Long-Term Liabilities Chapter 12 Exercises
Dec 22, 2015
Long-Term Liabilities
Chapter 12
Exercises
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
In-Class Exercises (Form groups and work exercises):
Exercise No. Page E12-22 730 Journalizing Bond
Transactions
In-Class Exercises (Form groups and work exercises):
Exercise No. Page E12-22 730 Journalizing Bond
Transactions
(Use the format, as reflected on the next slide, to complete this exercise)
Date Description Debit Credit
General Journal
ExerciseExercise PagePage E12-22E12-22 730 Journalizing Bond 730 Journalizing Bond Transactions Transactions
ExerciseExercise PagePage E12-22E12-22 730 Journalizing Bond 730 Journalizing Bond Transactions Transactions
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
Bond PricingBond PricingBond PricingBond Pricing
Exercise E12-22Exercise E12-22::
Clark issued Clark issued $50,000 of of 10-year, , 9% bonds payable on January 1, bonds payable on January 1, 2014. Clark pays interest each January 1 and July 1 and amortizes 2014. Clark pays interest each January 1 and July 1 and amortizes discount or premium by the discount or premium by the straight-line methodstraight-line method. The company can . The company can issue its bond payable under various conditions.issue its bond payable under various conditions.
RequirementsRequirements::
1.1. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued at interest payment, assuming the bonds were issued at face value..
2.2. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued atinterest payment, assuming the bonds were issued at 95..
3.3. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued at interest payment, assuming the bonds were issued at 106..
Exercise E12-22Exercise E12-22::
Clark issued Clark issued $50,000 of of 10-year, , 9% bonds payable on January 1, bonds payable on January 1, 2014. Clark pays interest each January 1 and July 1 and amortizes 2014. Clark pays interest each January 1 and July 1 and amortizes discount or premium by the discount or premium by the straight-line methodstraight-line method. The company can . The company can issue its bond payable under various conditions.issue its bond payable under various conditions.
RequirementsRequirements::
1.1. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued at interest payment, assuming the bonds were issued at face value..
2.2. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued atinterest payment, assuming the bonds were issued at 95..
3.3. Journalize Clark’s issuance of the bonds and first semiannual Journalize Clark’s issuance of the bonds and first semiannual interest payment, assuming the bonds were issued at interest payment, assuming the bonds were issued at 106..
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$50,000 x .09 x 6/12 = $2,250$50,000 x .09 x 6/12 = $2,250$50,000 x .09 x 6/12 = $2,250$50,000 x .09 x 6/12 = $2,250
Bonds issued at face valueBonds issued at face valueBonds issued at face valueBonds issued at face value
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$50,000 x .95 = $47,500$50,000 x .95 = $47,500$50,000 x .95 = $47,500$50,000 x .95 = $47,500
Bonds issued at .95Bonds issued at .95Bonds issued at .95Bonds issued at .95
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$50,000 - $47,500 = $2,500$50,000 - $47,500 = $2,500$50,000 - $47,500 = $2,500$50,000 - $47,500 = $2,500
Bonds issued at .95Bonds issued at .95Bonds issued at .95Bonds issued at .95
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$2,500 ÷ $2,500 ÷ 20 = $12520 = $125$2,500 ÷ $2,500 ÷ 20 = $12520 = $125
?
Bonds issued at .95Bonds issued at .95Bonds issued at .95Bonds issued at .95
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$2,250 + $125 = $2,375$2,250 + $125 = $2,375$2,250 + $125 = $2,375$2,250 + $125 = $2,375
Bonds issued at .95Bonds issued at .95Bonds issued at .95Bonds issued at .95
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$50,000 x 1.06 = $53,000$50,000 x 1.06 = $53,000$50,000 x 1.06 = $53,000$50,000 x 1.06 = $53,000
Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$53,000 - $50,000 = $3,000$53,000 - $50,000 = $3,000$53,000 - $50,000 = $3,000$53,000 - $50,000 = $3,000
Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$3,000 ÷ $3,000 ÷ 20 = $15020 = $150$3,000 ÷ $3,000 ÷ 20 = $15020 = $150
Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06
?
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
$2,250 - $150 = $2,100$2,250 - $150 = $2,100$2,250 - $150 = $2,100$2,250 - $150 = $2,100
Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06Bonds issued at 1.06
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
End of ExerciseEnd of Exercise
Journalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond TransactionsJournalizing Bond Transactions
In-Class Exercises (Form groups and work exercises):
Exercise No. Page E12-28 731 Present Value of Bonds
Payable
In-Class Exercises (Form groups and work exercises):
Exercise No. Page E12-28 731 Present Value of Bonds
Payable
(Use the format, as reflected on the next slide, to complete this exercise)
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Prepare this schedule for each of the three stated requirements.Prepare this schedule for each of the three stated requirements.Prepare this schedule for each of the three stated requirements.Prepare this schedule for each of the three stated requirements.
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Exercise E12-28Exercise E12-28::
Interest rates determine the present value selling price of bonds. Interest rates determine the present value selling price of bonds. (Round all numbers to the nearest whole dollar)(Round all numbers to the nearest whole dollar)
RequirementsRequirements::
1.1. Determine the present vale of Determine the present vale of 7-year bonds payable, with a face bonds payable, with a face value of value of $91,000, and stated (contract) interest rate of , and stated (contract) interest rate of 14%. The . The market rate is market rate is 14%14% at issuance. at issuance.
2.2. Same bonds payable as in Requirement 1, but the market interest Same bonds payable as in Requirement 1, but the market interest rate is rate is 16%.
3.3. Same bonds payable as in Requirement 1, but the market interest Same bonds payable as in Requirement 1, but the market interest rate is rate is 12%.
4. Note: First, determine the periodic interest payment, using the contract rate of interest.
Exercise E12-28Exercise E12-28::
Interest rates determine the present value selling price of bonds. Interest rates determine the present value selling price of bonds. (Round all numbers to the nearest whole dollar)(Round all numbers to the nearest whole dollar)
RequirementsRequirements::
1.1. Determine the present vale of Determine the present vale of 7-year bonds payable, with a face bonds payable, with a face value of value of $91,000, and stated (contract) interest rate of , and stated (contract) interest rate of 14%. The . The market rate is market rate is 14%14% at issuance. at issuance.
2.2. Same bonds payable as in Requirement 1, but the market interest Same bonds payable as in Requirement 1, but the market interest rate is rate is 16%.
3.3. Same bonds payable as in Requirement 1, but the market interest Same bonds payable as in Requirement 1, but the market interest rate is rate is 12%.
4. Note: First, determine the periodic interest payment, using the contract rate of interest.
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Determining Bond Interest Payment
First, we need to calculate the semi-annual interest payment to be made to the bondholders.
Equation: Principal x contract rate / 2
$91,000 x .14 = $12,740 / 2 = $6,370
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
Pricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present ValuePricing Bonds Using Present Value
End of ExerciseEnd of Exercise
In-Class Exercise (Form groups and work exercise):
Exercise No. Page E12B-29 732 Effective Interest
Amortization Method
In-Class Exercise (Form groups and work exercise):
Exercise No. Page E12B-29 732 Effective Interest
Amortization Method
(Use the format, as reflected on the next slide, to complete the exercise)
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
Exercise E12B-29Exercise E12B-29::
Use your answers from Requirements 1-3 of Exercise E12A-28.Use your answers from Requirements 1-3 of Exercise E12A-28.
Journalize issuance of the bond and the first semiannual interest Journalize issuance of the bond and the first semiannual interest payment under each of the three assumptions in Exercise E12A-28.payment under each of the three assumptions in Exercise E12A-28.
The company amortizes bond premium and discount by the The company amortizes bond premium and discount by the effective-interest amortization method.effective-interest amortization method.
Exercise E12B-29Exercise E12B-29::
Use your answers from Requirements 1-3 of Exercise E12A-28.Use your answers from Requirements 1-3 of Exercise E12A-28.
Journalize issuance of the bond and the first semiannual interest Journalize issuance of the bond and the first semiannual interest payment under each of the three assumptions in Exercise E12A-28.payment under each of the three assumptions in Exercise E12A-28.
The company amortizes bond premium and discount by the The company amortizes bond premium and discount by the effective-interest amortization method.effective-interest amortization method.
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
Market Rate = 14%Market Rate = 14%Market Rate = 14%Market Rate = 14%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$91,000 - $83,454 = $7,546$91,000 - $83,454 = $7,546$91,000 - $83,454 = $7,546$91,000 - $83,454 = $7,546
Market Rate = 16%Market Rate = 16%Market Rate = 16%Market Rate = 16%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$83,454 x .08 = $6,676$83,454 x .08 = $6,676$83,454 x .08 = $6,676$83,454 x .08 = $6,676
Market Rate = 16%Market Rate = 16%Market Rate = 16%Market Rate = 16%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$6,676 - $6,370 = $306$6,676 - $6,370 = $306$6,676 - $6,370 = $306$6,676 - $6,370 = $306
Market Rate = 16%Market Rate = 16%Market Rate = 16%Market Rate = 16%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$99,431 - $91,000 = $8,431$99,431 - $91,000 = $8,431$99,431 - $91,000 = $8,431$99,431 - $91,000 = $8,431
Market Rate = 12%Market Rate = 12%Market Rate = 12%Market Rate = 12%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$99,431 x .06 = $5,966$99,431 x .06 = $5,966$99,431 x .06 = $5,966$99,431 x .06 = $5,966
Market Rate = 12%Market Rate = 12%Market Rate = 12%Market Rate = 12%
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method
$6,370 - $5,966 = $404$6,370 - $5,966 = $404$6,370 - $5,966 = $404$6,370 - $5,966 = $404
Market Rate = 12%Market Rate = 12%Market Rate = 12%Market Rate = 12%
End of ExerciseEnd of Exercise
Effective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization MethodEffective Interest Amortization Method