Financial Chapter1

Solution – Chapter 10
E 10-9
Assets = Liabilities + Equity Date
Cash Bond Payable Interest Payable Interest Expense
+300,000 +300,000 (a) Jan 1
-12,000 -12,000* (b) July 1 +12,000 -12,000 (C) Dec 31

*(R$300,000 X 8% X 1/2) = 12,000
E 10-10
(a) 1.
Assets = Liabilities + Equity Date
Cash Bond Payable Discount on B/P
+485,000 +500,000 -15,000

2. Semiannual interest payments ($20,000* X 10) $200,000 Plus: bond discount 15,000 Total cost of borrowing $215,000 *($500,000 X .08 X 6/12)

OR

Principal at maturity $500,000 Semiannual interest payments ($20,000 X 10) 200,000 Cash to be paid to bondholders 700,000 Cash received from bondholders (485,000) Total cost of borrowing $215,000

(b) 1.
Assets = Liabilities + Equity Date
Cash Bond Payable Premium on B/P
+525,000 +500,000 +25,000

2. Semiannual interest payments ($20,000 X 10) $200,000 Less: bond premium 25,000 Total cost of borrowing $175,000
OR
Principal at maturity $500,000 Semiannual interest payments ($20,000 X 10) 200,000 Cash to be paid to bondholders 700,000 Cash received from bondholders (525,000) Total cost of borrowing $175,000

P10-6A
(a)
Assets = Liabilities + Equity Date
Cash Bond Payable Premium on B/P
+2,271,813 +2,000,000 +271,813 (a) July 1, 2011 (b) ATWATER CORPORATION Bond Premium Amortization Effective-Interest Method—Semiannual Interest Payments 10% Bonds Issued at 8%

Semi- annual Interest
Periods
(A)

Interest to Be
Paid (B)

Interest
Expense (C)
Premium
Amor- tization (A) – (B) (D)

Bond
Carrying
Value Issue date
1
2
3
$100,000 100,000 100,000
$90,873
90,507 90,128
$9,127
9,493 9,872 $2,271,813 2,262,686 2,253,193 2,243,321

(C), (d), (e)
Assets =