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Exercise 10-19A on page 571

On January 1, 2016, the Diamond Association issued bonds with aface value of $300,000, a stated rate of interest of 6%, and a10-year term to maturity Interest is payable in cash on December 31of each year. The effective rate of interest was 7% at the time thebonds were issued. The bonds sold for $278,932. Diamond used theeffective interest rate method to amortize the bond discount.

Determine the amount of the discount on the day of issue.

Determine the amount of interest expense recognized on December31, 2016.

Determine the carrying value of the bond liability on December31, 2016.

Provide the general journal entry necessary to record theDecember 31, 2016, interest expense.

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28 Sep 2019

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Exercise 10-4A on page 567

A partial amortization schedule for a10-year note payable issued on January 1, 2016, is shown below.

Acct. Period Principle Jan 1 CashPayment Applied Interest Applied Principle

2016 $200,000 $27, 174 $12,000 $15,174

2017 184,826 27,174 11,090 16,084

2018 168,742 27,174 10,125 17,049

a. Using the financial statement model below, record theappropriate amounts for the following two events:

1.January 1, 2016, issue of note payable

2.December 31, 2016, payment on the note payable.

Exercise 10-5A on page 567

Singer Company has a line of creditwith United Bank. Singer can borrow up to $400,000 at any time toover the course of 2016 calendar year. The following table showsthe prime rate expressed as an annual percentage along with theamounts borrowed and repaid during the first three months of 2016.Singer agreed to pay interest at an annual rate equal to 2% abovethe bank’s prime rate. Funds are borrowed or repaid on the firstday of each month. Interest is payable in cash on the last day ofthe month. The interest rate applied to the outstanding monthlybalance. For example, Singer pays 6.5% (4.5% + 2%) annual intereston $140,000 for the month of February.

Month AmountBorrowed/(Repaid) Prime Rate for the Month

January $80,000 4.0%

February 60,000 4.5

March (20,000) 4.0

Provide all journal entries pertaining to Singer’s line ofcredit for the first three months of 2016.

Exercise 10-25A on page 572

Composite Solutions Company (CSC) hasthe following account balances:

Current Assets $150,000 Current Liabilities $100,000

Noncurrent assets 350,000 Noncurrent Liabilities 250,000

Stockholder’s Equity 150,000

The company wishes to raise $80,000 in cash and is consideringtwo financing options: CSC can sell $80,000 of bonds payable, or itcan issue additional common stock for $80,000. To help the decisionprocess, CSC’s management wants to determine the effects of eachalternative on its current ratio and debt to assets ratio.

Help CSC’s management company by completing the followingchart

Ratio Currently If bonds areissued If stock is issued

Current ratio:

Debt to asset ratio:

Assume that after the funds are invested, EBIT amounts to$60,000. Also assume the company pays $6,000 in dividends or $6,000in interest depending on which source of financing is used. Basedon a 40% tax rate, determine the amount of the increase in retainedearnings that would result under each financing option.

Exercise 10-19A on page 571

On January 1, 2016, the DiamondAssociation issued bonds with a face value of $300,000, a statedrate of interest of 6%, and a 10-year term to maturity Interest ispayable in cash on December 31 of each year. The effective rate ofinterest was 7% at the time the bonds were issued. The bonds soldfor $278,932. Diamond used the effective interest rate method toamortize the bond discount.

Determine the amount of the discount on the day of issue.

Determine the amount of interest expense recognized on December31, 2016.

Determine the carrying value of the bond liability on December31, 2016.

Provide the general journal entry necessary to record theDecember 31, 2016, interest expense.

Exercise 10-20A on page 571

On January 1, 2016, Parker Company issued bonds with a facevalue of $80,000, a stated rate of interest of 8%, and a 5-yearterm to maturity. Interest is payable cash on December 31 of eachyear. The effective rate of interest was 9% at the time the bondswere issued. The bonds sold for $76,888. Parker used the effectiveinterest rate method to amortize the bond discount.

Prepare an amortization table

What items in the table would appear on the 2019 balancesheet?

What items in the table would appear on the 2019 incomestatement?

What items in the table would appear on the 2019 statement ofcash flows?

On April 1, 2015, Hepburn Company issued 8 percent bonds with aface value of $800,000. The bonds were issued at a price to yieldat 10 percent return. The bonds pay semiannual interest on April 1and October 1. The bonds are dated April 1, 2015, and are due infive years. At the time of issuance, Hepburn paid $4,000 for legalcosts and brokerage expenses associated with the bond issuance. Thecompany uses the straight-line method of amortization for issuecosts and the effective interest method of amortization for bondpremium or discount and records amortization on each of thesemiannual interest payment dates. Hepburn Company’s year endsDecember 31. On June 1, 2016, Hepburn retired $200,000 of bonds at103 plus accrued interest.

Required:

Record all entries necessary on October 1, 2015, related to thebonds.

Record all necessary adjusting entries on December 31, 2015.

Determine the amount of gain or loss on the bonds redeemed onJune 1, 2016.

Record the entries necessary for the bond redemption.

Determine the amount of discount on bonds and the amount ofissue costs that should be amortized for the period ended October1, 2016.

PLEASE ANSWER ALL BLANKS

On June 30, 2016, Singleton Computers issued 9% stated ratebonds with a face amount of $200 million. The bonds mature on June30, 2031 (15 years). The market rate of interest for similar bondissues was 8% (4.0% semiannual rate). Interest is paid semiannually(4.5%) on June 30 and December 31, beginning on December 31, 2016.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of$1) (Use appropriate factor(s) from the tablesprovided.)

Required:
1.

Determine the price of the bonds on June 30, 2016.

Tablevalues are based on:
n =
i =
Cash Flow Amount Present Value
Interest
Principal
Price of bonds
2.

Calculate the interest expense Singleton reports in 2016 forthese bonds using the effective interest method.

Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Carrying Value
06/30/2016
12/31/2016 $0 0

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