Problem 2-6

Requirement 1

            2008

Jan.    1   Cash                                                                                                                                                                                                4,200,000

                                                  Bonds payable                                                                                                                                                                                              4,000,000

                                                  Premium on bonds payable                                                                                                                                                        200,000

Dec. 31            Interest expense                                                                                                                                             480,000

                                                  Cash (4,000,000 x 12%)                                                                                                                                                                               480,000                                                                                                                                                                                                                                                                                                                                                         

                        31   Premium on bonds payable                                                                                                     40,000

                                                   Interest expense (200,000 / 5)                                                                                                                                            40,000

                 31   Bonds payable                                                                                                                                               1,000,000

                                      Premium on bonds payable                                                                                                            40,000

                                                   Cash                                                                                                                                                                                                                                                            950,000

                                                   Gain on early retirement of bonds                                                                                                                       90,000

                                      Face of bonds payable retired                                                                                                                                          1,000,000

                                      Add: Applicable premium (1/4 x 160,000)                                                                                                      40,000

                                      Book value                                                                                                                                                                                                                            1,040,000

                                      Less: Retirement price (1,000,000 x 95%)                                                                                                                  950,000

                                      Gain on retirement                                                                                                                                                                                                        90,000

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Valix Finacc vol 2 Problem 2-6

Financial Accounting Volume 2 2008 Valix-Peralta
Chapter 2 Problem 2-6


Requirement 1

            2008

Jan.           1.      Cash                                                                             4,200,000

                                     Bonds payable                                                                  4,000,000

                                     Premium on bonds payable                                                200,000

Dec         31      Interest expense                                                            480,000

                                     Cash (4,000,000 x 12%)                                                       480,000

                31      Premium on bonds payable                                           40,000

                                     Interest Expense (200,000 / 5)                                              40,000

                31      Bonds payable                                                           1,000,000

                          Premium on bonds payable                                          40,000

                                    Cash                                                                                        950,000

                                    Gain on early retirement of bonds                                        90,000

                         Face of bonds payable retired                                  1,000,000

                         Add: Applicable Premium(1/4x1160,000)                     40,000

                         Book value                                                                  1,040,000

                         Less: Retirement price                                                  950,000

                         Gain on retirement                                                           90,000

            2009

Dec. 31           Interest expense                                                              360,000

                                 Cash (3,000,000 x 12%)                                                             360,00

                 31   Premium on bonds payable                                             30,000

                                Interest expense (40,000 x 3/4)                                                 30,000

Requirement 2

Noncurrent liabilities                                                                                                                                                                    

            Bonds payable                                                                           3,000,000

            Premium on bonds payable                                                           90,000

            Book value                                                                                  3,090,000

Valix Finacc vol 2 Problem 2-5

Financial Accounting Volume 2 2008 Valix-Peralta
Chapter 2 Problem 2-5

  Requirement 1

      2008

April    1   Cash                                                                                     4,850,000

                 Discount on bonds payable                                                  100,000

                 Bond issue cost                                                                        50,000

                          Bonds payable                                                                               5,000,000

Oct      1   Interest expense                                                                     300,000

                         Cash (5,000,000x12%x6/12)                                                           300,000

Dec  31  Interest expense                                                                       150,000

                         Accrued interest payable (5,000,000x12%x3/12)                         150,000

               Interest expense                                                                          22,500

                         Discount on bonds payable (100,000/5x9/12)                                15,000

                         Bond issue cost (50,000/5x9/12)                                                       7,500

     2009

Jan    1 Accrued interest payable                                                          150,000

                        Interest expense                                                                                150,000

April  1 Interest expense                                                                         300,000

                       Cash                                                                                                   300,000

July   1 Interest expense                                                                           15,000

                       Discount on bonds payable (20,000x6/12)                                      10,000

                       Bond issue cost (10,000x6/12)                                                           5,000

                      Retirement price (2,000,000x99%)                                          1,980,000

                      Add: Accrued interest from April to July 1, 2008

                               (2,000,000x12%x3/12)                                                           60,000

                      Total payment                                                                              2,040,000

                     Bonds payable retired                                                                 2,000,000

                     Less: Applicable discount (2/5x75,000)             30,000

                               Applicable issue cost (2/5x37,500)          15,000                 45,000

                     Book value of bonds retired                                                        1,955,000

                     Less: Retirement price                                                                1,980,000

                     Loss on early retirement                                                                 (25,000)

July 1   Bonds payable                                                                     2,000,000

            Interest expense                                                                         60,000

            Loss on early retirement of bonds                                            25,000

                 Cash                                                                                                      2,040,000

                 Discount on bonds payable                                                                      30,000

                 Bond issue cost                                                                                         15,000

Oct  1  Interest expense                                                                       180,000

                Accrued interest payable (3,000,000x12%x6/12)                               180,000

Dec 31 Interest expense                                                                       90,000

                Accrued interest payable (3,000,000x12%x3/12)                                 90,000

i       31 Interest expense                                                                        9,000

                Discount on bonds payable (12,000x6/12)                                              6,000

                Bond issued cost (6,000x6/12)                                                                 3,000

            Revised annual amortization

                Discount (3/5x20,000)                                                        12,000

                Issue cost (3/5x10,000)                                                        6,000

Requirement 2

 Noncurrent liabilities

      Bonds payable                                                                       3,000,000

      Discount on bonds payable                                                  (     39,000)

      Bond issue cost                                                                     (     19,500)

      Book Value                                                                              2,941,500

 

                       

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