<p> Chapter 14 Group Work Solutions</p><p>1. a) Selling Price of a Bond</p><p>Present Value $800,000 (n=20; i=3%) * .55368 = $442,944 Present Value of Annuity $ 28,000 (n=20; i=3%) * 14.87747 = $416,569</p><p>Selling Price $442,944 + $416,569 = $859,513</p><p> b) Journal Entry at Date of Issue – Bond at Premium</p><p>January 1, 2016 Cash 859,513 Premium on Bonds Payable 59,513 Bonds Payable 800,000</p><p> c) Semi-Annual Interest Payments – Effective Interest Method - Bond at Premium</p><p>June 30, 2016 Interest Expense 25,785 Premium on Bonds Payable 2,215 Cash 28,000</p><p>$859,513 * 6% * ½ = $25,785 $800,000 * 7% * ½ = $28,000 $28,000 - $25,785 = $2,215</p><p>December 31, 2016 Interest Expense 25,719 Premium on Bonds Payable 2,281 Cash 28,000</p><p>($859,513 - $2,215) * 6% * ½ = $25,719 $800,000 * 7% * ½ = $28,000 $28,000 - $25,719 = $2,281</p><p> d) Total Interest Expense reported on Income Statement for 2016</p><p>June 30th 25,785 December 31st 25,719 Total Interest Expense 51,504</p><p> e) Carrying Value of the Bond at December 31, 2016</p><p>Bonds Payable 800,000 Premium on Bonds Payable 55,017 Carrying Value of Bonds 855,017 f) Semi-Annual Interest Payments – Straight-Line Method - Bond at Premium</p><p>June 30, 2016 Interest Expense 25,024 Premium on Bonds Payable 2,976 Cash 28,000</p><p>$59,513/20 = $2,976 $800,000 * 7% * ½ = $28,000 $28,000 - $2,976 = $25,024</p><p>December 31, 2016 Interest Expense 25,024 Premium on Bonds Payable 2,976 Cash 28,000</p><p>$59,513/20 = $2,976 $800,000 * 7% * ½ = $28,000 $28,000 - $2,976 = $25,024 g) Total Interest Expense reported on Income Statement for 2016</p><p>June 30th 25,024 December 31st 25,024 Total Interest Expense 50,048</p><p> h) Carrying Value of the Bond at December 31, 2016</p><p>Bonds Payable 800,000 Premium on Bonds Payable 53,561 Carrying Value of Bonds 853,561 2. a) Journal Entry at Date of Issue – Bond at Discount</p><p>January 1, 2016 Cash 864,100 Discount on Bonds Payable 135,900 Bonds Payable 1,000,000</p><p> b) Semi-Annual Interest Payments – Effective Interest Method - Bond at Discount</p><p>June 30, 2016 Interest Expense 34,564 Cash 30,000 Discount on Bonds Payable 4,564</p><p>$864,100 * 8% * ½ = $34,564 $1,000,000 * 6% * ½ = $30,000 $34,564 - $30,000 = $4,564</p><p>December 31, 2016 Interest Expense 34,747 Cash 30,000 Discount on Bonds Payable 4,747</p><p>($864,100 + $4,564) * 8% * ½ = $34,747 1,000,000 * 6% * ½ = $30,000 $34,747 - $30,000 = $4,747</p><p> c) Total Interest Expense reported on Income Statement for 2016</p><p>June 30th 34,564 December 31st 34,747 Total Interest Expense 69,311</p><p> d) Carrying Value of the Bond at December 31, 2016</p><p>Bonds Payable 1,000,000 Discount on Bonds Payable (126,589) Carrying Value of Bonds 873,411 e) Semi-Annual Interest Payments – Straight-Line Method - Bond at Discount</p><p>June 30, 2016 Interest Expense 36,795 Discount on Bonds Payable 6,795 Cash 30,000</p><p>$135,900/20 = $6,795 $1,000,000 * 6% * ½ = $30,000 $30,000 + $6,795 = $36,795</p><p>December 31, 2016 Interest Expense 36,795 Discount on Bonds Payable 6,795 Cash 30,000</p><p>$135,900/20 = $6,795 $1,000,000 * 6% * ½ = $30,000 $30,000 + $6,795 = $36,795</p><p> f) Total Interest Expense reported on Income Statement for 2016</p><p>June 30th 36,795 December 31st 36,795 Total Interest Expense 73,590</p><p> g) Carrying Value of the Bond at December 31, 2016</p><p>Bonds Payable 1,000,000 Discount on Bonds Payable (122,310) Carrying Value of Bonds 877,690 3. Issuing Bonds Between Interest Payment Periods</p><p> a) March 1, 2016 Cash 304,000 Bonds Payable 300,000 Interest Expense 4,000</p><p>300,000 * .08 * 2/12 = $4,000</p><p> b) June 30, 2016 Interest Expense 12,000 Cash 12,000</p><p>300,000 * .08 * 6/12 = $12,000</p><p>4. Retirement of Callable Bond Issuance</p><p>September 1, 2016 Bonds Payable 3,000,000 Loss on Retirement 203,000 Cash 3,090,000 Discount on Bonds Payable 98,000 Unamortized Bond Issue Costs 15,000</p><p>($3,090,000+$98,000+$15,000)-$3,000,000 = $203,000 Loss 5. Acquiring an Asset with a Note</p><p> a) January 1, 2016</p><p>Machine 350,261 Discount on Note Payable 49,739 Note Payable 400,000</p><p>Present Value $400,000 (n=3; i=10%) * .75131 = $300,524 Present Value of Annuity $ 20,000 (n=3; i=10%) * 2.48685 = $49,737 $350,261</p><p> b) December 31, 2016</p><p>Interest Expense 35,026 Discount on Note Payable 15,026 Cash 20,000</p><p>Carrying Value * Market Rate = Interest Expense 350,261 * .10 = 35,026</p><p>New Carrying Value after the above posting = </p><p>Note Payable 400,000 Discount (34,713) New Carrying Value 365,287</p><p> c) December 31, 2017</p><p>Interest Expense 36,529 Discount on Note Payable 16,529 Cash 20,000</p><p>Carrying Value * Market Rate = Interest Expense 365,287 * .10 = 36,529</p><p>New Carrying Value after the above posting =</p><p>Note Payable 400,000 Discount ( 18,184) New Carrying Value 381,816</p>