Mitchell Boehm

Intermediate Accounting
P14-2
A)
Present value of principal:
2,000,000 * PV(10,10%)
2,000,000*
0.38554
771,080
Present value of interest:
210,000*
PV of an ordinary annuity(10,10%)
210,000*
6.14457
1,290,360
Carrying value of bond:
2,061,440
1/1/2013 Cash
Unamortized bond issue costs
Premium on bonds payable
Bonds payable
To record issuance of bonds
B)
Effective interest rate
Stated interest rate
Carrying value

Date
1/1/2013
1/1/2014
1/1/2015
1/1/2016
1/1/2017

Cash Paid
210,000
210,000
210,000
210,000

2,011,440
50,000

10.0%
10.5%
2,061,440
Interest
Expense
206,144
205,758
205,334
204,868

Premium
Amortized
3,856
4,242
4,666
5,132

C)
Carrying amount as of 1/1/2016
Less: Amortization of bond premium
Carrying amount as of 7/1/2016
Reacquisition price
Less: Carrying amount as of 7/1/2016, half of bonds

Unamortized bond issue costs, half of bonds

Loss on redemption of bonds

Balance of
Premium on Bonds
Payable
57,584
57,198
56,774
56,307

Carrying
Value
2,061,440
2,057,584
2,053,342
2,048,676
2,043,544

2,048,676
2,566.19
2,046,110
1,065,000
1,023,055
41,945
16,250
58,195

Bonds Payable
Premium on bonds payable
Loss on redemption of bonds
Unamortized bond issue costs
Cash
Entry to record early bond redemption
Interest expense
Premium on bonds payable
Cash

1,000,000
23,055
58,195
16,250
1,065,000
51,217
1,283
52,500

61,440
2,000,000

Balance of
Bond Issue Cost Unamortized Bond
Amortization
Issue Costs
5,000
50,000
5,000
45,000
5,000
40,000
5,000
35,000
5,000
30,000
5,000
25,000
5,000
20,000
5,000
15,000
5,000
10,000
5,000
5,000

Check

CE14-1
A)

Callable obligation: An obligation is callable at a given date if the creditor has the right a
date to demand, or to give notice of its intention to demand, repayment of the obligation o
to it by the debtor.

B)

Imputed Interest Rate: The interest rate that results from a process of approximation (or
imputation) required when the present value of a note must be estimated because an
established exchange price is not determinable and the note has no ready market.

C)

Long-term obligation: Long-term obligations are those scheduled to mature beyond one
(or the operating cycle, if applicable) from the date of an entity's balance sheet.

D)

Effective-interest rate: The rate of return implicit in the loan, that is, the contractual inte
rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the
origination or acquisition of the loan.

CE14-2

If an obligation under paragraph 470-10-45-11(b) is classified as a long-term liability (or, in the case of an
unclassified balance sheet, is included as a long-term liability in the disclosure of debt maturities), the circums
shall be disclosed.

CE14-3

Some long-term loans require compliance with certain covenants that must be met on a quarterly or semiannu
basis. If a covenant violation occurs that would otherwise give the lender the right to call the debt, a lender m
waive its call right arising from the current violation for a period

CE14-4

Subordinated debtmay not be included in the stockholders' equity section of the balance s
Any presentation describing suchdebtas a component of stockholders' equity must be
eliminated. Furthermore, any caption representing the combination of stockholders' equity
onlysubordinated debtsmust be deleted.

e creditor has the right at that

yment of the obligation owed

cess of approximation (or

imated because an
o ready market.

d to mature beyond one year

alance sheet.

at is, the contractual interest

discount existing at the

bility (or, in the case of an

debt maturities), the circumstances

et on a quarterly or semiannual
ht to call the debt, a lender may

section of the balance sheet.

ders' equity must be
n of stockholders' equity and