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Yuxi (Cindy) Yin 6252030, Page 1 of 3

ASSIGNMENT 10ACCTG 102


1)
A

April 1

Cash
2,349,850
Bonds Payable
1,000,000
Mortgage Payable
1,349,850
Or DR Cash 1,000,000 & CR Bonds Payable 1,000,000
DR Cash 1349850 & CR Mortgage Payable 1349850 (if shown as separate JE)
B: loan repayment schedule
Month
beginning
1 May 2014

Beg. Balance

Payment

Interest
1

Ending
balance
3
1,332,419

1,349,850

28,680

28,680

11103.49

17,577

1,314,842

1 July

1,314,842

28,680

10957.02

17,723

1,297,119

1 August

1,297,119

28,680

10809.33

17,871

1,279,249

1 June

1,332,419

11248.75

Principal
reduction
2
17,431

= beg. balance 1349850*.1*1/12


= payment 28680 interest 11248.75
3
= beg. balance 1349850 principal reduction 17431
4
= carry over ending balance from previous payment
2

C: general JE for interest repayments & necessary adjustments up to 31 July 2014 (w/end of financial year 30 June)
Mortgage:
JE (note values rounded to nearest dollar):
May 1

June 1

July 1

Interest Expense
Cash

11249

Interest Expense
Cash

11103

Interest Payable
Cash

10957

Interest Expense
Interest Payable

10957

Interest Expense
Interest Payable

10809

Interest Payable
Cash

20000

Interest Expense
Interest Payable

20000

11249

11103

10957

AJE:
June 30

July 31

10957

10809

Debentures:
JE:
July 1

20000

AJE:
June 30

20000

Yuxi (Cindy) Yin 6252030, Page 2 of 3


1 April to June 30 = 3 months
Interest Payable = .08*1mil*3/12 = 20000 = interest expense (since bonds issued at face value, so MIR = CIR)
July 31

Interest Expense
6667
Interest Payable
1 July to 31 July = 1 month accrued interest since last payment
Interest payable = .08*1mil*1/12 = 6666.67 = interest expense

6667

2) July 1 2011issue 2.7 million face value, 9%, 10-year bonds at 2,531,760 (effective IR = 10%)
Effective-interest method to amortize bond discount
Bonds pay semi-annual interest July 1 & Jan 1
a)
9% contract rate, 10% discount rate (bonds issued at discount)
r = 10/2 = 5%
n = 10 x 2 = 20 periods
- Present value of principle to be received at maturity = 0.37689*2.7 million = 1,017,603
- PV interest to be received periodically over term of bonds = 12.46221*(9%*2.7mil*6/12) = 1,514,158.5
Therefore, total PV of bonds = 938190.195+1657557 = 2531762.5 = 2,531,760 (rounded)
July 1

Cash
Bonds Payable

2,531,760
2,531,760

b)
Total interest expense recognised over life of bonds = $2,598,240
Working:
Semi-annual interest
periods
July 1 2011 issue
Jan 1 2012

Interest to be paid

Interest Expense to be
recorded

Discount Amortisation

Bond carrying value


2531760

121500
(.09*2.7mil*.05)
121500

126588
(.05*2531760)
126842.4

5342.4

2536848
(5088+2531760)
2542190

121500

127109.5

5609.52

2547800

121500

127390

5889.996

2553690

121500

127684.5

6184.496

2559874

121500

127993.7

6493.721

2566368

121500

128318.4

6818.407

2573187

121500

128659.3

7159.327

2580346

121500

129017.3

7517.293

2587863

10

121500

129393.2

7893.158

2595756

11

121500

129787.8

8287.816

2604044

12

121500

130202.2

8702.207

2612746

13

121500

130637.3

9137.317

2621884

14

121500

131094.2

9594.183

2631478

15

121500

131573.9

10073.89

2641552

16

121500

132077.6

10577.59

2652129

17

121500

132606.5

11106.47

2663236

18

121500

133161.8

11661.79

2674898

19

121500

133744.9

12244.88

2687142

20

121500

134357.1

12857.12

2700000

2430000

2598240

168239.6

July 1 2012

Totals

5088

Yuxi (Cindy) Yin 6252030, Page 3 of 3


c)
1. Sept. 30

Interest Expense
Interest Payable
Bonds Payable
July 1 to Sept 30 = 3 months
Interest Payable = 0.09 * 2.7mil * 3/12 = 60750
Interest Expense = 2,531,760 * 0.1 * 3/12 = 63294

63294

2. Jan 1

60750
63294

Interest Payable
Interest Expense
Bonds Payable
Cash
Oct 1 to Jan 1 = 3 months
Interest Payable = 60750
Interest expense = 63294

60750
2544

2544
121500

d)
1. Dec. 31

Interest Expense
Interest Payable
Bonds Payable
July 1 to Dec 31 = 6 months
Interest Payable = .09*2.7mil*6/12 = 121500
Interest expense = 2531760*.1*6/12 = 126588

126588

2. Jan. 1

121500

Interest Payable
Cash

3. July 1

Interest Expense
Bonds Payable
Cash
Jan 1 to July 1 = 6 months
Interest Payable = .09*2.7mil*6/12 = 121500
Interest expense = 2531760*.1*6/12 = 126588

121500
5088

121500

126588
5088
121500

e) After interest paid July 1 2012, redeems. MIR = 0.12. CIR = 0.09
1. Price Matlock must pay to redeem bonds: $2261471
2. July 1

Bonds Payable
2542190
2
Gain on Bond Redemption
280719
1
Cash
2261471
1
Bonds payable as at July 1, 2012.
PV of principle if redeemed at July 1, 2012: r=0.06 (since now 12% MIR), n=18 (2 periods consumed, hence value
to pay today (redemption) with 18 remaining periods)
= 2700000*.35034 = 945918
PV of interest if redeemed at July 1, 2012:
= 10.8276*(9%*2.7mil*6/12) = 1315553.4
Total = 2261471.4 (rounded = 2261471)
2
Gain = 2542190 (carrying value on redemption date) 2261471 (price of bonds on redemption)
= 280719
3. Using residual analysis, a gain would not be an asset, as the business has no present control over the gain
which means one of the four criteria is not met. A loss would not be a liability, as there is no past event which leads
to this loss. Therefore, a gain/loss would be classified as other income or expense (with a gain being recognised as
income & loss as expense) in the SOCI since neither is an owner contribution/distribution. The gain/loss has
resulted from financing business operations, which is why it has been classified under other income and expenses
(and not other comprehensive income), and not other comprehensive income.

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