E14.

10
Stated Rate > Market Rate -> Premium
Stated Rate = Market Rate -> Par
Stated Rate < Market Rate -> Discount

SOLUTION
a.
Dr Cash 537,907.37
Cr Premium on bonds payable 37,907.37
Cr Bonds Payable 500,000
b.

Date Cash paid Interest expense Premium Carrying amount

amortized of bonds
1/1/20 - - - 537,907.37
12/31/20 60,000 53,790.74 6,209.26 531,698.11
(=500,000*12%) (=537,907.37*10%) (=537,907.37 –
6,209.26)
12/31/21 60,000 53,169.81 = 6,830.19 = 524,867.92
531,698.11*10% 60,000 – (=531,698.11 -
53,169.81 6,830.19)
12/31/22 60,000 52,486.79 7,513.21 517,354.71
c. 12/21/20
Dr Interest expense 53,790.74
Dr Premium on Bonds Payable 6,209.26
Cr Cash 60,000
d. 12/31/22
Dr Interest expense 52,486.79
Dr Premium on Bonds Payable 7,513.21
Cr Cash 60,000

E14.16

a. 1/1/20 AZZAQ
1. Dr Land 200,000
Dr Discount on Notes Payable 137,012
Cr Notes Payable 337,012
2. Dr Equipment 185,674.30 (=250,000*PVF(8,11%) + (250,000*6%)*PVF_OA(8,11%)
Dr Discount on Notes Payable 64,328.7
Cr Notes Payable 250,000
b. 12/31/20
1. Dr Interest Expense 22,000
Cr Discount on Notes Payable 22,000
2. Dr Interest Expense 20,424.173 (=185,674.3*11%)
Cr Discount on Notes Payable 5,424.173
Cr Cash 15,000 (=250,000*6%)

E14.19
a. 12/31/20 No entry
12/31/21
Dr Notes Payable 1,500 (=44,000-42,500)
Cr Unrealized Holding Gain or Loss – Income 1,500
12/31/22
Dr Unrealized Holding Gain or Loss – Income 3,500 (38,000 – 36,000 + 1,500)
Cr Notes Payable 3,500
b. Fair value 42,500
c. Unrealized holding loss of 3,500
d. Improved