Survey Of Accounting
Survey Of Accounting
4th Edition
ISBN: 9780077862374
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 36P

a.

To determine

Identify whether the market rate of interest was more or less than the stated interest rate, when the bonds were issued. Determine the amount received by the Company C, if the bond is sold at face value.

a.

Expert Solution
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Explanation of Solution

Straight-line amortization bond: Straight line method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the same amount of interest expense in each period of interest payment.

When the bonds were issued, the market rate of interest was more than the stated rate of interest. This is because; the bonds are sold at discount.

When the bonds had sold at face value, Company C would have received $200,000.

b.

To determine

Prepare the liabilities section of the balance sheet at December 31, 2014 and 2015.

b.

Expert Solution
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Explanation of Solution

Prepare the liabilities section of the balance sheet at December 31, 2014 and 2015.

Company C
Balance sheet (Partial)
For the Year Ended December 31, 2014 and 2015
Particulars20142015
Liabilities:  
Interest Payable4,0004,000
Bonds Payable200,000200,000
Less: Discount on Bonds Payable (5,375) (4,625)
Carrying Value of Bonds Payable194,625195,375

Table 1

Working Note 1: Calculate the amount of discount on bonds payable for 2014.

Discount on bond payable in 2014} =(Total Discount on bond)(Discount amortizedin2014)=$6,000($6,0008×1012)=$6,000$625=$5,375

Working Note 2: Calculate the amount of discount on bonds payable for 2015.

Discount on bond payablein 2015} =(Discount on bond payable in 2014)(Discount amorized in 2015)=$5,375($6,0008)=$5,375$750=$4,625

c.

To determine

Calculate the amount of interest expense that Company C would report on the income statements for the 2014 and 2015.

c.

Expert Solution
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Explanation of Solution

Calculate the amount of interest expense that Company C would report on the income statements for the 2014.

Interest expense for 2014 = (Interest for 10 months + Amortization of discount for 10 months)=($200,000×6%×1012)+($6,0008×1012)=$10,000+$625=$10,625

Hence, the amount of interest expense that Company C would report on the income statements for 2014 is $10,625.

Calculate the amount of interest expense that Company C would report on the income statements for the 2015:

Interest expense for 2015 = (Interest for 12 months + Amortization of discount for 12 months)=($200,000×6%)+($6,0008)=$12,000+$750=$12,750

Hence, the amount of interest expense that Company C would report on the income statements for 2015 is $12,750.

d.

To determine

Calculate the amount of interest expense that Company C would pay to the bondholders in 2014 and 2015.

d.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of interest expense that Company C would pay to the bondholders in 2014:

Cash interest paid = Face value of bonds× Stated interest rate×Time period=($200,000×6%×612)=$6,000

Hence, the amount of interest expense that Company C would pay to the bondholders in 2014 is $6,000.

Calculate the amount of interest expense that Company C would pay to the bondholders in 2015:

Cash interest paid = Face value of bonds× Stated interest rate×Time period=($200,000×6%×1212)=$12,000

Hence, the amount of interest expense that Company C would pay to the bondholders in 2015 is $12,000.

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Chapter 7 Solutions

Survey Of Accounting

Ch. 7 - 11. Are contingent liabilities recorded on a...Ch. 7 - Prob. 12QCh. 7 - Prob. 13QCh. 7 - Prob. 14QCh. 7 - Prob. 15QCh. 7 - Prob. 16QCh. 7 - 1. What is the difference between classification...Ch. 7 - 2. At the beginning of Year 1, B Co. has a note...Ch. 7 - 3. What is the purpose of a line of credit for a...Ch. 7 - 4. What are the primary sources of debt financing...Ch. 7 - 5. What are some advantages of issuing bonds...Ch. 7 - 6. What are some disadvantages of issuing bonds?Ch. 7 - 7. Why can a company usually issue bonds at a...Ch. 7 - 15. If Roc Co. issued 100,000 of 5 percent,...Ch. 7 - 16. What is the mechanism is used to adjust the...Ch. 7 - 17. When the effective interest rate is higher...Ch. 7 - 18. What type of transaction is the issuance of...Ch. 7 - 19. What factors may cause the effective interest...Ch. 7 - 20. If a bond is selling at 97, how much cash will...Ch. 7 - Prob. 30QCh. 7 - 22. Gay Co. has a balance m the Bonds Payable...Ch. 7 - Prob. 32QCh. 7 - Prob. 33QCh. 7 - Prob. 1ECh. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - Prob. 7ECh. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - Prob. 20ECh. 7 - Prob. 21ECh. 7 - Prob. 22ECh. 7 - Prob. 23ECh. 7 - Prob. 24ECh. 7 - Prob. 25ECh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 1ATCCh. 7 - Prob. 4ATCCh. 7 - Prob. 5ATC
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