ADMS 3595 Lecture Notes - Lecture 4: Accrued Interest, Mortgage Note, Ias 39
ADMS 3595 Solutions to Self Practice Questions
1
EXERCISE 14-4
(a)
1/1/17
Cash ($800,000 X 102%) ............................
816,000
Bonds Payable .....................................
816,000
(b)
7/1/17
Interest Expense .........................................
39,780
($816,000 X 9.75% X 1/2)
Bonds Payable ............................................
220
Cash ....................................................
40,000
($800,000 X 10% X 6/12)
(c)
12/31/17
Interest Expense .........................................
39,769
($815,780* X 9.75% X 1/2)
Bonds Payable ............................................
231
Interest Payable ...................................
40,000
*Carrying amount of bonds at July 1, 2017:
Carrying amount of bonds at January 1, 2017
$816,000
Amortization of bond premium
($40,000 – $39,780)
(220)
Carrying amount of bonds at July 1, 2017
$815,780
EXERCISE 14-7
(a) 1) Using tables
Face value of the non-interest-bearing note
$600,000
Discounting factor (12% for 3 periods)
X .71178
Amount to be recorded for the land at January 1, 2017
$427,068
2) Using a financial calculator:
PV
$ ?
Yields $427,068.15
I
12%
N
3
PMT
0
FV
$ (600,000)
Type
0
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ADMS 3595 Solutions to Self Practice Questions
2
3) Using Excel: = PV(rate,nper,pmt,fv,type)
Carrying amount of the note at January 1, 2017
$427,068
Applicable interest rate (12%)
X .12
Interest expense to be reported in 2017
$ 51,248
The assessed value for the land is not as clear a measure of the value of the land compared
to the present value of the future cash flows on the note. The present value represents the
agreed cash flows, discounted at the market rate of interest, whereas the assessed value
has been computed (generally) only for the purpose of municipal taxation. It can be used as
a reasonableness check on the amount arrived for the carrying amount of the non-interest-
bearing note.
(b) 1) Using tables
$4,000,000 X .68301 = $2,732,040
2) Using a financial calculator:
PV
$ ?
Yields $2,732,054
I
10%
N
4
PMT
0
FV
$ (4,000,000)
Type
0
3) Using Excel: = PV(rate,nper,pmt,fv,type) – same as financial calculator
A more accurate result is obtained using excel and a financial calculator compared to using
factors from tables as there are a limited number of decimal places in the tables. This
difference is in most cases immaterial.
Schedule of Discount Amortization
Straight-Line Method
Year
Credit
Interest
Payable
Debit Interest
Expense
Credit Bond
Payable
Carrying Amount
of Bonds
Jan. 1, 2017
$800,000
July 1, 2017
$40,000
$90,000
$50,000
*
850,000
Dec. 31, 2017
40,000
90,000
50,000
900,000
July 1, 2018
40,000
90,000
50,000
950,000
Dec. 31, 2018
40,000
90,000
50,000
1,000,000
*$50,000 = ($1,000,000 – 800,000) / 4 semi-annual periods
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ADMS 3595 Solutions to Self Practice Questions
3
EXERCISE 14-12
Schedule of Discount Amortization
Straight-Line Method
Year
Credit
Interest
Payable
Debit Interest
Expense
Credit Bond
Payable
Carrying Amount
of Bonds
Jan. 1, 2017
$800,000
July 1, 2017
$40,000
$90,000
$50,000
*
850,000
Dec. 31, 2017
40,000
90,000
50,000
900,000
July 1, 2018
40,000
90,000
50,000
950,000
Dec. 31, 2018
40,000
90,000
50,000
1,000,000
*$50,000 = ($1,000,000 – 800,000) / 4 semi-annual periods
EXERCISE 14-13
(a) Using a financial alculator:
PV
$ 2,783,713
I
? %
Yield 12%
N
5
PMT
$ (300,000)
FV
$ (3,000,000)
Type
0
Excel formula: = RATE(nper,pmt,pv,fv,type)
Schedule of Discount Amortization
Effective Interest Method (12%)
Year
Credit
Interest
Payable
Debit
Interest
Expense
Credit Bond
Payable
Carrying Amount
of Bonds
(1)
(2)
(3)
(4)
Jan. 1, 2017
$2,783,713
Dec. 31, 2017
$300,000
$334,046
*
$34,046
2,817,759
Dec. 31, 2018
300,000
338,131
38,131
2,855,890
Dec. 31, 2019
300,000
342,707
42,707
2,898,597
Dec. 31, 2020
300,000
347,832
47,832
2,946,429
Dec. 31, 2021
300,000
353,571
**
53,571
3,000,000.00
*$334,046 = $2,783,713 X .12.
**Rounded.
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Document Summary
Interest expense (,000 x 9. 75% x 1/2) Interest expense (,780* x 9. 75% x 1/2) *carrying amount of bonds at july 1, 2017: Carrying amount of bonds at january 1, 2017. Carrying amount of bonds at july 1, 2017. Amount to be recorded for the land at january 1, 2017. Adms 3595 solutions to self practice questions: using excel: = pv(rate,nper,pmt,fv,type) Carrying amount of the note at january 1, 2017. The assessed value for the land is not as clear a measure of the value of the land compared to the present value of the future cash flows on the note. The present value represents the agreed cash flows, discounted at the market rate of interest, whereas the assessed value has been computed (generally) only for the purpose of municipal taxation. It can be used as a reasonableness check on the amount arrived for the carrying amount of the non-interest- bearing note. (b) 1) using tables.
