Intermediate Accounting

Intermediate Accounting: week 3 Assignment

Student Name: Nidal Charafeddine
Professor: Sheila Woods
Devry University
July-2016

Accounting Intermediate

P14-5
1. Sanford Co.
Schedule of Bond Discount Amortization
Effective-Interest Method
10% Bonds Sold to Yield 12%
Cash Paid

Interest
Expense

Date
3/1/14
9/1/14
$25,000
3/1/15
25,000
9/1/15
25,000
3/1/16
25,000
9/1/16
25,000
3/1/17
25,000
9/1/17
25,000
Cash paid=($500,000 X 10% X 1/2)
3/1/14

$28,325
28,525
28,736
28,961
29,198
29,450
29,715
Rounded $2

Cash
Discount on Bonds Payable
Bonds Payable

Maturity value of bonds payable

Present value of $500,000 due in 7 periods at 6%
($500,000 X .66506)
Present value of interest payable semiannually

Discount
Amortized

Carrying
Amount of
Bonds

$3,325
3,525
3,736
3,961
4,198
4,450
4,715

$472,090
475,415
478,940
482,676
486,637
490,835
495,285
500,000

472,090
27,910
500,000
$500,000
$332,530
139,560

Proceeds from sale of bonds

Discount on bonds payable
9/1/14

Interest Expense
Discount on Bonds Payable

(472,090)
$ 27,910
28,325
3,325

Accounting Intermediate

Cash

12/31/14

3/1/15

9/1/15

12/31/15

25,000

Interest Expense
Discount on Bonds Payable
Interest Payable

19,017

Interest Expense
Interest Payable
Discount on Bonds Payable
Cash

9,508
16,667

Interest Expense
Discount on Bonds Payable
Cash

28,736

Interest Expense
Discount on Bonds Payable
Interest Payable

19,308

2,350
16,667

1,175
25,000

3,736
25,000

2,641
16,667

2. Titania Co.

Cash Paid
Date
6/1/14
12/1/14
6/1/15
12/1/15
6/1/16
12/1/16
6/1/17
12/1/17
6/1/18

$24,000
24,000
24,000
24,000
24,000
24,000
24,000
24,000

Interest
Expense
$21,293
21,157
21,015
20,866
20,709
20,545
20,372
20,190

Premium
Amortized

Carrying
Amount of
Bonds

$2,707
2,843
2,985
3,134
3,291
3,455
3,628
3,810

$425,853
423,146
420,303
417,318
414,184
410,893
407,438
403,810
400,000

Accounting Intermediate

Cash paid=($400,000 X 12% X 1/2)

6/1/14

$.50 adjustment due to rounding.

Cash

425,853
Premium on Bonds Payable
Bonds Payable

Maturity value of bonds payable

Present value of $400,000 due in 8 periods at 5%
($400,000 X .67684)
Present value of interest payable semiannually
($24,000 X 6.46321)
Proceeds from sale of bonds
Premium on bonds payable
12/1/14

12/31/14

6/1/15

10/1/15

25,853
400,000
$400,000
$270,736
155,117
(425,853)
$ 25,853

Interest Expense
Premium on Bonds Payable
Cash

21,293
2,707

Interest Expense
Premium on Bonds Payable
($2,843 X 1/6)
Interest Payable ($24,000 X 1/6)

3,526

Interest Expense ($21,157 X 5/6)

Interest Payable
Premium on Bonds Payable
($2,843 X 5/6)
Cash
Interest Expense
($21,015 X .3* X 4/6)
Premium on Bonds Payable
($2,985 X .3 X 4/6)
Cash
*$120,000 $400,000 = .3

24,000

474
4,000

17,631
4,000
2,369
24,000

4,203
597
4,800

Accounting Intermediate

10/1/15

Bonds Payable
Premium on Bonds Payable
Gain on Redemption of Bonds
Cash

Reacquisition price
$126,000 ($120,000 X 12% X 4/12)
Net carrying amount of bonds redeemed:
Par value
Unamortized premium
[.3 X ($25,853 $2,707 $2,843)] $597
Gain on redemption
12/1/15

12/31/15

6/1/16

12/1/16

120,000
5,494
4,294
121,200

$121,200
$120,000
5,494

Interest Expense
Premium on Bonds Payable
Cash

14,711
2,089

Interest Expense
Premium on Bonds Payable
Interest Payable

2,434
366

Interest Expense
Interest Payable
Premium on Bonds Payable
Cash

12,172
2,800
1,828

Interest Expense
Premium on Bonds Payable
Cash

14,496
2,304

(125,494)
$ (4,294)

16,800

2,800

16,800

16,800

Accounting Intermediate

P14-6
May 1, 2014
Cash
($900,000 X 106%) + ($900,000 X 12% X 4/12)
Bonds Payable
Premium on Bonds Payable
Interest Expense ($900,000 X 12% X 4/12)

990,000.00
900,000.00
54,000.00
36,000.00

December 31, 2014

Interest Expense ($900,000 X 12%)
Interest Payable

108,000.00
108,000.00

Premium on Bonds Payable

Interest Expense
($54,000 X 8/116 = $3,724.14)

3,724.14
3,724.14

January 1, 2015
Interest Payable
Cash

108,000.00
108,000.00
April 1, 2015

Bonds Payable
Premium on Bonds Payable
Interest Expense ($360,000 X .12 X 3/12)
Cash ($367,200 + $10,800)
Gain on Redemption of Bonds

Reacquisition price (including accrued interest)

($360,000 X 102%) + ($360,000 X 12% X 3/12)
Net carrying value of bonds redeemed:
Par value
Unamortized premium
[$54,000 X ($360,000 $900,000) X 105/116]
Accrued interest ($360,000 X 12% X 3/12)

360,000.00
19,551.72
10,800.00
378,000.00
12,351.72

$378,000.00
$360,000.00
19,551.72

(379,551.72)
(10,800.00)

Accounting Intermediate

Gain on redemption of bonds

$ (12,351.72)
December 31, 2015

Interest Expense ($540,000 X .12)

Interest Payable
Premium on Bonds Payable
Interest Expense
Amortization per year on $540,000
($54,000 X 12/116 X .60)
Amortization on $360,000 for 3 months
($54,000 X 3/116 X .40)
Total premium amortization

64,800.00
64,800.00
3,910.34
3,910.34

$3,351.72
558.62
$3,910.34

Accounting Intermediate

P14-7
(a)

(b)

(c)

(d)

4/1/14

10/1/14

12/31/14

3/1/15

Cash (15,000 X $1,000 X 97%)

Discount on Bonds Payable
Bonds Payable

14,550,000
450,000
15,000,000

Interest Expense
Cash
Discount on Bonds Payable
$15,000,000 X .11 X 6/12 =
$825,000
$450,000 180 months =
$2,500/mo.; $2,500/mo.
X 6 months = $15,000

840,000

Interest Expense
Interest Payable
($825,000 X 3/6)
Discount on Bonds Payable
($2,500 X 3 months)

420,000

Interest Payable
($6,000,000 X 10% X 3/12)
Interest Expense
Cash
Discount on Bonds Payable
Cash paid to retiring
bondholders: $6,000,000
X .11 X 5/12 = $275,000
$2,500/mo. X 2 months X
6
/15 of the bonds = $2,000

At March 1, 2015 the carrying amount of the retired bonds is:

Bonds payable
Less: Unamortized discount
$2,500/mo. X 169 months X 6/15 of the bonds = $169,000

825,000
15,000

412,500
7,500

165,000
112,000
275,000
2,000

$6,000,000
169,000
$5,831,000

Accounting Intermediate

The reacquisition price: 200,000 shares X $31 = $6,200,000.

The loss on redemption of bonds is:
Reacquisition price
Less: Carrying amount
Loss on redemption of bonds
The entry to record extinguishment of the bonds is:
Bonds Payable
Loss on Redemption of Bonds
Discount on Bonds Payable
Common Stock
Paid-in Capital in Excess of Par
Common Stock

$6,200,000
5,831,000
$ 369,000

6,000,000
369,000
169,000
2,000,000
4,200,000