1. June 30, 2011

Cash(price given) 967,707 Bonds payable (face amount) 900,000 Premium on bonds payable (difference) 67,707

2. December 31, 2011

Interest expense(6% x $967,707)58,062 Premium on bonds payable (difference) 438 Cash(6.5% x $900,000) 58,500

3. June 30, 2012

Interest expense(6% x [$967,707 – 438])58,036 Premium on bonds payable (difference) 464 Cash(6.5% x $900,000) 58,500

Exercise 14-7

1. Price of the bonds at January 1, 2011

Interest $7,500,000^¥ x 13.76483 ^* = $103,236,225 Principal $150,000,000 x 0.17411 ^** = 26,116,500 Present value (price) of the bonds $129,352,725

^¥ 5% x $150,000,000

^* present value of an ordinary annuity of $1: n=30, i=6% (Table 4)

^** present value of $1: n=30, i=6% (Table 2)

2. January 1, 2011

Cash(price determined above) 129,352,725 Discount on bonds payable (difference) 20,647,275 Bonds payable (face amount) 150,000,000

3. June 30, 2011

Interest expense($7,500,000 + $688,243)8,188,243 Discount on bonds payable ($20,647,275 ÷ 30) 688,243 Cash(5% x $150,000,000) 7,500,000

4. December 31, 2018

Interest expense($7,500,000 + $688,243)8,188,243 Discount on bonds payable ($20,647,275 ÷ 30) 688,243 Cash(5% x $150,000,000) 7,500,000

[Using the straight-line method, each interest entry is the same.]

Exercise 14-8

1. January 1, 2011

Interest $7,500,000^¥ x 13.76483 ^* = $103,236,225 Principal $150,000,000 x 0.17411 ^** = 26,116,500 Present value (price) of the bonds $129,352,725

^¥ 5% x $150,000,000

^* present value of an ordinary annuity of $1: n=30, i=6% (Table 4)

^** present value of $1: n=30, i=6% (Table 2)

Bond investment (face amount) 150,000,000 Discount on bond investment (difference) 20,647,275 Cash(price determined above) 129,352,725

2. June 30, 2011

Cash(5% x $150,000,000) 7,500,000 Discount on bond investment ($20,647,275 ÷ 30) 688,243 Interest revenue($7,500,000 + $688,243)8,188,243

3. December 31, 2018

Cash(5% x $150,000,000) 7,500,000 Discount on bond investment ($20,647,275 ÷ 30) 688,243 Interest revenue($7,500,000 + $688,243)8,188,243

[Using the straight-line method, each interest entry is the same.]

Exercise 14-9

1. Price of the bonds at January 1, 2011

Interest $18,000^¥ x 6.87396 ^* = $123,731 Principal $600,000 x 0.75941 ^** = 455,646 Present value (price) of the bonds $579,377

^¥ 3% x $600,000

^* present value of an ordinary annuity of $1: n=8, i=3.5% (Table 4)

^** present value of $1: n=8, i=3.5% (Table 2)

2. January 1, 2011

Cash(price determined above) 579,377 Discount on bonds (difference) 20,623 Bonds payable (face amount) 600,000

3. Amortization schedule

Cash Effective Increase in Outstanding Payment Interest Balance Balance 3% x Face Amount 3.5% x Outstanding Balance Discount Reduction

579,377

1 18,000 .035 (579,377) = 20,278 2,278 581,655

2 18,000 .035 (581,655) = 20,358 2,358 584,013

3 18,000 .035 (584,013) = 20,440 2,440 586,453

4 18,000 .035 (586,453) = 20,526 2,526 588,979

5 18,000 .035 (588,979) = 20,614 2,614 591,593

6 18,000 .035 (591,593) = 20,706 2,706 594,299

7 18,000 .035 (594,299) = 20,800 2,800 597,099

8 18,000 .035 (597,099) = 20,901* 2,901 600,000

144,000 164,623 20,623

*rounded

Exercise 14-9 (concluded)