Solutions Manual Chapter 14 Managerial Accounting

Topics: Bond, Generally Accepted Accounting Principles, Discounted cash flow Pages: 11 (7235 words) Published: October 26, 2014
EXERCISE 14-1 (15-20 minutes) Valuation account relating to the long-term liability, bonds payable (sometimes referred to as an adjunct account). The 3,000 would continue to be reported as long-term. Current liability if current assets are used to satisfy the debt. Current liability, 200,000 long-term liability, 800,000. Current liability. Probably noncurrent, although if operating cycle is greater than one year and current assets are used, this item would be classified as current. Current liability. Current liability unless (a) a fund for liquidation has been accumulated which is not classified as a current asset or (b) arrangements have been made for refinancing. Current liability. Current liability. EXERCISE 14-2 (15-20 minutes) Discount on Bonds PayableContra account to bonds payable on balance sheet. Interest expense (credit balance)Reclassify to interest payable on balance sheet. Unamortized Bond Issue CostsClassified as Other Assets on balance sheet. Gain on repurchase of debtClassify as part of other gains and losses on the income statement. Mortgage payableClassify one-third as current liability and the remainder as long-term liability on balance sheet. Debenture bondsClassify as long-term liability on balance sheet. Notes payableClassify as long-term liability on balance sheet. Premium on bonds payableClassify as adjunct account to Bonds Payable on balance sheet. Treasury bondsClassify as contra account to bonds payable on balance sheet. Income bonds payableClassify as long-term liability on balance sheet. EXERCISE 14-3 (15-20 minutes) 1.Paul Simon Company(a)1/1/04Cash200,000Bonds Payable200,000(b)7/1/04Bond Interest Expense4,500 (200,000 X 9 X 3/12)Cash4,500(c)12/31/04Bond Interest Expense4,500Interest Payable4,500 2.Graceland Company(a)6/1/04Cash105,000Bonds Payable100,000Bond Interest Expense5,000 (100,000 X 12 X 5/12)(b)7/1/04Bond Interest Expense6,000Cash6,000 (100,000 X 12 X 6/12)(c)12/31/04Bond Interest Expense6,000Interest Payable6,000 Note to instructor Some students may credit Interest Payable on 6/1/04. If they do so, the entry on 7/1/04 will have a debit to Interest Payable for 5,000 and a debit to Bond Interest Expense for 1,000. EXERCISE 14-4 (15-20 minutes) (a)1/1/05Cash (600,000 X 102)612,000Bonds Payable600,000Premium on Bonds Payable12,000(b)7/1/05Bond Interest Expense29,700Premium on Bonds Payable300 (12,000 ( 40)Cash30,000 (600,000 X 10 X 6/12)(c)12/31/05Bond Interest Expense29,700Premium on Bonds Payable300Interest Payable30,000 EXERCISE 14-5 (15-20 minutes) (a)1/1/05Cash (600,000 X 102)612,000Bonds Payable600,000Premium on Bonds Payable12,000(b)7/1/05Bond Interest Expense29,835 (612,000 X 9.75 X 1/2)Premium on Bonds Payable165Cash30,000 (600,000 X 10 X 6/12) (c)12/31/05Bond Interest Expense29,827 (611,835 X 9.75 X 1/2)Premium on Bonds Payable173Interest Payable30,000Carrying amount of bonds at July 1, 2005 Carrying amount of bonds at January 1, 2005612,000 Amortization of bond premium (300,000 29,835) (165) Carrying amount of bonds at July 1, 2005611,835 EXERCISE 14-6 (15-20 minutes) Schedule of Discount AmortizationStraight-Line MethodYearCredit Interest PayableCredit Bond DiscountDebit Interest ExpenseCarrying Value of Bonds(1)(2)(3)(1)(2)(4)CVBY(3)1/1/041,855,816.0012/31/04200,000a228,836.80 28,836.80b 1,884,652.8012/31/05200,000228,836.8028,836.80 1,913,489.6012/31/06200,000228,836.8028,836.80 1,942,326.4012/31/07200,000228,836.8028,836.80 1,971,163.2012/31/08200,000228,836.8028,836.80 2,000,000.00a200,000 2,000,000 X 10 b28,836.80 (2,000,000 1,855,816) ( 5 CVBY carrying value of bond at beginning of year EXERCISE 14-7 (15-20 minutes) The effective interest or yield rate is 12. It is determined through trial and error using Table 6-2 for the discounted value of the principal (1,134,860) and Table 6-4 for the discounted value of the interest (720,956) 1,134,860 plus 720,956 equals the...
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