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Chapter 7 Solutions

The document contains multiple financial problems detailing cash transactions, bond payables, interest expenses, and equity allocations for various scenarios. Each problem outlines the initial cash inflow, the allocation of liabilities and equity, and subsequent interest payments along with amortization schedules. The problems illustrate different bond structures, including those with premiums and discounts, and their impact on financial statements over time.

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6 views

Chapter 7 Solutions

The document contains multiple financial problems detailing cash transactions, bond payables, interest expenses, and equity allocations for various scenarios. Each problem outlines the initial cash inflow, the allocation of liabilities and equity, and subsequent interest payments along with amortization schedules. The problems illustrate different bond structures, including those with premiums and discounts, and their impact on financial statements over time.

Uploaded by

ylliessa017
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Problem 7-1 01/01/2024 Cash 6,000,000 Allocation Liability Equity

Premium on B/P 750,000 6,000,000 5,750,000 250,000


Bonds Payable 5,000,000
SWO 250,000
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 400,000 01/01/2024 6% 5,750,000
Cash 400,000 12/31/2024 400,000 345,000 55,000 5,695,000
12/31/2025 400,000 341,700 58,300 5,636,700
Premium on B/P 55,000 12/31/2026 400,000 338,202 61,798 5,574,902
Interest Expense 55,000 12/31/2027 400,000 334,494 65,506 5,509,396
12/31/2028 400,000 330,564 69,436 5,439,960
Cash 600,000 12/31/2029 400,000 326,398 73,602 5,366,357
SWO 250,000 12/31/2030 400,000 321,981 78,019 5,288,339
Share Capital 500,000 12/31/2031 400,000 317,300 82,700 5,205,639
Share Premium 350,000 12/31/2032 400,000 312,338 87,662 5,117,978
12/31/2033 400,000 307,079 92,921 5,025,056

Problem 7-2 01/01/2024 Cash 5,100,000 Allocation Liability Equity


Discount on B/P 340,000 5,100,000 4,660,000 440,000
Bonds Payable 5,000,000
SWO 440,000
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 600,000 01/01/2024 14% 4,660,000
Cash 600,000 12/31/2024 600,000 652,400 52,400 4,712,400
12/31/2025 600,000 659,736 59,736 4,772,136
Interest Expense 52,400 12/31/2026 600,000 668,099 68,099 4,840,235
Discount on B/P 52,400 12/31/2027 600,000 677,633 77,633 4,917,868
12/31/2028 600,000 688,502 88,502 5,006,369
Cash 2,500,000
SWO 440,000
Share Capital 1,250,000
Share Premium 1,690,000
Problem 7-3 01/01/2024 Cash 9,600,000 Allocation Liability Equity
Premium on B/P 617,739 9,600,000 8,617,739 982,261
Bonds Payable 8,000,000
SWO 982,261 Date Int. Payment Int. Expense Amortization Carrying Amount
01/01/2024 8,617,739
06/30/2024 Interest Expense 480,000 06/30/2024 480,000 430,887 49,113 8,568,626
Cash 480,000 12/31/2024 480,000 428,431 51,569 8,517,057
06/30/2025 480,000 425,853 54,147 8,462,910
Premium on B/P 49,113 12/31/2025 480,000 423,145 56,855 8,406,055
Interest Expense 49,113 06/30/2026 480,000 420,303 59,697 8,346,358
12/31/2026 480,000 417,318 62,682 8,283,676
12/31/2024 Interest Expense 480,000 06/30/2027 480,000 414,184 65,816 8,217,860
Cash 480,000 12/31/2027 480,000 410,893 69,107 8,148,753
06/30/2028 480,000 407,438 72,562 8,076,190
Premium on B/P 51,569 12/31/2028 480,000 403,810 76,190 8,000,000
Interest Expense 51,569

Cash 2,400,000
SWO 982,261
Share Capital 1,600,000
Share Premium 1,782,261

Problem 7-4 01/01/2024 Cash 5,150,000 Allocation Liability Equity


Discount on B/P 343,308 5,150,000 4,656,692 493,308
Bonds Payable 5,000,000
SWO 493,308
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 600,000 01/01/2024 4,656,692
Cash 600,000 12/31/2024 600,000 651,937 51,937 4,708,629
12/31/2025 600,000 659,208 59,208 4,767,837
Interest Expense 51,937 12/31/2026 600,000 667,497 67,497 4,835,334
Discount on B/P 51,937 12/31/2027 600,000 676,947 76,947 4,912,281
12/31/2028 600,000 687,719 87,719 5,000,000
Cash 7,500,000
SWO 493,308
Share Capital 3,750,000
Share Premium 4,243,308

Problem 7-5 01/01/2024 Cash 5,450,000 Allocation Liability Equity


Discount on B/P 180,239 5,450,000 4,819,761 630,239
Bonds Payable 5,000,000
SWO 630,239
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 578,371 01/01/2024 4,819,761
Cash 550,000 12/31/2024 550,000 578,371 28,371 4,848,133
Discount on B/P 28,371 12/31/2025 550,000 581,776 31,776 4,879,908
12/31/2026 550,000 585,589 35,589 4,915,497
Cash 6,000,000 12/31/2027 550,000 589,860 39,860 4,955,357
SWO 630,239 12/31/2028 550,000 594,643 44,643 5,000,000
Share Capital 5,000,000
Share Premium 1,630,239

Problem 7-6 01/01/2024 Cash 5,600,000 Allocation Liability Equity


Bonds Payable 5,000,000 5,600,000 5,400,000 200,000
Premium on B/P 400,000
SWO 200,000
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 540,000 01/01/2024 5,400,000
Premium on B/P 60,000 12/31/2024 600,000 540,000 60,000 5,340,000
Cash 600,000 12/31/2025 600,000 534,000 66,000 5,274,000
12/31/2026 600,000 527,400 72,600 5,201,400
Cash 7,500,000 12/31/2027 600,000 520,140 79,860 5,121,540
SWO 200,000 12/31/2028 600,000 512,154 87,846 5,033,694
Share Capital 3,650,000
Share Premium 4,050,000
Problem 7-7 01/01/2024 Cash 2,200,000 Allocation Liability Equity
Discount on B/P 151,878 2,200,000 1,848,122 351,878
Bonds Payable 2,000,000
Share Premium-C/P 351,878
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 166,331 01/01/2024 1,848,122
Discount on B/P 46,331 12/31/2024 120,000 166,331 46,331 1,894,453
Cash 120,000 12/31/2025 120,000 170,501 50,501 1,944,954
12/31/2026 120,000 175,046 55,046 2,000,000
Bonds Payable 2,000,000
Share Premium-CP 351,878
Share Capital 1,000,000
Discount on B/P 105,547
Share Premium 1,246,331

Problem 7-8 01/01/2024 Cash 5,250,000 Allocation Liability Equity


Discount on B/P 300,000 5,250,000 4,700,000 550,000
Bonds Payable 5,000,000
Share Premmium-C/P 550,000
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 658,000 01/01/2024 4,700,000
Discount on B/P 58,000 12/31/2024 600,000 658,000 58,000 4,758,000
Cash 600,000 12/31/2025 600,000 666,120 66,120 4,824,120
12/31/2026 600,000 675,377 75,377 4,899,497
Bonds Payable 5,000,000 12/31/2027 600,000 685,930 85,930 4,985,426
Share Premium-C/P 550,000
Share Capital 4,000,000
Share Premium 1,308,000
Discount on B/P 242,000
Problem 7-10 01/01/2024 Cash 4,200,000 Allocation Liability Equity
Discount on B/P 206,168 4,200,000 3,793,832 406,168
Bonds Payable 4,000,000
Share Premium-C/P 406,168
Date Int. Payment Int. Expense Amortization Carrying Amount
12/31/2024 Interest Expense 303,507 01/01/2024 3,793,832
Cash 240,000 12/31/2024 240,000 303,507 63,507 3,857,339
Discount on B/P 63,507 12/31/2025 240,000 308,587 68,587 3,925,926
12/31/2026 240,000 314,074 74,074 4,000,000
01/01/2027 Bonds Payable 4,000,000
Cash 4,000,000

Share Premium-C/P 406,168


Share Premium-issuance 406,168

Problem 7-15 01/01/2024 Cash 6,000,000


Premium on B/P
Bonds Payable 5,000,000
Share Premium-C/P 660,700

12/31/2026 Bonds Payable 5,000,000 Cash Payment 5,550,000 Carrying Amount


Premium on B/P 178,300 Less: FV w/o CP (5,400,000) Bonds Payable 5,000,000
Interest Expense 500,000 Equity Component 150,000 Premium 178,300 5,178,300
Share Premium-C/P 150,000 Less: FV w/o CP (5,400,000)
Loss on Extinguishment 221,700 Loss on Extinguishment (221,700)
Cash 6,050,000

Share Premium-C/P 510,700


Share Premium-issuance 510,700

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