Solution

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Problem 14-1A Computing bond price and recording issuance L.O. P1, P2, P3
Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and
December 31. The bonds have a $32,000 par value and an annual contract rate of 12%, and they mature
in 10 years.
Required:
Consider each of the following three separate situations. (Use Table B.1, Table B.3)
1. The market rate at the date of issuance is 10%.
(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in
your response.)
(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
2. The market rate at the date of issuance is 12%.
(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in
your response.)
Issue price $ n/r
(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
3. The market rate at the date of issuance is 14%.
(a) Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in
your response.)
Issue price $ n/r
(b) Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places,
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
rev: 03_02_2012
eBook Links (3)
Worksheet Difficulty: Medium
Learning Objec
amortization of

2. Problem 14-1A Computing bond price and recording
issuance L.O. P1, P2, P3
Learning Objective: 14-P1 Prepare entries to record
bond issuance and interestexpense.
Learning Objec
amortization of
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Problem 14-2A Straight-line amortization of bond discount L.O. P1, P2
Heathrow issues $3,000,000 of 6%, 15-year bonds dated January 1, 2011, that pay interest semiannually
on June 30 and December 31. The bonds are issued at a price of $2,592,334.
Required:
1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your
response.)
2(a) For each semiannual period, compute the cash payment. (Do not round your intermediate
calculations. Omit the "$" sign in your response.)
2(b) For each semiannual period, compute the the straight-line discount amortization. (Round your
answer to the nearest dollar amount. Omit the "$" sign in your response.)
Amount of discount amortization $ n/r
2(c) For each semiannual period, compute the bond interest expense. (Round your intermediate
calculations and final answer to the nearest dollar amount. Omit the "$" sign in your
response.)
Bond interest expense $ n/r
3. Determine the total bond interest expense to be recognized over the bonds' life. (Do not round semi-
annual interest rate. Round intermediate calculations to the nearest dollar. Omit the "$" sign in
your response.)
Total bond interest expense $ n/r
4. Prepare the first two years of an amortization table using the straight-line method. (Round your
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
5. Prepare the journal entries to record the first two interest payments. (Round your intermediate
calculations and final answers to the nearest dollar amount. Omit the "$" sign in your
response.)

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Problem 14-3A Straight-line amortization of bond premium L.O. P1, P3
Heathrow issues $1,600,000 of 9%, 15-year bonds dated January 1, 2011, that pay interest semiannually
on June 30 and December 31. The bonds are issued at a price of $1,958,394.
Required:
1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your
response.)
Date General Journal Debit Credit
Jan. 1 n/r n/r
n/r
n/r
2(a) For each semiannual period, compute the cash payment. (Do not round your intermediate
calculations. Omit the "$" sign in your response.)
Cash payment $ n/r
2(b) For each semiannual period, compute the the straight-line premium amortization. (Round your final
answer to the nearest dollar amount. Omit the "$" sign in your response.)
Amount of premium amortized $ n/r
2(c) For each semiannual period, compute the the bond interest expense. (Round your intermediate
calculations and final answer to the nearest dollar amount. Omit the "$" sign in your
response.)
Bond interest expense $ n/r
3. Determine the total bond interest expense to be recognized over the bonds' life. (Do not round your
intermediate calculations. Omit the "$" sign in your response.)
Total bond interest expense $ n/r
4. Prepare the first two years of an amortization table using the straight-line method. (Round your
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
5. Prepare the journal entries to record the first two interest payments. (Round your intermediate
calculations and final answers to the nearest dollar amount. Omit the "$" sign in your
response.)

4. eBook Links (2)
Worksheet Difficulty: Medium
Lea
of b
Problem 14-3A Straight-line amortization ofbond premium
L.O. P1, P3
Learning Objective: 14-P1 Prepare entries to record bond
issuance and interest expense.
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Problem 14-5AB Effective interest amortization of bond premium; computing bond price L.O. P1,
P3
Saturn issues 8.5%, five-year bonds dated January 1, 2011, with a $490,000 par value. The bonds pay
interest on June 30 and December 31 and are issued at a price of $542,250. The annual market rate is
6% on the issue date.
1. Compute the total bond interest expense over the bonds’ life. (Do not round intermediate
calculations. Omit the "$" sign in your response.)
Total bond interest expense $ n/r
2. Prepare an effective interest amortization table for the bonds’ life. (Make sure that the unamortized
premium equals to '0' and the Carrying value equals to face value of the bond in the last
period. Leave no cells blank - be certain to enter "0" wherever required. Bond interest expense
in the last period should be calculated as Cash interest paid (−) Premium amortized. Round
your answers to the nearest dollar amount. Omit the "$" sign in your response.)
Semiannual
Interest
Period-End
(A)
Cash Interest
Paid
(B)
Bond Interest
Expense
(C)
Premium
Amortization
(D)
Unamortized
Premium
(E)
Carryin
Value
1/01/2011 $ n/r $
6/30/2011 $ n/r $ n/r $ n/r n/r
12/31/2011 n/r n/r n/r n/r
6/30/2012 n/r n/r n/r n/r
12/31/2012 n/r n/r n/r n/r
6/30/2013 n/r n/r n/r n/r
12/31/2013 n/r n/r n/r n/r
6/30/2014 n/r n/r n/r n/r
12/31/2014 n/r n/r n/r n/r
6/30/2015 n/r n/r n/r n/r
12/31/2015 n/r n/r n/r n/r
Total $ n/r $ n/r $ n/r
3. Prepare the journal entries to record the first two interest payments. (Round your answers to
nearest dollar amount. Omit the "$" sign in your response.)
Date General Journal Debit Credit
June 30, 2011 n/r

5. n/r
n/r n/r
Dec. 31, 2011 n/r
n/r
n/r n/r
4. Use the market rate at issuance to compute the present value of the remaining cash flows for these
bonds as of December 31, 2013. (Use Table B.1, Table B.3) (Round "PV Factors" to 4 decimal places,
intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your
response.)
Present value $ n/r
rev: 08_13_2011
eBook Links (2)
Worksheet Difficulty: Hard
Problem 14-5AB Effective interest amortization ofbond
premium;computing bond price L.O. P1, P3
Learning Objective: 14-P1 Prepare entries to record bond
issuance and interestexpense.
Problem 14-6A Straight-line amortization of bond discount L.O. P1, P2
[The following information applies to the questions displayed below.]
Patton issues $590,000 of 7.5%, four-year bonds dated January 1, 2011, that pay interest semiannually
on June 30 and December 31. They are issued at $542,310 and their market rate is 10% at the issue
date.
Section Break Difficulty: Hard
Problem 14-6A Straight-line amortization ofbond discountL.O. P1,
P2
Learning Objective: 14-P1 Prepare entries to record bond is
and interestexpense.
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Problem 14-6A Part 1
1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your
response.)
Date General Journal Debit Credit
Jan. 1 n/r

6. n/r
n/r n/r
eBook Links (2)
Worksheet Difficulty: Hard
Problem 14-6A Part1
Learning Objective: 14-P1 Prepare entries to record bond iss
and interestexpense.
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Problem 14-6A Part 2
2. Determine the total bond interest expense to be recognized over the bonds’ life. (Do not round
intermediate calculations. Omit the "$" sign in your response.)
Total bond interest expense $ n/r
eBook Links (2)
Worksheet Difficulty: Hard
Problem 14-6A Part2
Learning Objective: 14-P1 Prepare entries to record bond iss
and interestexpense.
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Problem 14-6A Part 3
3. Prepare a straight-line amortization table for the bonds’ first two years. (Round your intermediate
calculations and final answers to the nearest dollar amount. Omit the "$" sign in your
response.)
Semiannual
Interest Period-End
Unamortized
Discount
Carrying
Value
1/01/2011 $ n/r $ n/r
6/30/2011 n/r n/r
12/31/2011 n/r n/r
6/30/2012 n/r n/r
12/31/2012 n/r n/r

7. eBook Links (2)
Worksheet Difficulty: Hard
Problem 14-6A Part3
Learning Objective: 14-P1 Prepare entries to record bond iss
and interestexpense.
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Problem 14-6A Part 4
4. Prepare the journal entries to record the first two interest payments. (Round your intermediate
calculations and final answers to the nearest dollar amount. Omit the "$" sign in your
response.)
Date General Journal Debit Credit
June 30 n/r n/r
n/r
n/r
Dec. 31 n/r n/r
n/r
n/r
eBook Links (2)
Worksheet Difficulty: Hard
Problem 14-6A Part4
Learning Objective: 14-P1 Prepare entries to record bond iss
and interestexpense.
Problem 14-8AB Effective interest amortization of bond premium; retiring bonds L.O. P1, P3, P4
[The following information applies to the questions displayed below.]
McFad issues $200,000 of 9%, three-year bonds dated January 1, 2011, that pay interest semiannually on
June 30 and December 31. They are issued at $205,239. Their market rate is 8% at the issue date.
Section Break Difficulty: Hard
Problem 14-8AB Effective interest amortization ofbond premium;retiring
bonds L.O. P1, P3, P4
Learning Objective: 14-P1 Prepare entries to record
interestexpense.
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Problem 14-8AB Part 1
Required:
1. Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your
response.)
Date General Journal Debit Credit
Jan. 1 n/r n/r
n/r
n/r
eBook Links (3)
Worksheet Difficulty: Hard
Problem 14-8AB Part1
Learning Objective: 14-P1 Prepare entries to record b
interestexpense.
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Problem 14-8AB Part 2
2. Determine the total bond interest expense to be recognized over the bonds’ life. (Do not round
intermediate calculations. Omit the "$" sign in your response.)
Total bond interest expense $ n/r
eBook Links (3)
Worksheet Difficulty: Hard
Problem 14-8AB Part2
Learning Objective: 14-P1 Prepare entries to record b
interestexpense.
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9. Problem 14-8AB Part 3
3. Prepare an effective interest amortization table for the bonds’ first two years. (Round your
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
Semiannual
Interest Period-
End
(A)
Cash Interest
Paid
(B)
Bond Interest
Expense
(C)
Premium
Amortization
(D)
Unamortized
Premium
(E)
Carrying
Value
1/01/2011 $ n/r $ n/r
6/30/2011 $ n/r $ n/r $ n/r n/r n/r
12/31/2011 n/r n/r n/r n/r n/r
6/30/2012 n/r n/r n/r n/r n/r
12/31/2012 n/r n/r n/r n/r n/r
eBook Links (3)
Worksheet Difficulty: Hard
Problem 14-8AB Part3
Learning Objective: 14-P1 Prepare entries to record b
interestexpense.
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Problem 14-8AB Part 4
4. Prepare the journal entries to record the first two interest payments. (Round your intermediate
calculations and final answers to the nearest whole dollar amount. Omit the "$" sign in your
response.)
Date General Journal Debit Credit
June 30 n/r
n/r
n/r n/r
Dec. 31 n/r
n/r
n/r n/r
eBook Links (3)
Worksheet Difficulty: Hard
Problem 14-8AB Part4
Learning Objective: 14-P1 Prepare entries to record b
interestexpense.

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Problem 14-8AB Part 5
5. Prepare the journal entry to record the bonds' retirement on January 1, 2013, at 98. (Round your
intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in
your response.)
Date General Journal Debit Credit
Jan. 1 n/r
n/r
n/r
n/r
eBook Links (3)
Worksheet Difficulty: Hard
Problem 14-8AB Part5
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Problem 14-9A Installment notes L.O. C1, P5
On November 1, 2011, Leetch Ltd. borrows $600,000 cash from a bank by signing a five-year
installment note bearing 8% interest. The note requires equal total payments each year on October
31. (Use Table B.3)
Required:
1. Compute the total amount of each installment payment. (Round "PV Factor" to 4 decimal places
and final answer to the nearest dollar amount. Omit the "$" sign in your response.)
Installment payment $ n/r
2. Complete an amortization table for this installment note. (Please calculate interest expense in the
final period as the amount of cash minus the amount of the Beginning balance and make sure
that the ending balance in the last period equalsto "0". Leave no cells blank - be certain to enter
"0" wherever required. Round "PV Factor" to 4 decimal places and final answers to the nearest
dollar amount. Omit the "$" sign in your response.)

11. Payments
Period Ending
Date
(A)
Beginning
Balance
(B)
Debit
Interest
Expense
(C)
Debit
Notes
Payable
(D)
Credit
Cash
(E)
Ending Balance
10/31/2012 $ n/r $ n/r $ n/r $ n/r $ n/r
10/31/2013 n/r n/r n/r n/r n/r
10/31/2014 n/r n/r n/r n/r n/r
10/31/2015 n/r n/r n/r n/r n/r
10/31/2016 n/r n/r n/r n/r n/r
Total $ n/r $ n/r $ n/r
3. Prepare the journal entries in which Leetch records the following:
(a) Accrued interest as of December 31, 2011 (the end of its annual reporting period). (Do not round
intermediate calculations and round your final answers to the nearest dollar amount. Omit the
"$" sign in your response.)
Date General Journal Debit Credit
Dec. 31 n/r n/r
n/r n/r
(b) The first annual payment on the note. (Round "PV Factor" to 4 decimal places. Do not round
intermediate calculations and round your final answers to the nearest dollar amount. Omit the
"$" sign in your response.)
Date General Journal Debit Credit
Oct. 31 n/r
n/r
n/r
n/r n/r
rev: 08_13_2011
eBook Links (2)
Worksheet Difficulty: Medium
Problem 14-9A Installmentnotes L.O. C1, P5 Learning Objective: 14-C1 Explain the types

12. Problem 14-11AD Capital lease accounting L.O. C4
[The following information applies to the questions displayed below.]
Montana Company signs a five-year capital lease with Elway Company for office equipment. The annual
lease payment is $16,000, and the interest rate is 7%. (Use Table B.3)
rev: 08_13_2011
Section Break Difficulty: Medium
Problem 14-11AD Capital lease accounting L.O.C4 Learning Objective: 14-C4 Appendix 14D
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Problem 14-11AD Part 1
1. Compute the present value of Montana’s five-year lease payments. (Round "PV Factor" to 4 decimal
places and final answer to nearest dollar amount. Omit the "$" sign in your response.)
Present value $ n/r
eBook Link
Worksheet Difficulty: Medium
Problem 14-11AD Part1 Learning Objective: 14-C4 Appendix 14D
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Problem 14-11AD Part 2
2. Prepare the journal entry to record Montana’s capital lease at its inception. (Round "PV Factor" to 4
decimal places and final answer to nearest dollar amount. Omit the "$" sign in your response.)
General Journal Debit Credit
n/r n/r
n/r n/r
eBook Link
Worksheet Difficulty: Medium
Problem 14-11AD Part2 Learning Objective: 14-C4 Appendix 14D

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Problem 14-11AD Part 3
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume
that the beginning balance of the lease liability is the present value of lease payments. (Hint: To find
the amount allocated to interest in year 1, multiply the interest rate by the beginning-of-year lease
liability. The amount of the annual lease payment not allocated to interest is allocated to principal.
Reduce the lease liability by the amount allocated to principal to update the lease liability at each year-
end.) (Please calculate interest expense in the final period as the amount of cash minus the
amount of the Beginning balance and make sure that the ending balance in the last period
equals to "0". Leave no cells blank - be certain to enter "0" wherever required. Round "PV
Factor" to 4 decimal places, intermediate and final answer to nearest dollar amount. Round your
answers to the nearest dollar amount. Omit the "$" sign in your response.)
Period Ending
Date
Beginning Balance
of Lease Liability
Interest on Lease
Liability
Reduction of Lease
Liability
Cash Lease
Payment
Ending Balance of
Lease Liability
Year 1 $ n/r $ n/r $ n/r $ n/r $ n/r
Year 2 n/r n/r n/r n/r n/r
Year 3 n/r n/r n/r n/r n/r
Year 4 n/r n/r n/r n/r n/r
Year 5 n/r n/r n/r n/r n/r
Total $ n/r $ n/r $ n/r
eBook Link
Worksheet Difficulty: Medium
Problem 14-11AD Part3 Learning Objective: 14-C4 Appendix 14D
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Problem 14-11AD Part 4
4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end
of year 1. Assume zero salvage value and a five-year life for the office equipment. (Round your final
answers to the nearest dollar amount. Omit the "$" sign in your response.)

14. General Journal Debit Credit
n/r n/r
n/r n/r
eBook Link
Worksheet