) 50,000 350,000 10,500* 7,357 17,857 *Interest expense = $350,000 X 6% X 6/12 DO IT 15-5 (a) Leased AssetEquipment Lease Liability. (To record leased asset and lease liability) 192,000 192,000 (b) The debt to intact 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 a ssets, the greater the risk that the company may be unable to meet its maturing obligations. 15-10 Copyright 2010 John Wiley & 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 issuing bonds over issuing common stock is that tax savings result. True. False. Unsecured bonds are also known as debenture bonds. False. Bonds that mature in installments are called serial bonds. True. True. True. True. EXERCISE 15-2 mean ace 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 Two 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 Expense . Cash ($500,000 X 10% X 1/2) 25,000 Bond Interest Expense . Bond Interest Payable . 25,000 Copyright 2010 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual 500,000 25,000 25,000 For Instructor 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 & Sons, Inc. 18,000 400,000 Weygandt, Accounting Principles, 9/e, Solutions Manual 400,000 (For Instructor 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 2 0,000 1,000,000 At 103 (3) Cash .. 1,030,000 Bonds Payable 1,000,000 Premium on Bonds Payable.. 30,000 solitude 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 Conversion of bonds into common stock (d) Bonds Payable .. Common Stock . Paid-in Capital in Excess of par measure out. Copyright 2010 John Wiley & 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 Semiannual interest payments ($20,000* X 10) .. Plus Bond discount.. organic cost of borrowing. $200,000 15,000 $215,000 *($500,000 X . 08 X 6/12) OR Principal at maturity Semiannual interest payments ($20,000 X 10).Cash to be paid to bondholders.. Cash received from bondholders Total cos t of borrowing. (b) (1) (2) Cash.. Bonds Payable .. Premium on Bonds Payable . $500,000 200,000 700,000 485,000 $215,000 525,000 Semiannual 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 & 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 24,000 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) Paid-in Capital in Excess of tally 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 ignore in the conversion. Copyright 2010 John Wiley & 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 Installment Payment Interest Expense ($240,000 X 10% X 6/12) Mortgage Notes Payable .. Cash. Second Installment Payment 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 Expe nse ($300,000 X 8% X 6/12).. Mortgage Notes Payable .. Cash .. 12,000 8,000 20,000 December 31, 2010 Interest Expense ($292,000 X 8% X 6/12).. Mortgage Notes Payable ..Cash .. 15-16 Copyright 2010 John Wiley & Sons, Inc. 11,680 8,320 Weygandt, Accounting Principles, 9/e, Solutions Manual 20,000 (For Instructor Use Only) EXERCISE 15-11 (Continued) (b) Current $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) Car lease 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 fit Premium on bonds payable .. 32,000 Lease 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 & 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) Market 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 Expense ($562,613 + $1,131) X 5% Discount on Bonds Payable Bond Interest Payable Copyright 2010 John Wiley & 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 Pr inciples, 9/e, Solutions Manual *EXERCISE 15-16 (Continued) Copyright 2010 John Wiley & Sons, Inc. (b), (c) Semiannual 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 Preceding 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 Expense ($318,694 $565) X 5% .. Premium on Bonds Payable Bond Interest Payable .. Copyright 2010 John Wiley & 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 Preceding 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 & 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 Pay able 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 & 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 PROBLEMS 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 & 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 & Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions 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 & Sons, Inc. Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 15-25