ANSWERS

7th Quiz BONDS PAYABLE & NOTE PAYABLE PART 1

Problem 1:
PV of I (1M x 3% x 9/12) (0.9434)

21 ,
226.50
943, 400
946,626.
50
1, 000,
000
35,
373.50

PV of P (1M x 0.9434)
Total
Face Value
Discount on Note Payable

12/31/15 Service Expense

Discount on Note
Payable

946,
626.50
35,
373.50

Note Payable
9/30/16

Interest Expense

9/30/16

Note Payable

1 pt
2 pt

2
pts

1, 000, 000

35,
373.50
Discount on Note Payable
35,373.
50

Interest Expense
Cash

1,
000,000
22, 500

1,022,5
00

(1M x 3% x 9/12 = 22, 500)

Problem 2
PV of note 200, 000 x 5.7122 = 1, 142, 4404
12/31/15 Machinery
1, 142,
3
440
Discount on Note
457, 560
Payable
Note Payable
1, 600, 000
Note Payable
Cash

200, 000

200,
000

12/31/16 Note Payable

Cash

200, 000

200,
000

Interest Expense

2
103,
668.40
Discount on Note Payable
103, 668.40

Date
12/31/14
12/31/14
12/31/15
12/31/16
12/31/17
Problem 3:
1/1/13
000

Payments
200,
200,
200,
200,

000
000
000
000

Interest Expense
103, 668.0
293, 071.924
81, 309.8

PV of note 1M x 0.751 = 751,

12/31/13
000

Principal
200, 000
96,331.60
106, 928.076
118, 690.1644

Carrying Amount
1, 142, 400
942, 440
846,108.40
739, 180.324
2620, 490.16

PV of Note 1M x 0.842 = 842,

Carrying amount

(751, 000)

Loss from change in FV

91,

Carrying amount (842, 000)

Loss from change in FV 12,

000
000
12/31/14
000

PV of Note 1M x 0.830 = 830,

1/1/13 Cash

751, 000
Note Payable

751,

000 2
12/31/13Loss from change in FV 91, 000
Note Payable
91, 000 2

12/31/14
Note Payable
000
Gain from change in FV
000 2

12,
12,

Problem 4:
1/1/14 Cash

4, 349,
848
Bonds Payable
Prem. on B/P

6/30/14
Interest Expense

4, 000,000
349, 848
240, 000

Cash
Prem. On Bonds Payable

240, 000
66,
006.08

Interest Expense
12/31/14
Interest Expense

66, 006.08

240, 000
Cash

Prem. On Bonds Payable

240, 000
66,
006.08

Interest Expense
6/30/15
Interest Expense

66, 006.08

180, 000
Cash

Prem. On Bonds Payable

Interest Expense
12/31/15
Interest Expense

180, 000
51, 286

51, 286

180, 000
Cash

180, 000

2
Prem. On Bonds Payable
51, 287
Interest Expense
51, 287
(For the premium amortization I just divided the annual premium amortization by 2. You may also
follow the usual process of amortizing)

Year 1
Year 2
Year 3
Year 4

Date
1/1/12
6/30/14
12/31/14
6/30/15
12/31/15

(4M x 6%) x 0.9615

[1M + (4M x 6%)] x 0.9246
(3M x 6%) x 0.889
[1M + (3M x 6%)] x 0.8548
(2M x 6%) x 0.8219
[1M + (2M x 6%)] x 0.7903
(1M x 6%) x 0.7599
[1M + (1M x 6%)] x 0.7307
TOTAL
Face Value
Premium
Payments
240, 000
1,240, 000
180, 000
1, 180, 000

Problem 5:
Cash

Interest Expense

1
1
1
1
1
1
1
1
2
1
2

Principal

173, 993.92
173, 993.92
128, 713.4336
128, 713.4336

5, 420,
000
Bonds Payable
Interest Expense

230, 760
1, 196, 504
160, 020
1,008,664
98, 628
885, 136
45,594
774,542
4, 349, 848
4, 000, 000
349, 848

66, 006.08
1, 066, 006.08
51, 286.566
1, 051, 286.566

5, 000, 000
100,
000

Carrying Amount
4, 349, 848
4, 283, 841.923
3, 217, 835.843
3, 166. 549.2743
2, 115, 262.7073

Premium on Bonds Payable

12/31/13
Interest Expense
Cash

400, 000 2
400, 000

Premium on BP
Interest Expense

60, 600 2
60, 600

12/31/14
Interest Expense
Cash

400, 000 2
400, 000

Premium on BP
Interest Expense
Date
3/31/13
12/31/13
12/31/14

Problem 6:
1
2
3
4
5

320,
000

84, 436 2
84, 436

Payments

Interest Expense

300, 000
400, 000

Principal

239, 400
315, 564

60, 600
84, 436

[2M + (10M x 6%)] x 0.9259

[2M + (8M x 6%)] x 0.8573
[2M + (6M x 6%)] x 0.7938
[2M + (4M x 6%)] x 0.7350
[2M + (2M x 6%)] x 0.6806
TOTAL
Face Value
Premium

Cash
Discount on Bonds Payable
Bonds Payable
12/31/13
Bonds Payable
Interest Expense
Cash

2,
2,
1,
1,
1,
9,
10,

9, 496,
084
503, 916

10, 000, 000

2, 000, 3
000
600, 000
2, 600, 000

Interest Expense

159, 2
686.72
Discount on Bonds Payable
159,
686.72
(600 000 (9, 496, 084 x 8%) = 159, 686.724
Problem 7:
1/1/13
Cash
Bonds Payable
12/31/13
Interest Expense
Cash
(5M x 10% = 500, 000)
PV of I (5M x 10%) x 3.3121
PV of P 5M x 0.7350
Carrying Amount

Carrying Amount
5, 320, 000
5, 259, 4003
5, 174, 9643

5, 000, 0002
5, 000, 000

500, 0002
500, 000

1, 656, 0501
3, 675, 0001
5, 331, 0501
5, 000, 0001

407,
126,
873,
646,
442,
496,
000,
503,

340
104
368
400
872
084
000
916

1
1
1
1
1
2
1
2

Loss from change in FV

Loss from change in FV
Bonds Payable
12/31/14
Interest Expense
Cash
PV of I (5M x 10%) x 5.4018
PV of P 5M x 0.7118

331, 0502
331, 050
331, 0503

500, 0002
500, 000

Carrying Amount
Gain from change in FV

1, 200, 9001
3, 559, 0001
4, 759, 9001
5, 331, 0501
571, 1502

Bonds Payable
Gain from change in FV

571, 1502
571, 150