Bonds · PDF fileBonds payable 1,895,873 12/31/2013 Interest expense 151,670 Bonds payable...

Professor Authored Problem Solutions

Intermediate Accounting 2

Bonds

Solution to Problem 39Bonds issued at a discount

There are two ways to organize a bond amortization table for a regular issue of bonds. The first is the

one I use, and has the table end with the maturity value of the bond. The second includes a final period

principal payment and the table ends with a balance of zero. I’ll show both here.

Maturity val 2,000,000

Yield/Eff Rate 8%

Coupon rate 7 %

Years 7Pmts / year 1

Total pmts 7

Total cash Pmt 140,000

type end=0 0

Proceeds 1,895,873

Date Cash pmt Int Exp Amort BP Bal

Jan 1, 2013 1,895,873

Dec 31, 2013 140,000 151,670 11,670 1,907,543

Dec 31, 2014 140,000 152,603 12,603 1,920,146

Dec 31, 2015 140,000 153,612 13,612 1,933,758

Dec 31, 2016 140,000 154,701 14,701 1,948,459

Dec 31, 2017 140,000 155,877 15,877 1,964,336

Dec 31, 2018 140,000 157,147 17,147 1,981,483

Dec 31, 2019 140,000 158,517 18,517 2,000,000

332© 2014 by W. David Albrecht. .

Maturity val 2,000,000

Yield/Eff Rate 8%

Coupon Rate 7%

Years 7Pmts / year 1

Total pmts 7

Total cash Pmt 140,000

type end=0 0

Proceds 1,895,873

Cash pmt Cash pmt Cash pmt

Date P I Total Int Exp Amort BP Bal

Jan 1, 2013 1,895,873

Dec 31, 2013 140,000 140,000 151,670 11,670 1,907,543

Dec 31, 2014 140,000 140,000 152,603 12,603 1,920,146

Dec 31, 2015 140,000 140,000 153,612 13,612 1,933,758

Dec 31, 2016 140,000 140,000 154,701 14,701 1,948,459

Dec 31, 2017 140,000 140,000 155,877 15,877 1,964,336

Dec 31, 2018 140,000 140,000 157,147 17,147 1,981,483

Dec 31, 2019 2,000,000 140,000 2,140,000 158,517 1,981,483 0

1/1/2013 Cash 1,895,873

Bonds payable 1,895,873

12/31/2013 Interest expense 151,670

Bonds payable 11,670

Cash 140,000



Cash 140,000

FinStmt

Date CL LTL OpInc Non-OpInc OA IA FA

Dec 31, 2013 129,630 1,777,913 0 (151,670) (140,000) 0 1,895,873

Dec 31, 2014 129,630 1,790,516 0 (152,603) (140,000) 0 0

Dec 31, 2015 129,630 1,804,128 0 (153,612) (140,000) 0 0

Dec 31, 2016 129,630 1,818,829 0 (154,701) (140,000) 0 0

Dec 31, 2017 129,630 1,834,706 0 (155,877) (140,000) 0 0

Dec 31, 2018 1,981,483 0 0 (157,147) (140,000) 0 0

Dec 31, 2019 0 0 0 (158,517) (140,000) 0 (2,000,000)


There are two ways to extend this problem. First, I extend it by by showing what would happen if 15%

of the proceeds were used to pay for the investment banker. In this case the proceeds would be

1,611,492 (85% of 1,895,873). Then using a PV of -1,611,492, a future value of 2,000,000, a payment

of 140,000 and N of 7, a new effective interest rate is computed. In this case, the new effective rate is

11.14 %. Because this rate is slightly rounded, there will be rounding error in the table and the final

period expense will need to be adjusted.:

Eff Rate 11.14%

NPer 7

Coupon rate 7%

Pmt 140,000

FV 2,000,000

type 0

PV 1,611,492

Date Cash pmt Int Exp Amort BP Bal

Jan 1, 2013 1,611,492

Dec 31, 2013 140,000 179,520 39,520 1,651,012

Dec 31, 2014 140,000 183,923 43,923 1,694,935

Dec 31, 2015 140,000 188,816 48,816 1,743,751

Dec 31, 2016 140,000 194,254 54,254 1,798,005

Dec 31, 2017 140,000 200,298 60,298 1,858,303

Dec 31, 2018 140,000 207,015 67,015 1,925,318

Dec 31, 2019 140,000 214,682 74,682 2,000,000

All financial statement amounts are based on 11.14%:

FinStmt


Dec 31, 2013 125,967 1,525,045 0 (179,520) (140,000) 0 1,611,492

Dec 31, 2014 125,967 1,568,968 0 (183,923) (140,000) 0 0

Dec 31, 2015 125,967 1,617,784 0 (188,816) (140,000) 0 0

Dec 31, 2016 125,967 1,672,038 0 (194,254) (140,000) 0 0

Dec 31, 2017 125,967 1,732,336 0 (200,298) (140,000) 0 0

Dec 31, 2018 1,925,318 0 0 (207,015) (140,000) 0 0

Dec 31, 2019 0 0 0 (214,682) (140,000) 0 (2,000,000)


The second way I adjust the problem was to defer the bond year and issue date until April 1, 2005, so

that the bond year does not coincide with the fiscal year. The amortization table, with dates adjusted,

is:

Eff Rate 8%

NPer 7

Coupon rate 7%

Pmt 140,000

FV 2,000,000

type 0 0=end

PV 1,895,873



Apr 1, 2013 1,895,873

Mar 31, 2014 140,000 140,000 151,670 11,670 1,907,543

Mar 31, 2015 140,000 140,000 152,603 12,603 1,920,146

Mar 31, 2016 140,000 140,000 153,612 13,612 1,933,758

Mar 31, 2017 140,000 140,000 154,701 14,701 1,948,459

Mar 31, 2018 140,000 140,000 155,877 15,877 1,964,336

Mar 31, 2019 140,000 140,000 157,147 17,147 1,981,483

Mar 31, 2020 2,000,000 140,000 2,140,000 158,517 1,981,483 0

FinStmt


Dec 31, 2013 137,407 1,872,218 0 (113,753) 0 0 1,895,873

Dec 31, 2014 137,407 1,884,589 0 (152,370) (140,000) 0 0

Dec 31, 2015 137,407 1,897,948 0 (153,360) (140,000) 0 0

Dec 31, 2016 137,407 1,912,376 0 (154,429) (140,000) 0 0

Dec 31, 2017 137,407 1,927,960 0 (155,583) (140,000) 0 0

Dec 31, 2018 137,407 1,944,789 0 (156,830) (140,000) 0 0

Dec 31, 2019 2,100,370 0 0 (158,175) (140,000) 0 0

Dec 31, 2020 0 0 0 (39,629) (140,000) 0 (2,000,000)

To get the 2013 current liability amount, take the 2014 interest payment, present value it 12 months to

April 1, 2013, then grow it at 8% for 9/12 of a year. To get the Long-term liability amount, grow the

April 1, 2013 total liability amount and grow it at 8% for 9/12, then subtract out the current liability

amount.

2013 interest expense is 9/12 of the first bond year interest expense. 2014 interest expense is 3/12 of the

first year of bond interest expense and 9/12 of the second year.


Solution to Problem 40Bonds issued at a premium

Maturity value 2,000,000

Yield/Eff Rate 6%

Coupon rate 7%

NPer 7

Pmts per year 1

Total # pmts 7

Total Cash Pmt 140,000

FV 2,000,000

type 0

Proceeds 2,111,648



Jan 1, 2013 2,111,648

Dec 31, 2013 140,000 140,000 126,699 (13,301) 2,098,347

Dec 31, 2014 140,000 140,000 125,901 (14,099) 2,084,248

Dec 31, 2015 140,000 140,000 125,055 (14,945) 2,069,303

Dec 31, 2016 140,000 140,000 124,158 (15,842) 2,053,461

Dec 31, 2017 140,000 140,000 123,208 (16,792) 2,036,669

Dec 31, 2018 140,000 140,000 122,200 (17,800) 2,018,869

Dec 31, 2019 2,000,000 140,000 2,140,000 121,131 (2,018,869) 0

1/1/2013 Cash 2,111,648




Cash 140,000



Cash 140,000

FinStmt


Dec 31, 2013 132,075 1,966,272 0 (126,699) (140,000) 0 2,111,648

Dec 31, 2014 132,075 1,952,173 0 (125,901) (140,000) 0 0

Dec 31, 2015 132,075 1,937,228 0 (125,055) (140,000) 0 0

Dec 31, 2016 132,075 1,921,386 0 (124,158) (140,000) 0 0

Dec 31, 2017 132,075 1,904,594 0 (123,208) (140,000) 0 0

Dec 31, 2018 2,018,868 0 0 (122,200) (140,000) 0 0

Dec 31, 2019 0 0 0 (121,131) (140,000) 0 (2,000,000)


Solution to Problem 41Bonds issued at a discount

On January 1, 2013, the Bronson Company issued $4,000,000 maturity value of 6% coupon bonds.

The bonds have a maturity date of December 31, 2021. The bonds pay interest each December 31, and

were sold to yield 7.5%. Bronson’s fiscal year ends on December 31.

Prepare a bond amortization table.

Bond proceeds (PV) 3,617,267

Maturity value (FV) 4,000,000

Years 9

Periods / year 1

Total periods (N) 9

Yield rate (I) 7.50%

Coupon rate 6.00%Payment (FV*coup rate) 240,000

Date Cash pmt Interest Amort. Balance

01/01/13 3,617,267

12/31/13 240,000 271,295 31,295 3,648,562

12/31/14 240,000 273,642 33,642 3,682,204

12/31/15 240,000 276,165 36,165 3,718,369

12/31/16 240,000 278,878 38,878 3,757,247

12/31/17 240,000 281,794 41,794 3,799,041

12/31/18 240,000 284,928 44,928 3,843,969

12/31/19 240,000 288,298 48,298 3,892,267

12/31/20 240,000 291,920 51,920 3,944,187

12/31/21 240,000 295,813 55,813 4,000,000

Prepare all journal entries for 2013 and 2014.

1/1/2013 Cash 3,617,267




Cash 240,000



Cash 240,000


How will the bonds will be reported on the financial statements for the years ended December 31,

2013, and December 31, 2014.

Total Current L-T Op Non-op

Date Liab Liab Liab Income Income OA IA FA

12/31/13 3,648,562 223,256 3,425,306 0 (271,295) (240,000) 0 3,617,267

12/31/14 3,682,204 223,256 3,458,948 0 (273,642) (240,000) 0 0

12/31/15 3,718,369 223,256 3,495,113 0 (276,165) (240,000) 0 0

12/31/16 3,757,247 223,256 3,533,991 0 (278,878) (240,000) 0 0

12/31/17 3,799,041 223,256 3,575,785 0 (281,794) (240,000) 0 0

12/31/18 3,843,969 223,256 3,620,713 0 (284,928) (240,000) 0 0

12/31/19 3,892,267 223,256 3,669,011 0 (288,298) (240,000) 0 0

12/31/20 3,944,187 3,944,187 0 0 (291,920) (240,000) 0 0

12/31/21 0 0 0 0 (295,813) (240,000) 0 (4,000,000)


Solution to Problem 42Bonds issued at a premium

On January 1, 2013, the Conrad Company issued $5,000,000 of 8% coupon bonds. The bonds have a

maturity date of December 31, 2021. The bonds pay interest each December 31, and were sold to yield

5.5%. Conrad’s fiscal year ends on December 31.


Bond proceeds (PV) 5,869,024

Maturity value (FV) 5,000,000

Years 9

Periods / year 1

Total periods (N) 9

Yield rate (I) 5.50%

Coupon rate 8.00%

Payment (FV*coup rate) 400,000


01/01/13 5,869,024

12/31/13 400,000 322,796 (77,204) 5,791,820

12/31/14 400,000 318,550 (81,450) 5,710,370

12/31/15 400,000 314,070 (85,930) 5,624,440

12/31/16 400,000 309,344 (90,656) 5,533,784

12/31/17 400,000 304,358 (95,642) 5,438,142

12/31/18 400,000 299,098 (100,902) 5,337,240

12/31/19 400,000 293,548 (106,452) 5,230,788

12/31/20 400,000 287,693 (112,307) 5,118,481

12/31/21 400,000 281,519 (118,481) 5,000,000

Prepare all journal entries for 2013 and 2014.

1/1/2013 Cash 5,869,024




Cash 400,000



Cash 400,000


How will the bonds will be reported on the financial statements for the years ended

December 31, 2013, and December 31, 2014.



12/31/13 5,791,820 379,147 5,412,673 0 (322,796) (400,000) 0 5,869,024

12/31/14 5,710,370 379,147 5,331,223 0 (318,550) (400,000) 0 0

12/31/15 5,624,440 379,147 5,245,293 0 (314,070) (400,000) 0 0

12/31/16 5,533,784 379,147 5,154,637 0 (309,344) (400,000) 0 0

12/31/17 5,438,142 379,147 5,058,995 0 (304,358) (400,000) 0 0

12/31/18 5,337,240 379,147 4,958,093 0 (299,098) (400,000) 0 0

12/31/19 5,230,788 379,147 4,851,641 0 (293,548) (400,000) 0 0

12/31/20 5,118,481 5,118,481 0 0 (287,693) (400,000) 0 0

12/31/21 0 0 0 0 (281,519) (400,000) 0 (5,000,000)


Solution to Problem 43Serial Bonds

On January 2, 2013, Bertke Inc., issued serial bonds with a total maturity value of $80,000, and a

coupon rate of 9%. Interest is payable annually on December 31, and the bonds are issued to yield

12%. They mature as follows:

December 31, 2015 20,000

December 31, 2016 20,000

December 31, 2017 20,000

December 31, 2018 20,000

Calculate the proceeds of the bond issue.

PV ? = 18,559 ? = 18,178 ? = 17,837 ? = 17,533

FV 20,000 20,000 20,000 20,000

N 3 4 5 6

I 12 12 12 12

PMT 1,800 (20,000*.09) 1,800 (20,000*.09) 1,800 (20,000*.09) 1,800 (20,000*.09)

TYPE end end end end

Proceeds = 18,559 + 18,178 + 17,837 + 17,533 = 72,107


Eff Rate 12%

NPer

Coupon rate 9%

Pmt

Maturity value 80,000

type 0

PV 72,107


Date P I Total Int Exp Amort BP BalJan 2, 2013 72,107

Dec 31, 2013 7,200 7,200 8,653 1,453 73,560

Dec 31, 2014 7,200 7,200 8,827 1,627 75,187

Dec 31, 2015 20,000 7,200 27,200 9,022 (18,178) 57,009

Dec 31, 2016 20,000 5,400 25,400 6,841 (18,559) 38,450

Dec 31, 2017 20,000 3,600 23,600 4,614 (18,986) 19,464

Dec 31, 2018 20,000 1,800 21,800 2,336 (19,464) 0


Prepare all journal entries for the period of time from 2013 to 2018.

1/2/2013 Cash 72,107



Bonds payable 1,453

Cash 7,200


Bonds payable 1,627

Cash 7,200


Bonds payable 1,822

Cash 7,200

12/31/2015 Bonds payable 20,000

Cash 20,000


Bonds payable 1,422

Cash 5,400

12/31/2016 Bonds payable 20,000

Cash 20,000


Bonds payable 1,014

Cash 3,600

12/31/2017 Bonds payable 20,000

Cash 20,000


Bonds payable 536

Cash 1,800

12/31/2018 Bonds payable 20,000

Cash 20,000

How will the bonds will be reported on the financial statements for each year of the bond issue.

FincStmt Date Tot Liab CLiab LT Liab Op Inc Non Op Inc OA IA FA

Dec 31, 2013 73,560 6,429 67,131 0 (8,653) (7,200) 0 72,107

Dec 31, 2014 75,187 24,286 50,901 0 (8,827) (7,200) 0

Dec 31, 2015 57,009 22,679 34,330 0 (9,022) (7,200) 0 (20,000)

Dec 31, 2016 38,450 21,071 17,379 0 (6,841) (5,400) 0 (20,000)

Dec 31, 2017 19,464 19,464 0 0 (4,614) (3,600) 0 (20,000)

Dec 31, 2018 0 0 0 0 (2,336) (1,800) 0 (20,000)


Solution to Problem 44Serial Bonds

2. Prepare a bond amortization table.

Eff Rate 5%

Coupon rate 6%

PV 625,902



Jan 2, 2013 625,902

Dec 31, 2013 36,000 36,000 31,295 4,705 621,197

Dec 31, 2014 36,000 36,000 31,060 4,940 616,257

Dec 31, 2015 36,000 36,000 30,813 5,187 611,070

Dec 31, 2016 200,000 36,000 236,000 30,554 205,446 405,624

Dec 31, 2017 200,000 24,000 224,000 20,281 203,719 201,905

Dec 31, 2018 200,000 12,000 212,000 10,095 201,905 0

3. Journal entries on next page

4. How the bonds will be reported on the financial statements for each year of the bond issue.

Total Non op

Date Liability CL Lt Liab Op inc Inc OA IA FA

Dec 31, 2013 621,197 34,286 586,911 0 (31,295) (36,000) 0 625,902

Dec 31, 2014 616,257 34,286 581,971 0 (31,060) (36,000) 0 0

Dec 31, 2015 611,070 224,762 386,308 0 (30,813) (36,000) 0 0

Dec 31, 2016 405,624 213,333 192,291 0 (30,554) (36,000) 0 (200,000)

Dec 31, 2017 201,905 201,905 0 0 (20,281) (24,000) 0 (200,000)

Dec 31, 2018 0 0 0 0 (10,095) (12,000) 0 (200,000)


3. Prepare all journal entries for the period of time from 2013 to 2018.

1/2/2013 Cash 625,902



Bonds payable 4,705

Cash 36,000


Bonds payable 4,940

Cash 36,000


Bonds payable 5,187

Cash 36,000


Bonds payable 5,446

Cash 36,000

12/31/2016 Bonds payable 200,000

Cash 200,000


Bonds payable 3,719

Cash 24,000

12/31/2017 Bonds payable 200,000

Cash 200,000


Bonds payable 1,905

Cash 12,000

12/31/2018 Bonds payable 200,000

Cash 200,000


Solution to Problem 45Bonds issued with investment banker fee

On January 1, 2013, the Bronson Company issued $1,500,000 of coupon bonds. The six year bonds

have a maturity date of December 31, 2018. The bonds pay 7% interest each December 31, and were

sold to yield 5%. The investment banker remitted 90% of the proceeds to Bronson. In other words, the

investment banker fee is 10% Bronson’s fiscal year ends on December 31.

1. Calculate proceeds paid by investors to the investment banker. Calculate the amount paid

to the company.

2. Calculate the new effective rate for the bonds accounting.

3. Prepare a bond amortization table.

Bond proceeds (PV) 1,652,271 (165,227) 1,487,044<--Corp proceeds

Maturity value (FV) 1,500,000 IB fee 1,500,000

Years 6 6

Periods / year 1 1

Total periods (N) 6 6

Yield rate (I) 5.00% 7.182228%<--new rate

Coupon rate 7.00% 0.07

Payment (FV*coup rate) 105,000 105,000


01/01/13 1,487,044

12/31/13 105,000 106,803 1,803 1,488,847

12/31/14 105,000 106,932 1,932 1,490,779

12/31/15 105,000 107,071 2,071 1,492,850

12/31/16 105,000 107,220 2,220 1,495,070

12/31/17 105,000 107,379 2,379 1,497,449

12/31/18 105,000 107,551 2,551 1,500,000

4. Prepare all journal entries for 2013 and 2014.

1/1/2013 Cash 1,487,044



Bonds payable 1,803

Cash 105,000


Bonds payable 1,932

Cash 105,000


5. How will the bonds will be reported on the financial statements for the years ended December 31,

2013, and December 31, 2014.



12/31/13 1,488,847 97,964 1,390,883 0 (106,803) (105,000) 0 1,487,044

12/31/14 1,490,779 97,964 1,392,815 0 (106,932) (105,000) 0 0

12/31/15 1,492,850 97,964 1,394,886 0 (107,071) (105,000) 0 0

12/31/16 1,495,070 97,964 1,397,106 0 (107,220) (105,000) 0 0

12/31/17 1,497,449 1,497,449 0 0 (107,379) (105,000) 0 0

12/31/18 0 0 0 0 (107,551) (105,000) 0 (1,500,000)


Solution to Problem 46Bonds issued with investment banker fee.

1, 2, 3Bond proceeds (PV) 12,646,715 1,770,540 10,876,175<--Corp proceeds


Years 7 7

Periods / year 1 1



Coupon rate 8.000000% 8.000000%

Payment (FV*coup rate) 960,000 960,000


01/01/13 10,876,175

12/31/13 960,000 1,078,754 118,754 10,994,929

12/31/14 960,000 1,090,533 130,533 11,125,462

12/31/15 960,000 1,103,480 143,480 11,268,942

12/31/16 960,000 1,117,711 157,711 11,426,653

12/31/17 960,000 1,133,353 173,353 11,600,006

12/31/18 960,000 1,150,547 190,547 11,790,553

12/31/19 960,000 1,169,447 209,447 12,000,000

4. Prepare all journal entries for 2013 and 2014.

1/1/2013 Cash 10,876,175


12/31/2013 Interest expense 1,078,754


Cash 960,000

12/31/2014 Interest expense 1,090,533


Cash 960,000

5.Total Non op

Liability CL Lt Liab Op inc Non op Inc OA IA FA

10,994,929 873,374 10,121,555 0 (1,078,754) (960,000) 0 10,876,175

11,125,462 873,374 10,252,088 0 (1,090,533) (960,000) 0 0

11,268,942 873,374 10,395,568 0 (1,103,480) (960,000) 0 0

11,426,653 873,374 10,553,279 0 (1,117,711) (960,000) 0 0

11,600,006 873,374 10,726,632 0 (1,133,353) (960,000) 0 0

11,790,553 11,790,553 0 0 (1,150,547) (960,000) 0 0

0 0 0 0 (1,169,447) (960,000) 0 (12,000,000)


Solution to Problem 47Bond issued at discount, bond year ………… fiscal year.

Eff Rate 12%

NPer 6

Coupon rate 8%

Pmt 24,000

FV 300,000

type 0

PV 250,663



June 1, 2012 250,663

May 31, 2013 24,000 24,000 30,080 6,080 256,743

May 31, 2014 24,000 24,000 30,809 6,809 263,552May 31, 2015 24,000 24,000 31,626 7,626 271,178

May 31, 2016 24,000 24,000 32,541 8,541 279,719

May 31, 2017 24,000 24,000 33,566 9,566 289,285

May 31, 2018 300,000 24,000 324,000 34,715 (289,285) 0

6/1/2012 Cash 250,663



Bonds payable 3,547

Interest payable 14,000

5/31/2013 Interest payable 14,000

Interest expense 12,533

Bonds payable 2,533

Cash 24,000


Bonds payable 3,972




Bonds payable 2,837

Cash 24,000


To get the numbers for the balance sheet, grow the May 31 balance by 7/12 of the effective rate. This

works because the May 31 balance is the present value of future cash flows. By growing it at 7/12 of

the effective rate, you are moving the present value to where it needs to be for balance sheet

purposes–December 31. The current liability balance is simply the present value the next coupon

payment present valued into the current year on May 31, then grown at 7/12 of the effective rate to

move it to December 31.

7/12 of the first year bond interest goes into 2012, 5/12 goes into 2013. 7/12 of the second year bond

interest goes into 2013, 5/12 goes into 2014

Of course, the numbers for the cash flows statements are simply the sum of any cash flows during the

current year.

FinStmt

BP Bal Date Total liab CL LTL OpInc Non-OpInc Cash Flows OA FA

250,663 Dec 31, 2012 268,210 22,929 245,281 0 (17,547) year 2004 250,663

256,743 Dec 31, 2013 274,715 22,929 251,786 0 (30,505) year 2005 (24,000) 0

263,552 Dec 31, 2014 282,000 22,929 259,071 0 (31,286) year 2006 (24,000) 0

271,178 Dec 31, 2015 290,160 22,929 267,231 0 (32,160) year 2007 (24,000) 0

279,719 Dec 31, 2016 299,300 22,929 276,371 0 (33,139) year 2008 (24,000) 0

289,285 Dec 31, 2017 309,536 309,536 0 0 (34,236) year 2009 (24,000) 0

0 Dec 31, 2018 0 0 0 0 (14,465) year 2010 (24,000) (300,000)


Solution to Problem 48Bond issued at discount, bond year ………… fiscal year.

Eff Rate 8%

Years 5

Coupon rate 7%

Pmts per year 2

Pmt 70,000

FV 2,000,000

type 0 0=end

PV 1,918,891



Oct 1, 2012 1,918,891

Apr 1, 2013 70,000 70,000 76,756 6,756 1,925,647

Oct 1, 2013 70,000 70,000 77,026 7,026 1,932,673

Apr 1, 2014 70,000 70,000 77,307 7,307 1,939,980

Oct 1, 2014 70,000 70,000 77,599 7,599 1,947,579

Apr 1, 2015 70,000 70,000 77,903 7,903 1,955,482

Oct 1, 2015 70,000 70,000 78,219 8,219 1,963,701

Apr 1, 2016 70,000 70,000 78,548 8,548 1,972,249

Oct 1, 2016 70,000 70,000 78,890 8,890 1,981,139

Apr 1, 2017 70,000 70,000 79,246 9,246 1,990,385

Oct 1, 2017 2,000,000 70,000 2,070,000 79,615 (1,990,385) 0

10/1/2012 Cash 1,918,891



Bonds payable 3,378




Bonds payable 3,378

Cash 70,000


Bonds payable 7,026

Cash 70,000


Bonds payable 3,654



The numbers reported on the financial statements go as follows. To get the total amount of liability to

be shown on the 12/31 balance sheet, take the October 1 amount and grow it at 3/12 of a year at 8%

effective rate. To get the current liability, take the cash payments to be made during the next fiscal year

(there are two because of semi-annual compounding) and then present value these back to October 1 at

8% effective rate. Then, grow these for 3/12 of a year at 8% effective rate. The long-term liability

amount is the difference between total liability and current liability.

The numbers from the cash flow statement are straight forward. The cash interest payments go in

operating activities. When issuing the bonds or paying off the bonds, the amouts go in financing

activities.

The numbers for the income statement are the sum of all interest expense entries for the year. Interest

expense does not go in operating income, but in “other”.

BP Bal FinStmt date Total Liab CL LTL OpInc Non-OpInc OA FA

1,918,891 Dec 31, 2012 1,957,269 134,667 1,822,602 0 (38,378) 1,918,891

1,925,647

1,932,673 Dec 31, 2013 1,971,326 134,667 1,836,659 0 (154,058) (140,000) 0

1,939,980

1,947,579 Dec 31, 2014 1,986,531 134,667 1,851,864 0 (155,204) (140,000) 0

1,955,482

1,963,701 Dec 31, 2015 2,002,975 134,667 1,868,308 0 (156,445) (140,000) 0

1,972,249

1,981,139 Dec 31, 2016 2,020,762 2,020,762 0 0 (157,787) (140,000) 0

1,990,385

0 Dec 31, 2017 0 0 0 0 (119,238) (140,000) (2,000,000)


Solution to Problem 49Bonds issued with investment banker fee, bond year ………… fiscal year

Bond proceeds (PV) 10,410,020 1,041,002 9,369,018<--Corp proceeds


Years 5 5

Periods / year 1 1



Coupon rate 8.000000% 8.000000%

Payment (FV*coup rate) 800,000 800000

Bond Pay

Date Cash pmt Interest Amort. Balance04/01/13 9,369,018

04/01/14 800,000 904,077 104,077 9,473,095

01/04/15 800,000 914,120 114,120 9,587,215

04/01/16 800,000 925,132 125,132 9,712,347

04/01/17 800,000 937,207 137,207 9,849,554

04/01/18 800,000 950,446 150,446 10,000,000

4/1/2013 Cash 9,369,018








Cash 800,000








Bond Pay Finc Stmt Total Non op

Balance Date Liability CL Lt Liab Op inc Inc OA IA FA

9,369,018 12/31/13 10,047,076 782,399 9,264,677 0 (678,058) 0 0 9,369,018

9,473,095 12/31/14 10,158,685 782,399 9,376,286 0 (911,609) (800,000) 0 0

9,587,215 12/31/15 10,281,064 782,399 9,498,665 0 (922,379) (800,000) 0 0

9,712,347 12/31/16 10,415,252 782,399 9,632,853 0 (934,188) (800,000) 0 0

9,849,554 12/31/17 10,562,389 10,562,389 0 0 (947,136) (800,000) 0 0

10,000,000 12/31/18 0 0 0 0 (237,612) (800,000) 0 (10,000,000)


Bonds · PDF fileBonds payable 1,895,873 12/31/2013 Interest expense 151,670 Bonds payable...

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