Issue of bond at premium: When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond. Effective interest method: Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease. To determine : 1. Computation of total bond interest expense over the bond’s life. 2. Prepare an amortization table for the bond’s life using effective interest method. 3. Prepare journal entries to record the first two interest payments. 4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

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Answer 1

Question

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

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Answer 2

Question

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

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Answer 3

Question

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

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Answer 4

Question

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

Expert Solution & Answer

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Answer 5

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

Answer 6

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

Answer 7

Chapter 14, Problem 9APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Effective interest method:

Effective interest method aims at computing an accurate interest expense. In case of issue of bonds on premium, the carrying value of the bonds payable inclusive of premium amortized is used to determine the interest expense during a particular period. Hence the interest expense decreases as the carrying value of the bonds decrease.

To determine:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare an amortization table for the bond’s life using effective interest method.

3. Prepare journal entries to record the first two interest payments.

4. Using market rate at issuance, compute the present value of the remaining cash flows for these bonds as of December 31, 2017. Compare your answer with the amount shown on the amortization table as the balance for that date and explain your findings.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ Ch. 14 - Prob. 7DQ Ch. 14 - Prob. 8DQ Ch. 14 - Prob. 9DQ Ch. 14 - Prob. 10DQ

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Chapter 14 Solutions