- •Chapter 14 Bonds and Long-Term Notes
- •1. Price of the bonds at January 1, 2011
- •1. June 30, 2011
- •4. June 30, 2011
- •4. June 30, 2011
- •2011 Adjusting entry:
- •1. January 1, 2011
- •2. Amortization schedule
- •3. December 31, 2011
- •1. Disclosure requirements for maturities of long-term debt:
- •2. How to estimate the value of a note when a note having no ready market and no interest rate is exchanged for a noncash asset without a readily available fair value:
- •3. When the straight-line method can be used as an alternative to the interest method of determining interest:
- •Interstate (Investor)
- •Interstate (Investor)
- •1. January 1, 2011
- •2. December 31, 2012
- •3. December 31, 2013
- •1. January 1, 2011
- •2. December 31, 2011
- •3. December 31, 2012
- •1. Liabilities at September 30, 2011
- •2. Interest expense for year ended September 30, 2011
- •3. Statement of cash flows for year ended September 30, 2011
- •If alternate method of recording accrued interest is used:
- •1. Interest expense for year ended December 31, 2011
- •2. Liabilities at December 31, 2011
- •3. Interest expense for year ended December 31, 2012
- •4. Liabilities at December 31, 2012
- •1. Issuance of the bonds.
- •2. December 31, 2011
- •3. June 30, 2012
- •4. Call of the bonds
- •Suggested Grading Concepts and Grading Scheme:
- •Intent and Ability to Refinance on a Long-Term Basis
- •470 Debt
- •10 Overall
- •45 Other Presentation Matters
If alternate method of recording accrued interest is used:
August 31, 2011 (Western)
Interest expense ($1,800,000 + $100,000) 1,900,000 Discount on bonds payable ($20,000 x 5 months) 100,000 Cash ($30,000,000 x 12% x 6/12) 1,800,000
August 31, 2011 (Stillworth)
Cash ($30,000 x 12% x 6/12) 1,800 Discount on bond investment ($20 x 5 months) 100 Interest revenue ($1,800 + $100) 1,900
Problem 14-6 (continued)
December 31, 2011 (Western)
Interest expense($1,200,000 + $80,000)1,280,000 Discount on bonds payable ($20,000 x 4 months) 80,000 Interest payable($30,000,000 x 12% x4/12) 1,200,000
December 31, 2011 (Stillworth)
Interest receivable($30,000 x 12% x4/12) 1,200 Discount on bond investment ($20 x 4 months) 80 Interest revenue($1,200 + $80)1,280
February 28, 2012 (Western)
Interest expense($1,800,000 + 40,000 – 1,200,000)640,000 Interest payable (from adjusting entry) 1,200,000 Discount on bonds payable($20,000 x 2 months) 40,000 Cash($30,000,000 x 12% x6/12) 1,800,000
February 28, 2012 (Stillworth)
Cash($30,000 x 12% x6/12) 1,800 Discount on bond investment ($20 x 2 months) 40 Interest receivable(from adjusting entry) 1,200 Interest revenue($1,800 + 40 – 1,200)640
August 31, 2012 (Western)
Interest expense($1,800,000 + $120,000)1,920,000 Discount on bonds payable($20,000 x 6 months) 120,000 Cash($30,000,000 x 12% x6/12) 1,800,000
August 31, 2012 (Stillworth)
Cash($30,000 x 12% x6/12) 1,800 Discount on bond investment($20 x 6 months) 120 Interest revenue($1,800 + $120)1,920
December 31, 2012 (Western)
Interest expense($1,200,000 + $80,000)1,280,000 Discount on bonds payable ($20,000 x 4 months) 80,000 Interest payable($30,000,000 x 12% x4/12) 1,200,000
Problem 14-6 (continued)
December 31, 2012 (Stillworth)
Interest receivable($30,000 x 12% x4/12) 1,200 Discount on bond investment ($20 x 4 months) 80 Interest revenue($1,200 + $80)1,280
February 28, 2013 (Western)
Interest expense($1,800,000 + 40,000 – 1,200,000)640,000 Interest payable (from adjusting entry) 1,200,000 Discount on bonds payable($20,000 x 2 months) 40,000 Cash($30,000,000 x 12% x6/12) 1,800,000
February 28, 2013 (Stillworth)
Cash($30,000 x 12% x6/12) 1,800 Discount on bond investment ($20 x 2 months) 40 Interest receivable(from adjusting entry) 1,200 Interest revenue($1,800 + 40 – 1,200)640
August 31, 2013 (Western)
Interest expense($1,800,000 + $120,000)1,920,000 Discount on bonds payable($20,000 x 6 months) 120,000 Cash($30,000,000 x 12% x6/12) 1,800,000
August 31, 2013 (Stillworth)
Cash($30,000 x 12% x6/12) 1,800 Discount on bond investment($20 x 6 months) 120 Interest revenue($1,800 + $120)1,920
December 31, 2013 (Western)
Interest expense($1,200,000 + $80,000)1,280,000 Discount on bonds payable ($20,000 x 4 months) 80,000 Interest payable($30,000,000 x 12% x4/12) 1,200,000
December 31, 2013 (Stillworth)
Interest receivable($30,000 x 12% x4/12) 1,200 Discount on bond investment ($20 x 4 months) 80 Interest revenue($1,200 + $80)1,280
Problem 14-6 (concluded)
February 28, 2014 (Western)
Interest expense($1,800,000 + 40,000 – 1,200,000)640,000 Interest payable (from adjusting entry) 1,200,000 Discount on bonds payable($20,000 x 2 months) 40,000 Cash($30,000,000 x 12% x6/12) 1,800,000
Bonds payable 30,000,000 Cash 30,000,000
February 28, 2014 (Stillworth)
Cash($30,000 x 12% x6/12) 1,800 Discount on bond investment ($20 x 2 months) 40 Interest receivable(from adjusting entry) 1,200 Interest revenue($1,800 + 40 – 1,200)640
Cash 30,000 Investment in bonds 30,000
Problem 14-7
Requirement 1
Interest $16,000,000¥ x 17.15909 * = $274,545,440 Principal $400,000,000 x 0.14205 ** = 56,820,000 Present value (price) of the bonds $331,365,440
¥ 4% x $400,000,000
* present value of an ordinary annuity of $1: n=40, i=5% (Table 4)
** present value of $1: n=40, i=5% (Table 2)
Requirement 2
(a)
Cash(price determined above) 331,365,440 Discount on bonds (difference) 68,634,560 Bonds payable (face amount) 400,000,000
(b)
Bond investment (face amount) 400,000 Discount on bond investment (difference) 68,635 Cash(0.1% x $331,365,440) 331,365
Requirement 3
(a)
Interest expense(5% x $331,365,440)16,568,272 Discount on bonds payable (difference) 568,272 Cash(4% x $400,000,000) 16,000,000
(b)
Cash(4% x $400,000) 16,000 Discount on bond investment (difference) 568 Interest revenue(5% x $331,365)16,568
Requirement 4
(a)
Interest expense(5% x [$331,365,440 + $568,272])16,596,686 Discount on bonds payable (difference) 596,686 Cash(4% x $400,000,000) 16,000,000
(b)
Cash(4% x $400,000) 16,000 Discount on bond investment (difference) 597 Interest revenue(5% x [$331,365 + $568])16,597
Problem 14-8