Long-Term Liabilities, Bonds Payable,

and Classification of Liabilities on the

Balance Sheet

Short Exercises

(10-15 min.) S 11-1

Reqs. 1, 2, and 3

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2014
Jan 1 Cash 200,00
0
Long-term notes payable 200,00
0

Jan 1 Long-term notes payable 40,000

Current portion of long-term 40,000
notes
payable

Dec 31 Interest expense ($200,000 x 6% x 12,000

12/12)
Long-term notes payable 40,000
Cash 52,000
 (10-20 min.) S 11-2

Req. 1
Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
Jan 1 Land 50,000
250,00
Building
0
Cash 20,000
280,00
Mortgage payable
0

Req. 2

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
Jan 1 Mortgage payable 7,475
Current portion of mortgage 7,475
payable

Req. 3

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
Jan 31 Interest expense ($280,000 x 6% 1,400
 x 1/12)
Mortgage payable ($2,006 - 606
$1,400)
Cash 2,006

(5 min.) S 11-3
Req. 1

a. Discount

b. Premium

c. Par value

d. Discount

(5 min.) S 11-4
Req. 1
a. $383,750 ($500,000 ×
.7675)
b. $523,750 ($500,000 ×
1.0475)

c. $478,750 ($500,000 ×
.9575)

d. $521,250 ($500,000 ×
1.0425)

Req. 2

United Telecom will pay $500,000 at maturity for all

four of the bonds. The bonds all have the same
maturity value.
 (10 min.) S 11-5
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
110,00
a. Jan 1 Cash
0
110,00
Bonds payable
0
Issued bonds payable.

b. Jul 1 Interest expense

($110,000 × 6.5% × 6/12) 3,575
Cash 3,575
Paid semiannual interest.

2027
110,00
c. Jan 1 Bonds payable
0
110,00
Cash
0
Paid off bonds payable at
maturity.

(5 min.) S 11-6

Req. 1 $5,850,00 ($6,000,000 × .975)

0

Req. 2 $6,000,000
Req. 3 $120,000 ($6,000,000 × 4% ×
6/12)
 (10 min.) S 11-7
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
36,00
Jan 1 Cash ($40,000 × .90)
0
Discount on bonds payable 4,000
40,00
Bonds payable
0
Issued bonds payable at a
discount.

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Interest expense ($1,000 +
Jul 1 1,200
$200)
Discount on bonds
payable
($4,000 x 1/10 yrs x
200
6/12)
Cash ($40,000 x 5% x 1,000
6/12)
Paid interest and amortized
discount.
 (10 min.) S 11-8
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
54,00
Jan 1 Cash ($50,000 × 1.08)
0
Premium on bonds
4,000
payable
50,00
Bonds payable
0
Issued bonds payable at a
premium.

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Interest expense ($1,250 -
Jul 1 1,050
$200)
Premium on bonds payable
($4,000 x 1/10 yrs x 6/12) 200
Cash ($50,000 x 5% x
1,250
6/12)
Paid interest and amortized
premium.
 (10 min.) S 11-9
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
42,00
Oct 1 Cash
0
42,00
Bonds payable
0
Issued bonds payable at par.

Req. 2

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Dec 31 Interest expense 840
Interest payable 840
Accrued interest.
($42,000 x 8% x 3/12)

Req. 3

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
 Interest expense ($42,000 x 8%
Apr 1 840
x 3/12)
Interest payable 840
Cash 1,680
Paid semiannual interest.
 (10 min.) S 11-10
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
308,00
May 1 Cash
0
300,00
Bonds payable
0
Interest payable
($300,000 × 8% × 4/12) 8,000
Issued bonds payable four months after the
date of the bonds.

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Interest payable ($300,000 × 8% ×
Jul 1 8,000
4/12)
Interest expense ($300,000 × 8% ×
4,000
2/12)
12,00
Cash ($300,000 × 8% × 6/12)
0
Paid interest.
 (5 min.) S 11-11

Req. 1

Luxury Suites Hotels

Balance Sheet – partial
December 31, 2012
LIABILITIES
Current liabilities:
Accounts payable $34,000
Salary payable 2,800
Interest payable 1,200
Sales taxes payable 800
Estimated warranty payable 1,800
Total current liabilities $40,600

Long-term liabilities:
Notes payable, long-term $125,000
Bonds payable, net of discount, *315,250
$9,750
Total long-term liabilities 440,250
Total liabilities $480,250

*Bonds payable $325,000

Discount on bonds payable (9,750)
$315,250
 (10-15 min.) S 11-12

Req. 1

Blue Socks
Balance Sheet – partial
June 30, 2014
LIABILITIES
Current liabilities:
Accounts payable $13,200
FICA taxes payable 1,900
Salary payable 6,500
Interest payable 2,400
Sales taxes payable 4,000
Current portion of long-term notes 8,000
payable
Total current liabilities $36,000

Long-term liabilities:
Long-term notes payable $117,000
Bonds payable, including premium, *412,000
$12,000
Total long-term liabilities 529,000
Total liabilities $565,000

*Bonds payable
$400,000
Premium on bonds payable
12,000

$412,000
 Exercises

(15–20 min.) E 11-13

Req. 1

Journal Entry
POST
CREDI
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT T
2014
80,00
Mar 1 Equipment
0
80,00
Long-term notes payable
0

10,00
Mar 1 Long-term notes payable
0
10,00
Current portion of long-term notes payable
0

Interest expense ($80,000 x 12% x

Dec 31 8,000
10/12)
Interest payable 8,000

2015
Interest expense ($80,000 x 12%
Mar 1 1,600
x 2/12)
Interest payable ($80,000 x 12% x
8,000
10/12)
10,00
Long-term notes payable
0
19,60
Cash
0

Interest expense (*$70,000 x 12% x

Dec 31 7,000
10/12)
 Interest payable 7,000

*$80,000 - $10,000 principal payment, Mar 15, 2015= $70,000

Req. 2

The total liabilities of Tube Video Productions on December 31,

2015 are $77,000**.
Interest payable $7,000
+ Current portion of long-term notes payable $10,000
+ Long-term notes payable $60,000
= Total liabilities $77,000
 (10–15 min.) E 11-14

Req. 1

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
500,000.
Jan 1 Cash
00
500,000.
Long-term notes payable
00

13,535.8
Jan 1 Long-term notes payable
2
Current portion of long-term notes 13,535.8
payable 2

Req. 2

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT

2013
Jan 31 Interest expense 2,500.00
Long-term notes payable 1,097.30
Cash 3,597.30

Req. 3
 Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
Feb 28 Interest expense 2,494.51
Long-term notes payable 1,102.79
Cash 3,597.30
 (5-10 min.) E 11-15
Req. 1

a. Maturity value

b. Discount price

c. Discount price

Req. 2

The price of the $520,000 bond issued at 93 is

$483,600
($520,000 x .93)

Req. 3

Adams will pay $31,200 ($520,000 x 6% x 12/12) in

interest each year.

Assuming that the straight-line method is used, Adams’

interest expense will be *$38,480 for the first year.

*$31,200 + [($520,000 - $483,600) x 1/5 yrs x 12/12] =

$38,480
 (10 min.) E 11-16
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
3 122,20
Jun Cash ($130,000 × .94)
0 0
Discount on bonds payable 7,800
130,0
Bonds payable
00
Issued bonds payable at a
discount.

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
3 Interest expense ($5,200 +
Dec 5,395
1 $195)
Discount on bonds
195
payable
($7,800 x 1/20 yrs x 6/12)
Cash ($130,000 x 8% x
5,200
6/12)
Paid interest and amortized
discount.
 (10-20 min.) E 11-17
Req. 1

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Ma 206,00
1 Cash ($200,000 x 1.03)
y 0
Premium on bonds
6,000
payable
200,00
Bonds payable
0

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
Interest expense ($9,000 -
Nov 1 8,850
$150)
Premium on bonds payable 150
($6,000 x 1/20 yrs x 6/12)
Cash ($200,000 x 9% x
9,000
6/12)

Req. 3
 Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
3 Interest expense ($3,000 -
Dec 2,950
1 $50)
Premium on bonds
50
payable
($6,000 x 1/20 yrs x
2/12)
Interest payable 3,000
($200,000 x 9% x
2/12)
 (continued) E 11-17

Req. 4

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
Interest payable (from Dec 31
May 1 3,000
entry)
Interest expense 5,900
($9,000 - $3,000 - $100)
Premium on bonds payable 100
($6,000 x 1/20 yrs x 4/12)
Cash ($200,000 x 9% x
9,000
6/12)
 (15–20 min.) E 11-18
Req. 1

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
Jan 1 Cash 50,000
Bonds payable 50,000

Jul 1 Interest expense

($50,000 × 9% × 6/12) 2,250
Cash 2,250

Req. 2
Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
47,50
Jan 1 Cash ($50,000 × .95)
0
Discount on bonds payable 2,500
Bonds payable 50,000

Interest expense ($125 +

Jul 1 2,375
$2,250)
Discount on bonds
payable
($2,500 x 1/10 yrs / 125
6/12)
Cash ($50,000 × 9% ×
2,250
6/12)
 (continued) E 11-18

Req. 3

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
Jan 1 Cash ($50,000 × 1.06) 53,000
Premium on bonds
3,000
payable
Bonds payable 50,000

Interest expense ($2,250 -

Jul 1 2,100
$150)
Premium on bonds
payable
($3,000 x 1/10 yrs x 6/12) 150
Cash ($50,000 × 9% ×
2,250
6/12)

Req. 4

The discount price of 95 results in the most interest

expense. The reason for this is Clark receives only
$47,500 and must pay back $50,000 at maturity.
 (10 min.) E 11-19
Req. 1

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
250,00
Sep 30 Cash
0
250,00
Bonds payable
0
Issued bonds at par.

Req. 2

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
Interest expense ($250,000 x 8% x
Dec 31 5,000
3/12)
Interest payable 5,000

Req. 3
 Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2013
Interest expense ($250,000 x8% x
Mar 31 5,000
3/12)
Interest payable (From Dec 31, 2012
5,000
entry)
Cash 10,000
 (5–15 min.) E 11-20
Req. 1

Filmore Homebuilders
Balance Sheet – partial
March 31, 2013
LIABILITIES
Current liabilities:
Accounts payable $17,000
Salary payable 15,000
Unearned rent revenue 12,000
Current portion of mortgage payable 10,000
Total current liabilities $54,000

Long-term liabilities:
Bonds payable $250,000
Mortgage payable 130,000
Total long-term liabilities 380,000
Total liabilities $434,000
 (5-15 min.) E 11-21
Req. 1
December 31
2012 2013 2014
Current liabilities:
Bonds $130,000 $130,000 $130,000
payable…………….
Interest 39,000 26,000 13,000
payable………..…
Long-term liabilities:
Bonds payable. 260,000 130,000 0
……………

Interest computations:
2012 $390,000 × 10% x 12/12 = $39,000
2013 $260,000 × 10% x 12/12 = $26,000
2014 $130,000 × 10% x 12/12 = $13,000

(10 min.) E 11-22

Req. 1

MediSharp Precision Instruments

Balance Sheet - partial
December 31, 20XX
Liabilities:
Current liabilities:
Accounts payable $
50,000
 Bonds payable, current 35,000
Salary payable 16,000
Income tax payable 8,000
Interest payable ___4,000
Total current liabilities $113,00
0
Long-term liabilities:
Bonds payable 245,000
Total liabilities $358,00
0
 (30-40 min.) P 11-23A
Req. 1
Journal Entry
POST
CREDI
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT T
2014
360,00
Mar 1 Cash
0
360,00
Long-term notes payable
0

Mar 1 Long-term notes payable 60,000

Current portion of long-term notes
60,000
payable

200,00
Dec 1 Cash
0
200,00
Mortgage payable
0

Dec 1 Mortgage payable 31,505

Current portion of mortgage payable 31,505

3
Dec Interest expense ($200,000 x .09 x 1/12) 1,500
1
Interest payable 1,500

3 Interest expense ($360,000 x .10 x

Dec 30,000
1 10/12)
Interest payable 30,000

2015
Jan 1 Interest payable 1,500

Mortgage payable ($4,000 - $1,500) 2,500

Cash 4,000
 Interest expense ($200,000 - $2,500) x .09
Feb 1 1,481
x 1/12)
Mortgage payable ($4,000 - $1,481) 2,519
Cash 4,000

Mar 1 Interest expense 1,462

[($200,000 - $2,500 - $2,519) x .09 x
1/12]
Mortgage payable ($4,000 - $1,462) 2,538
Cash 4,000

Mar 1 Interest expense ($360,000 x .10 x 2/12) 6,000

Interest payable (From Dec 31 entry) 30,000
Long-term notes payable 60,000
Cash 96,000

(continued) P 11-23A
Req. 2

Emergency Pharmacies
Balance Sheet - partial
March 1, 2015
Current liabilities:
Current portion of mortgage payable $
31,505
Current portion of long-term notes payable 60,000
Total current liabilities $91,505

Long-term liabilities:
Mortgage payable $160,93
8
Long-term notes payable 240,000
Total long-term liabilities 400,938
Total liabilities $
492,443
 Problems

Group A

(30-40 min.) P 11-24A

Req. 1

The 7% bonds issued when the market interest

rate is 6% will be priced at a premium. They are
attractive in this market, so investors will pay more
than maturity value to acquire them.

Req. 2

The 7% bonds issued when the market interest

rate is 8% will be priced at a discount. They are
unattractive in this market, so investors will pay less
than maturity value to acquire them.
 (continued) P 11-24A

Req. 3

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
285,00
Mar 1 Cash ($300,000 × .95)
0
Discount on bonds payable 15,000
300,0
Bonds payable
00
Issued bonds payable at a
discount.

Interest expense ($10,500 +

Aug 31 10,875
$375)
Discount on bonds
375
payable
($15,000 x 1/20 yrs x 6/12)
Cash ($300,000 × 7% × 10,50
6/12) 0
Paid interest and amortized
discount.

Interest expense ($7,000 +

Dec 31 7,250
$250)
Discount on bonds payable 250
($15,000 x 1/20 yrs x 4/12)
Interest payable ($300,000 x 7% x
7,000
4/12)
Accrued interest and amortized
discount.
 2013
Interest payable (from Dec.
Feb 28 7,000
31)
Interest expense 3,625
($10,500 + $125 - $7,000)
Discount on bonds payable 125
($15,000 x 1/ 20 yrs x 2/12)
Cash ($300,000 x 7% x 10,50
6/12) 0
Paid interest and amortized discount.
 (30 min.) P 11-25A

Req. 1

a. Maturity value is $400,000.

b. Carrying amount at December 31, 2012 is $368,000
($400,000 x .90).
c. Annual cash interest payment is $20,000
($400,000 × 5% x 12/12).
d. Annual interest expense is $24,000 [($20,000
(annual interest
payment) + discount amortization of $4,000
[{$400,000 – ($400,000 x .90)} x 1/10 x 12/12].

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
3 Interest expense ($10,000 + 12,00
Jun
0 $2,000) 0
Discount on bonds
payable 2,000
(*$40,000 x 1/10 yrs x
6/12)
Cash ($400,000 x 5 x 10,00
6/12) 0
Paid interest and amortized
 discount.

*The receipt of cash = $360,000 ($400,000 x .90)

($400,000 - $360,000) x 1/10 = *$40,000

Req. 3
Carrying amount at December 31, 2013 is $372,000*
_________
*$368,000 + $2,000 (Jun 30) + $2,000 (Dec 31) = $372,000*
 (20-25 min.) P 11-26A
Req. 1

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
Jul 31 Cash 605,000
Bonds payable 600,000
Interest payable
($600,000 × 5% ×
5,000
2/12)
Issued bonds payable 2 months after the date of the
bonds.

Interest payable (from Jul

Nov 30 5,000
31)
Interest expense
($600,000 × 5% × 4/12) 10,000
Cash ($600,000 × 5% ×
15,000
6/12)
Paid semiannual interest.

Dec 31 Interest expense

($600,000 × 5% × 1/12) 2,500
Interest payable 2,500
Accrued interest.
2013
Ma Interest payable (from Dec
31 2,500
y 31)
Interest expense
($600,000 × 5% × 5/12) 12,500
Cash ($600,000 × 5% ×
15,000
6/12)
Paid interest.
Req. 2
Balance at December 31, 2012:

Current liabilities:
Interest payable $ 2,500

Long-term liabilities:
Bonds payable $600,000

(10-15 min.) P 11-27A

Req. 1

Route Maker Wireless

Balance Sheet (Partial)

Liabilities
Current liabilities:
Accounts payable $ 76,000
Salary payable 9,500
Bonds payable, current installment 30,000
Interest payable 19,000
Unearned service revenue __3,000
Total current liabilities $137,500

Long-term liabilities:
Mortgage note payable, long-term 80,000
Bonds payable, including premium, _175,000
$11,000
Total long-term liabilities 255,000
Total liabilities $392,500
 (30-40 min) P 11-28B
Req. 1

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2014
Mar 1 Cash 100,000
Long-term notes payable 100,000

Mar 1 Long-term notes payable 20,000

Current portion of long-term notes
20,000
payable

Dec 1 Cash 400,000

Mortgage payable 400,000

Dec 1 Mortgage payable 70,634

Current portion of mortgage payable 70,634

3 Interest expense ($400,000 x .07 x

Dec 2,333
1 1/12)
Interest payable 2,333

3 Interest expense (100,000 x .15 x

Dec 12,500
1 10/12)
Interest payable 12,500

2015
Jan 1 Interest payable (from Dec. 31) 2,333

Mortgage payable ($8,000 - $2,333) 5,667

Cash 8,000

Feb Interest expense [($400,000 - $5,667) x .07 x 2,300

 1 1/12]
Mortgage payable ($8,000 - $2,300) 5,700
Cash 8,000

Mar 1 Interest expense 2,267

[($400,000 - $5,667 - $5,700) x .07 x
1/12]
Mortgage payable (8,000 - $2,267) 5,733
Cash 8,000

Interest expense ($100,000 x .15 x

Mar 1 2,500
2/12)
Interest payable (from Dec. 31) 12,500
Long-term notes payable 20,000
Cash 35,000
 (continued) P 11-28B

Req. 2

Johnson
Balance Sheet -partial
March 1, 2015
Liabilities
Current liabilities:
Current portion of mortgage payable $70,634
Current portion of long-term notes payable _20,000
Total current liabilities $90,634
Long-term liabilities:
Mortgage payable $312,26
6
Long-term notes payable _60,000
Total long-term liabilities _372,26
6
Total liabilities $462,90
0
 (30-40 min.) P 11-29B

Req. 1

The 6% bonds issued when the market interest

rate is 5% will be priced at a premium. They are
attractive in this market, so investors will pay more
than maturity value to acquire them.

Req. 2

The 6% bonds issued when the market interest

rate is 7% will be priced at a discount. They are
unattractive in this market, so investors will pay less
than maturity value to acquire them.
 (continued) P 11-29B

Req. 3

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
485,00
Mar 1 Cash ($500,000 × .97)
0
Discount on bonds payable 15,000
($500,000 - $485,000)
500,0
Bonds payable
00
Issued bonds payable at a discount.

Interest expense ($375 +

Aug 31 15,375
$15,000)
Discount on bonds payable 375
($15,000 x 1/20 x 6/12)
15,00
Cash ($500,000 x 6% x 6/12)
0
Paid interest and amortized discount.

Interest expense ($250 +

Dec 31 10,250
$10,000)
Discount on bonds payable
($15,000 x 1/20 x 4/12) 250
Interest payable ($500,000 x 6% x 10,00
4/12) 0
Accrued interest and amortized
discount.

2013
Feb 28 Interest payable (from Dec 31) 10,000
Interest expense ($125 + $15,000 -
5,125
$10,000)
Discount on bonds payable 125
($15,000 x 1/ 20 ×
2/12)
15,00
Cash ($500,000 x 6% x 2/12)
0
Paid interest and amortized discount.
 (30 min.) P 11-30B
Req. 1

a. Maturity value is $700,000.

b. Carrying amount at December 31, 2012 is

$616,000.

c. Annual cash interest payment is $63,000

($700,000 × 9% x 12/12).

d. Annual interest expense is $73,500 [$63,000 +

annual
discount amortization of $10,500.
($105,000* x 1/10 years x 12/12)]
___________
*Total discount on bonds payable $700,000 –
($700,000 x .85) = $105,000

Req. 2

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2013
3 Interest expense ($31,500 + 36,75
Jun
0 $5,250) 0
Discount on bonds
5,250
payable
($105,000 x 1/10 x 6/12)
 Cash ($700,000 x 9% x 31,50
6/12) 0
Paid interest and amortized
discount.

Req. 3

Carrying amount at December 31, 2013 is $626,500*

__________
*$616,000 + $5,250 (Jun 30) + $5,250 (Dec 31) =
$626,500
 (20-25 min.) P 11-31B

Req. 1

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
Jul 31 Cash ($450,000 + $7,500) 457,500
Bonds payable 450,000
Interest payable
($450,000 × 10% ×
7,500
2/12)
Issued bonds payable 2 months after the date of the
bonds.

Interest payable (from July

Nov 30 7,500
31)
Interest expense
($450,000 × 10% × 4/12) 15,000
Cash ($450,000 × 10%
22,500
× 6/12)
Paid interest.

Dec 31 Interest expense

($450,000 × 10% × 1/12) 3,750
Interest payable 3,750
Accrued interest.
2013
Interest payable (from Dec.
May 31 3,750
31)
Interest expense
($450,000 × 10% × 5/12) 18,750
Cash ($450,000 × 10%
22,500
× 6/12)
Paid interest.
Req. 2
At December 31, 2012:
Current liabilities:
Interest payable $ 3,750

Long-term liabilities:
Bonds payable $450,000
 (10-15 min.) P 11-32B
Req. 1

Compass Point Wireless

Balance Sheet (partial)

Current liabilities:
Accounts payable $ 75,000
Salary payable 7,500
Bonds payable, current installment 17,000
Interest payable 17,000
Unearned service revenue __3,200
Total current liabilities $119,700

Long-term liabilities:
Mortgage note payable, long-term $72,000
Bonds payable, including premium, _175,000
$12,000
Total long-term liabilities _247,000
Total liabilities $366,700
 Continuing Exercise

(15-20 min.) E 11-33

Req. 1

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
120,00
Aug 1 Cash
0
120,00
Mortgage payable
0

Aug 1 Mortgage payable 12,000

Current portion of mortgage
12,000
payable

Mortgage payable ($1,600 -

Sep 1 1,000
$600)
Interest expense ($120,000 x .06
600
x 1/12)
Cash ($1,000 + $600) 1,600

3
Sep Interest expense 595
0
($120,000 - $1,000) x .06 x
1/12)
Interest payable 595
 (continued) E 11-33
Req. 2

Lawlor Lawn Services, Inc.

Balance Sheet - partial
September 30, 2012
Current liabilities:
Interest payable $595
Current portion of mortgage payable ___12,00
0
Total current liabilities $12,595
Long-term liabilities:
Mortgage payable 107,000
Total liabilities $119,59
5

Req. 3

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
Oct 1 Mortgage payable 1,000
Interest payable (from Sep
595
30)
Cash 1,595
 Continuing Problem

(20-30 min.) P 11-34

Req. 1

Draper’s bond will be issued at a discount because the

market rate of interest (10%) exceeds the stated rate
(8%).

Req. 2

*$400,000 x 8% x 6/12 = $16,000 semiannual interest

payment
$16,000 x PVOA factor 9.8991) = $158,384 present value of the bond’s
interest
payment
2)
$400,000 x PV factor 0.505 = $202,000 present value of the
bond’s

maturity amount

Issue Price = $360,384*

Journal Entry
DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT
*360,38
Mar 1 Cash
4
Discount on bonds payable 39,616
400,00
Bond payable
0
 1)
Present value of the ordinary annuity (PVOA)(Table B-2):
[PVOA factor for n=14 semiannual periods, i=5% per
semiannual period] = *9.899

2)
Present value (PV) of the single maturity amount (Table B-1):
[PV factor for n=14 semiannual periods, i=5% per
semiannual period] = **0.505
 (continued) P 11-34

Req. 3

Journal Entry
DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT
Interest expense(360,384 x
Sep 1 18,019
10%x6/12)
Discount on bonds
2,019
payable
($18,019 - $16,000)
Cash ($400,000 x 8% x
16,000
6/12)

Req. 4

Journal Entry
DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT
3 Interest expense(*$362,403 x 10%
Dec 12,080
1 x 4/12 )
Interest payable (400,000 x 8% x
10,667
4/12)
Discount on bonds
payable
($12,080 - $10,667)) 1,413

* ($360,384 + $2,019 = $362,403

Ch 11 Apply Your Knowledge

Decision Case

Decision Case 11-1

Req. 1

Brooks will actually borrow $480,000 ($500,000 × .96).

Brooks
must pay back the full $500,000 at maturity. Brooks
will account
for the difference between the $480,000 borrowed and
the
$500,000 paid back by amortizing it as interest
expense over
the 10 years that the bonds are outstanding.

Req. 2

Companies prefer to borrow for longer periods when

interest
rates are low in order to lock in the low cost of interest
for a
lengthy period. When interest rates are high,
companies prefer
to borrow short-term in the hope that interest rates
will
decrease in the near term. This strategy keeps interest
expenses as low as possible.
 Ethical Issue 11-1

Req. 1

It is not unethical for a company to finance its

operations with debt, whether high or low. That is
simply a financing decision.
However, only $20,000 of the $287,000 mortgage
balance is a current liability. “Hopes to be able to pay
the mortgage off in full next year” does not change the
fact that only $20,000 of principal is due next year.
As long as the borrower is honest and meets the
requirements imposed by creditors, by stockholders,
and by taxing and other legal authorities, then the
borrower’s behavior can be considered ethical.
However, higher debt load does translate into higher
risk.

If a company takes on too much debt, and then goes

bankrupt, it harms investors, creditors, and employees.
Investors lose because the value of their stock goes to
zero. Creditors are harmed because they cannot
collect all of the amounts owed to them. Employees
and their families are harmed when people lose their
jobs. Often the whole community is impacted when a
company goes bankrupt.
 Fraud Case 11-1
Req. 1

When a company goes bankrupt, there is a court

settlement in which the remaining assets of the
company are distributed to investors and creditors,
according to specified priority. Equity investors (i.e.
stockholders) often lose their entire investment.
Bondholders may receive a settlement of a portion of
the amount owed, or in some cases, nothing at all.
Once all settlements are legally concluded, any
remaining bonds have no value, except in some cases,
as collectors’ items.

Req. 2

Stocks and bonds should normally be purchased only

through a licensed securities dealer. The investor
should always receive a brokerage statement showing
their name as owner.

Req. 3

Corporate bonds are rated as to level of risk, with AAA

being the lowest risk, and D being the highest risk.
Bonds rated below BBB are called “junk bonds.”
 Financial Statement Case 11-1

Req. 1

Millions
Current portion of long-term debt..................…….. $ 22
Long-term debt (excluding current portion)……... 109
Total long-term debt, including current portion…. $ 131

See balance sheet and note 5.

Req. 2

(in millions)
Interest Expense 34
Cash 32
Interest Payable 2

Note: Interest expense is shown as $34,000,000 on

the income statement. Cash payments for Interest are
shown as $22,000,000 on the statement of cash flows.
We assume that the difference is accounted for by
Interest Payable, which is not disclosed separately in
the financial statements or notes.
 Team Project 11-1
Results will vary. Typical examples of project results
might include the following.

Liabilities of:

Bank

Current:
* a. Demand deposits payable
b. Accounts payable
c. Accrued liabilities payable (salary, wage, and other
compensation payable to employees, interest
payable)
d. Payables to the Federal Reserve System

Long-term:
a. Notes payable (and bonds payable) to outside
investors
* b. Certificates-of-deposit payable to depositors
c. Lease liabilities
* d. Payables to the Federal Reserve System

Magazine Publisher
Current:
a. Accounts payable
b. Accrued liabilities payable
* c. Unearned subscription revenue
d. Short-term notes payable
e, Current portion of long-term notes and bonds
payable
f. Current obligations under capital leases

Long-term:
a. Notes payable and bonds payable
* b. Unearned subscription revenue
c. Lease liabilities
(continued) Team Project 11-1

Department Store

Current:
a. Accounts payable
b. Accrued liabilities payable
* c. Sales tax payable
d. Short-term notes payable
e. Current portion of long-term notes and bonds
payable
f. Current obligations under capital leases

Long-term:
a. Notes payable and bonds payable
b. Lease liabilities
 Liabilities that are unique to a particular type
of business are denoted by an asterisk (*).
Other liabilities are common to most other
types of business.

Student responses will vary. This solution can

be considered as a suggestion.

Communication Activity 11-1

Student responses will vary.

Appendix 11A

The Time Value of Money:

Present Value of a Bond and
Effective-Interest Amortization
Group A Problems

(15-25 min.) P 11A-1A

Req. 1
Present Value of
Annuity Present
at 14% for 6 years value
Plan A: $55,000 × 3.889 = $213,89
5

Req. 2
Present Value of $1 for Present
6 periods at 14% Value
Plan B: $525,00 × .456 = $239,40
0 0

Req. 3

Flexon should buy the equipment under Plan A because

its cost (measured by present value) is lower.
 (40-50 min.) P 11A-2A

Req. 1

1.

$91,000 x 14% x 6/12 = $6,370 semiannual interest

payments

$6,370 x 8.745 = $55,706 PV of interest

payments
$91,000 x 0.388 =$35,308 PV of maturity
value
$91,014

When market rate of interest is 14% annually:

$91,014

2.

$91,000 x 14% x 6/12 = $6,370 semiannual interest

payments

$6,370 x 8.244 = $52,514 PV of interest

payments
$91,000 x 0.340 =$30,940 PV of maturity
value
$83,454

When market rate of interest is 16% annually

$83,454
3.

$91,000 x 14% x 6/12 = $6,370 semiannual interest

payments

$6,370 x 9.295 = $59,209 PV of interest

payments
$91,000 x 0.442 =$40,222 PV of maturity value
$99,431

When market rate of interest is 12% annually

$99,431
 (20-30 min.) P 11A-3A
Req. 1

1.
Journal Entry
Cash 91,000
Bonds payable 91,000

Interest expense ($91,000 × 14% 6,370

× 6/12)
Cash 6,370

2.
Journal Entry
Cash 83,454
Discount on bonds payable 7,546
Bonds Payable 91,000

Interest expense ($83,454 x 16% 6,676

x 6/12)
Discount on bonds payable
($6,676 - $6,370) 306
Cash ($91,000 × 14% × 6/12) 6,370

3.
Journal Entry
Cash 99,431
Premium on bonds payable 8,431
Bonds payable 91,000
 Interest expense ($99,431 x 12% 5,966
x 6/12)
Premium on bonds payable
($6,370- $5,966) 404
Cash ($91,000 × 14% × 6/12) 6,370

(15-20 min.) P 11A-4A

Req. 1 $740,760 ($800,000 × .92595)

Req. 2 Amortization Table:

A B C D E
Interest
Interest Expense
Payment (10% x Bond
End of (5% x 6/12 x Discount Carrying
Semiannual 6/12 x Bond Amortizatio Discount Amount
Interest Maturity Carrying n Balance ($800,000 -
Period Value) Amount) (B - A) (D - C) D)
$59,24 $740,76
Mar 31, 2012 0 0
$20,00 $22,22 742,98
Sep 30, 2012 0 3 $2,223 57,017 3
745,27
Mar 31, 2013 20,000 22,289 2,289 54,728 2

Req. 3

Journal Entry
ACCOUNTS AND POST.
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
 740,76
Mar 31 Cash ($800,000 × .92595)
0
Discount on bonds payable 59,240
800,00
Bonds payable
0

Sep 30 Interest expense 22,223

Discount on bonds
2,223
payable
Cash 20,000
 (15-20 min.) P 11A-5A

Req. 1 $318,723 ($300,000 × 1.062410)

Req. 2 Amortization Table:

A B C D E
Interest
Interest Expense
Payment (10% x Bond
End of (11% x 6/12 x Premium Carrying
Semiannual 6/12 x Bond Amortizatio Premium Amount
Interest Maturity Carrying n Balance ($300,000 +
Period Value) Amount) (A - B) (D - C) D)

May 31,
$18,72
2012 3 $318,723
Nov 30,
$16,50 $15,93 18,15
2012 0 6 $564 9 318,159
May 31,
15,90 17,56
2013 16,500 8 592 7 317,567

Req. 3

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
Cash ($300,000 × 318,72
May 31
1.062410) 3
Premium on bonds
18,723
payable
 300,00
Bonds Payable
0

Nov 30 Interest expense 15,936

Premium on bonds
564
payable
Cash 16,500
 (20-25 min.) P 11A-6A

Req. 1 Amortization Table

A B C D E
Interest
Interest Expense
End of Payment (16% x Bond
Semiannu (14% x 6/12 x Discount Carrying
al 6/12 x Bond Amortizatio Discount Amount
Interest Maturity Carrying n Balance ($500,000 −
Period Value) Amount) (B − A) (D − C) D)
1-2-12 $48,870 $451,130
7-2-12 $35,00 $36,09 $1,090 47,780 452,220
0 0
1-2-13 35,000 36,178 1,178 46,602 453,398

Req. 2

Journal
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
451,13
Jan 2 Cash
0
Discount on bonds payable 48,870
500,00
Bonds payable
0
Issued bonds payable at a
discount.

Jul 2 Interest expense 36,090

 Discount on bonds
1,090
payable
Cash 35,000
Paid interest and amortized
discount.
 (15-20 min.) E 11A-7A

1 A B C D E F
2 Bond
3 Interest Interest Discount Discount Carrying
4 Date Payment Expense Amortizatio Balance Amount
n
5 1-1-12 $9,982 $390,0
18
6 12-31- $29,50 $31,20 $1,701 8,281 391,71
12 0 1 9
7 12-31- 29,500 31,338 1,838 6,443 393,55
13 7
8 12-31- 29,500 31,485 1,985 4,458 395,54
14 2
9 12-31- 29,500 31,643 2,143 2,315 397,68
15 5
1 12-31- 29,500 31,815 2,315 0 400,00
0 16 0

Note: Computer-generated solutions may contain slight

rounding differences.
 (30-40 min.) P 11A-8A

Req. 1

$800,000 x 7.25% x 6/12 = $29,000 semiannual interest

payments

$29,000 x 12.462 = $361,398 PV of interest

payments
$800,000 x 0.377 = $301,600 PV of maturity
value
$662,998

The present value of the bonds at issuance is

$662,998.

Req. 2

Amortization Table
A B C D E
Interest
Interest Expense
Payment (10% x 6/12 Bond
End of (7.25% x x Discount Carrying
Semiannual 6/12 x Bond Amortizati Discount Amount
Interest Maturity Carrying on Balance ($800,000 −
Period Value) Amount) (B − A) (D − C) D)
12-31- $137,00 $662,99
12 2 8
6-30- $29,0 $33,15 $4,150 132,852 667,148
13 00 0
12-31- 29,00 33,357 4,357 128,495 671,505
13 0
 (continued) P 11A-8A

Req. 3

Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
662,99
Dec 31 Cash
8
137,00
Discount on bonds payable
2
800,00
Bonds payable
0
Issued bonds at a discount.

2013
Jun 30 Interest expense 33,150
Discount on bonds
4,150
payable
Cash 29,000
Paid interest and amortized
discount.

Dec 31 Interest expense 33,357

Discount on bonds
4,357
payable
Cash 29,000
Paid interest and amortized
discount.
Group B Problems

(15-25 min.) P 11A-9B

Req. 1
Present Value of
Annuity ___at 10% for Present
6 years___ __Value__

Plan $65,000 × 4.355 = $283,07

A: 5

Req. 2
Present Value of $1
for Present
___ 6 periods at 10%__ __Value_

Plan $50,000 × .564 = $28,200

B:
Req. 3

Exacto should buy the equipment under Plan B

because its cost (measured by present value) is lower.
 (40-50 min.) P 11A-10B

Req. 1

1.

$83,000 x 12% x 6/12 = $4,980 semiannual interest

payments

$4,980 x 9.295 = $46,289 PV of interest

payments
$83,000 x 0.442 = $36,686 PV of maturity value
$82,975
(rounding of factors caused $25
difference)

When market rate of interest is 12% annually:

$83,000

2.

$83,000 x 12% x 6/12 = $4,980 semiannual interest

payments

$4,980 x 8.745 = $43,550 PV of interest

payments
$83,000 x 0.388 = $32,204 PV of maturity value
$75,754

When market rate of interest is 14% annually:

$75,754
3.

$83,000 x 12% x 6/12 = $4,980 semiannual interest

payments

$4,980 x 9.899 = $49,297 PV of interest

payments
$83,000 x 0.505 = $41,915 PV of maturity value
$91,212

When market rate of interest is 10% annually: $91,212

 (20-30 min.) P 11A-11B
Req. 1
1.
Journal Entry

Cash 83,000
Bonds payable 83,000

Interest Expense ($83,000 × 12% 4,980

× 6/12)
Cash 4,980

2.
Journal Entry

Cash 75,754
Discount on bonds payable 7,246
Bonds Payable 83,000

Interest expense ($75,754 x 5,303

14% x 6/12)
Discount on bonds payable
($5,303 - $4,980) 323
Cash ($83,000 × 12% × 6/12) 4,980

3.
Journal Entry

Cash 91,212
Premium on bonds payable 8,212
 Bonds payable 83,000

Interest expense ($91,212 x 10% 4,561

x 6/12)
Premium on bonds payable
($4,980 - $4,561) 419
Cash ($83,000 × 12% × 6/12) 4,980
(15-20 min.) P 11A-12B

Req. 1 $465,825 ($500,000 × .93165)

Req. 2 Amortization Table:

A B C D E
Interest
Interest Expense
Payment (8% x Bond
End of (7% x 6/12 x Discount Carrying
Semiannual 6/12 x Bond Amortizatio Discount Amount
Interest Maturity Carrying n Balance ($500,000 -
Period Value) Amount) (B - A) (D - C) D)
$34,17
Mar 31, 2012 5 $465,825
$17,50 $18,63
Sep 30, 2012 0 3 $1,133 33,042 466,958
Mar 31, 2013 17,500 18,678 1,178 31,864 468,136

Req. 3

Journal
ACCOUNTS AND POST.
DATE EXPLANATIONS REF. DEBIT CREDIT
 2012
465,82
Mar 31 Cash ($500,000 × .93165)
5
Discount on bonds payable 34,175
500,00
Bonds payable
0

Sep 30 Interest expense 18,633

Discount on bonds
1,133
payable
Cash ($500,000 x 7%
17,500
x 6/12)
 (15-20 min.) P 11A-13B

Req. 1 $757,243 ($700,000 × 1.081776)

Req. 2 Amortization Table:

A B C D E
Interest
Interest Expense
Payment (4% x Bond
End of (5% x 6/12 x Premium Carrying
Semiannual 6/12 x Bond Amortizatio Premium Amount
Interest Maturity Carrying n Balance ($700,000 +
Period Value) Amount) (A - B) (D - C) D)

May 31,
$57,24
2012 3 $757,243
Nov 30,
$17,50 $15,14 54,88
2012 0 5 $2,355 8 754,888
May 31,
15,09 52,48
2013 17,500 8 2,402 6 752,486

Req. 3

Journal Entry
POST
ACCOUNTS AND .
DATE EXPLANATIONS REF. DEBIT CREDIT
2012
757,24
May 31 Cash
3
Premium on bonds
57,243
payable
Bonds payable 700,00
 0

Nov 30 Interest expense 15,145

Premium on bonds
2,355
payable
Cash 17,500
 (20-25 min.) P 11A-14B

Req. 1 Amortization table

A B C D E
Interest
Interest Expense
End of Payment (12% x Bond
Semiannu (11% x 6/12 x Discount Carrying
al 6/12 x Bond Amortizatio Discount Amount
Interest Maturity Carrying n Balance ($600,000 −
Period Value) Amount) (B − A) (D − C) D)
1-2-12 $34,290 $565,710
7-2-12 $33,00 $33,94 $943 33,347 566,653
0 3
1-2-13 33,000 33,999 999 32,348 567,652

Req. 2

Journal
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
565,71
Jan 2 Cash
0
Discount on bonds payable 34,290
600,00
Bonds payable
0
Issued bonds payable at a
discount.

Jul 2 Interest expense 33,943

 Discount on bonds
943
payable
Cash 33,000
Paid interest and amortized
discount.
 (15-20 min.) P 11A-15B

1 A B C D E F
2 Bond
3 Interest Interest Discount Discount Carrying
4 Date Payment Expense Amortizatio Balance Amount
n
5 1-1-12 $36,96 $563,04
0 0
6 12-31- $50,25 $56,30 $6,054 30,906 569,094
12 0 4
7 12-31- 50,250 56,909 6,659 24,247 575,753
13
8 12-31- 50,250 57,575 7,325 16,922 583,078
14
9 12-31- 50,250 58,308 8,058 8,864 591,136
15
1 12-31- 50,250 59,114 8,864 0 600,000
0 16

Note: Computer-generated solutions may contain slight

rounding differences.
 (30-40 min.) P 11A-16B

Req. 1

$300,000 x 5.25% x 6/12 = $7,875 semiannual interest

payments

$7,875 x 13.590 = $107,021 PV of interest

payments
$300,000 x 0.456 = $136,800 PV of maturity
value
$243,821

The present value of the bonds at issuance is $243,821

Req. 2

Amortization Table
A B C D E
Interest Interest
Payment Expense Bond
End of (5.25% x (8% x 6/12 x Discount Carrying
Semiannual 6/12 x Bond Amortizatio Discount Amount
Interest Maturity Carrying n Balance ($300,000 −
Period Value) Amount) (B − A) (D − C) D)
12-31- $56,179 $243,82
12 1
6-30- $7,87 $9,753 $1,878 54,301 245,699
13 5
12-31- 7,875 9,828 1,953 52,348 247,652
13
 (continued) P 11A-16B

Req. 3

Journal
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2012
243,82
Dec 31 Cash
1
Discount on bonds payable 56,179
300,00
Bonds payable
0
Issued bonds at a discount.

2013
Jun 30 Interest expense 9,753
Discount on bonds
1,878
payable
Cash 7,875
Paid interest and amortized
discount.

Dec 31 Interest expense 9,828

Discount on bonds
1,953
payable
Cash 7,875
Paid interest and amortized
discount.
Appendix 11B

(10 min.) S 11B-1

Req. 1
$200,000 x 1.06 = $212,000
Maturity value = 200,000
Premium on bonds payable = $12,000
$12,000 x 1/5 x 6/12 = $1,200 x 2 = ( 2,400)
Premium balance, Jan 1, 2013 $9,600
Maturity value = 200,000
Carrying amount, Jan 1, 2013:$209,600

The carrying amount of the bonds payable on the Jan

1, 2013 retirement date is $209,600.

Req. 2
To retire the bonds Platz must pay $192,000.
($200,000 x .96)

Req. 3

Maturity value of bonds being retired……

$200,000
Add: Premium balance on Jan 1, 2013……
9,600
Carrying amount of bonds payable………. $209,600
Market price paid to retire the bonds…….
(192,000)
Gain on retirement of bonds payable…….
$17,600

Platz’s gain or loss on the retirement of the bonds

payable is $17,600.

(5-10 min.) S 11B-2

Req. 1

The carrying amount of its callable bonds is

$1,785,000.
($1,750,000 + $35,000)

Req. 2
 Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
Ma 3 1,750,00
Bonds payable
y 1 0
Loss on retirement of bonds
17,500
payable
($1,802,500 - $1,750,000 -
$35,000)
Premium on bonds payable 35,000
1,802,50
Cash ($1,750,000 x 1.03)
0
 (15-20 min.) E 11B-3

Req. 1

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2017
Oct 1 Interest expense 16,500
Discount on bonds payable
(*$40,000 x 1/8 yrs x 6/12) 2,500
Cash ($400,000 x 7% x
14,000
6/12)

2017
400,00
Oct 1 Bonds payable
0
Loss on retirement of bonds payable 3,000
388,00
Cash ($400,000 x .97)
0
Discount on bonds payable
[$40,000 – ($2,500 x 10 interest
15,000
payments)]

*$400,000 – ($400,000 x .90) = $40,000 (discount)

 (15-20 min.) E 11B-4

Req. 1

$300,000 x .96 = $288,000

Maturity value = 300,000
Discount on bonds payable = ($12,000)

$12,000 x 1/15 yrs = $800 x 3 yrs=$2,400 discount

amortized
Bond issue price= 288,000
Carrying amount = $290,400

The carrying amount of the bonds payable at July 31,

2015 is $290,400.

Req. 2

Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT
2015
300,00
Jul 31 Bonds payable
0
Loss on retirement of bonds
12,600
payable
($303,000 + $9,600 - $300,000)
303,00
Cash ($300,000 x 1.01)
0
Discount on bonds payable 9,600
($12,000 – $2,400)
 (10-15 min.) E 11B-5

Req. 1
Journal Entry
POST.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT

125,00
Oct 1 Bonds payable
0
Gain on retirement of bonds
1,250
payable
($116,250 + $7,500 -
$125,000)
Cash ($250,000 x .93 x 116,25
1/2) 0
Discount on bonds
7,500
payable ($15,000 x ½)

Req. 2
Journal Entry
POST
.
DATE ACCOUNTS AND EXPLANATIONS REF. DEBIT CREDIT

125,00
Oct 1 Bonds Payable
0
Loss on retirement of bonds
8,750
payable
($126,250 + $7,500 - $125,000)
Cash ($250,000 x 1.01 x 126,25
1/2) 0
Discount on bonds
7,500
payable ($15,000 x ½)
 Comprehensive Problem, Chapters
7- 11

Req. 1

*Gold Rush Resorts net income

as originally reported $500,00
0
Revisions:
Additional uncollectible account expense (2,000)
Additional cost of goods sold due to LIFO (7,000)
Additional depreciation expense for the:
Buildings—DDB ($1,200,000 × 2/30 ) $
(80,000)
SL (as originally reported) 20,000
Excess of DDB depreciation over SL (60,000)
depreciation
Furniture and fixtures—DDB ($750,000 $(150,00
× 2/10) 0)
SL (as originally reported) 75,000
Excess of DDB depreciation over SL
(75,000)
depreciation
Gold Rush Resorts net income, as revised $356,00
0

Req. 2

Before the conversion, Gold Rush Resorts had higher

net income. After converting the income statement
amounts, however, Mountain Hideaway has higher net
income. Based on the net income comparison,
Mountain Hideaway looks like the better business.