CHAPTER 15

PROBLEMS: SET B
P15-1B On June 1, 2015, Weller Corp. issued $3,000,000, 9%, 5-year bonds at face value. The Prepare entries to record
bonds were dated June 1, 2015, and pay interest annually on June 1. Financial statements issuance of bonds, interest
are prepared annually on December 31. accrual, and bond redemption.
(LO 2, 4)
Instructions
(a) Prepare the journal entry to record the issuance of the bonds.
(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2015.
(c) Show the balance sheet presentation on December 31, 2015.
(d) Prepare the journal entry to record payment of interest on June 1, 2016. (d) Int. exp. $112,500
(e) Prepare the adjusting entry to record the accrual of interest on December 31, 2016.
(f) Assume that on January 1, 2017, Weller pays the accrued interest and calls the bonds (f) Loss $40,000
at 102. Record the payment of interest and redemption of the bonds.
P15-2B Shonrock Co. sold $800,000, 9%, 10-year bonds on January 1, 2015. The bonds were Prepare entries to record
dated January 1, 2015, and paid interest on January 1. The bonds were sold at 105. issuance of bonds, interest
accrual, and bond redemption.
Instructions (LO 2, 4)
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2015.
(b) At December 31, 2015, $4,000 of the Premium on Bonds Payable account has been
amortized. Show the balance sheet presentation of the long-term liability at December
31, 2015.
(c) On January 1, 2017, when the carrying value of the bonds was $832,000, the company (f) Loss $8,000
redeemed the bonds at 106. Record the redemption of the bonds assuming that inter-
est for the period has already been paid.
P15-3B The following section is taken from Lyons Corp.’s balance sheet at December 31, 2015. Prepare journal entries to
record interest payments and
Current liabilities
redemption of bonds.
Interest payable $ 96,000
Long-term liabilities (LO 2)
Bonds payable (8%, due January 1, 2020) 1,200,000
Interest is payable annually on January 1. The bonds are callable on any annual interest date.
Instructions
(a) Journalize the payment of the bond interest on January 1, 2016.
(b) Assume that on January 1, 2016, after paying interest, Lyons Corp. calls bonds having (f) Loss $24,000
a face value of $300,000. The call price is 108. Record the redemption of the bonds.
(c) Prepare the adjusting entry on December 31, 2016, to accrue the interest on the
remaining bonds.
P15-4B Crosetti’s Electronics issues an $800,000, 8%, 10-year mortgage note on December 31, Prepare installment payments
2015, to help finance a plant expansion program. The terms of the note provide for annual schedule and journal entries
installment payments, exclusive of real estate taxes and insurance, of $119,224. Payments for a mortgage note payable.
are due on December 31. (LO 3, 4)
Instructions
(a) Prepare an installment payments schedule for the first 4 years. (b) Debit Mortgage
(b) Prepare the entries for (1) the loan and (2) the first installment payment. Payable $20,149
(c) Show how the total mortgage liability should be reported on the balance sheet at (c) Current liability—
December 31, 2016. 2016: $44,458
P15-5B Presented below are three different lease transactions in which Naylor Enterprises Analyze three different lease
engaged in 2016. Assume that all lease transactions start on January 1, 2016. In no case situations and prepare
does Naylor receive title to the properties leased during or at the end of the lease term. journal entries.

Lessor (LO 4)
Baxter Springs Co. Mendenhall Co. Midas Inc.
Type of property Bulldozer Truck Furniture
Bargain purchase option None None None
Lease term 4 years 6 years 3 years
Estimated economic life 8 years 7 years 5 years
Yearly rental $13,000 $20,000 $ 3,000
Fair value of leased asset $80,000 $96,000 $20,500
Present value of the lease
rental payments $48,000 $82,000 $ 9,000
2 15 Long-Term Liabilities

Instructions
(a) Identify the leases above as operating or capital leases. Explain.
(b) How should the lease transaction for Mendenhall Co. be recorded on January 1, 2016?
(c) How should the lease transaction for Midas Inc. be recorded in 2016?

Prepare entries to record *P15-6B Fernetti Company sold $6,000,000, 8%, 20-year bonds on January 1, 2015. The
issuance of bonds, interest bonds were dated January 1 and pay interest annually on January 1. Fernetti Company
accrual, and straight-line uses the straight-line method to amortize bond premium or discount. The bonds were
amortization for 2 years. sold at 96.
(LO 4, 5)
Instructions
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2015.
(b) Amortization $12,000 (b) Prepare a bond discount amortization schedule for the first 4 interest periods.
(c) Prepare the journal entries for interest and the amortization of the discount in 2015
(d) Discount on bonds and 2016.
payable $216,000 (d) Show the balance sheet presentation of the bond liability at December 31, 2016.

Prepare entries to record *P15-7B Rosewell Corporation sold $4,000,000, 7%, 10-year bonds on January 1, 2015.
issuance of bonds, interest, and The bonds were dated January 1, 2015, and pay interest annually on January 1. Rosewell
straight-line amortization of Corporation uses the straight-line method to amortize bond premium or discount.
bonds premium and discount.
(LO 4, 5) Instructions
(a) Prepare all the necessary journal entries to record the issuance of the bonds and bond
(a) Amortization $12,000 interest expense for 2015, assuming that the bonds sold at 103.
(b) Amortization $16,000 (b) Prepare journal entries as in part (a) assuming that the bonds sold at 96.
(c) Premium on bonds payable (c) Show the balance sheet presentation for the bond liability at December 31,
$108,000 Discount on 2015.
bonds payable $144,000
Prepare entries to record *P15-8B The following is taken from the Sinjh Corporation balance sheet.
interest payments, straight-line
SINJH CORPORATION
discount amortization, and
redemption of bonds.
Balance Sheet (partial)
December 31, 2015
(LO 6)
Current liabilities
Interest payable (for 12 months
from January 1 to December 31) $ 216,000
Long-term liabilities
Bonds payable, 9%, due
January 1, 2026 $2,400,000
Less: Discount on bonds payable 90,000 2,310,000
Interest is payable annually on January 1. The bonds are callable on any annual interest
date. Sinjh uses straight-line amortization for any bond premium or discount. From
December 31, 2015, the bonds will be outstanding for an additional 10 years (120 months).

Instructions
(Round all computations to the nearest dollar).
(a) Journalize the payment of bond interest on January 1, 2016.
(b) Amortization $9,000 (b) Prepare the entry to amortize bond discount and to accrue the interest due on
December 31, 2016.
(c) Loss $43,000 (c) Assume that on January 1, 2017, after paying interest, Sinjh Corp. calls bonds having
a face value of $800,000. The call price is 102. Record the redemption of the bonds.
(d) Amortization $6,000 (d) Prepare the adjusting entry at December 31, 2017, to amortize bond discount and to
accrue interest on the remaining bonds.

Prepare entries to record *P15-9B On January 1, 2015, Witherspoon Satellites issued $4,500,000, 9%, 10-year bonds
issuance of bonds, payment of at $4,219,600. This price resulted in an effective-interest rate of 10% on the bonds.
interest, and amortization of Witherspoon uses the effective-interest method to amortize bond premium or discount.
bond discount using effective- The bonds pay annual interest January 1.
interest method.
(LO 6) Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2015.
(b) Prepare an amortization table through December 31, 2016 (2 interest periods), for this
bond issue.
 Problems: Set B 3

(c) Prepare the journal entry to record the accrual of interest and the amortization of the (c) Amortization $16,960
discount on December 31, 2015.
(d) Prepare the journal entry to record the payment of interest on January 1, 2016.
(e) Prepare the journal entry to record the accrual of interest and the amortization of the (e) Amortization $18,656
discount on December 31, 2016.

*P15-10B On January 1, 2015, Ashlock Chemical Company issued $4,000,000, 10%, 10 year Prepare entries to record
bonds at $4,543,627. This price resulted in an 8% effective-interest rate on the bonds. issuance of bonds, payment
Ashlock uses the effective-interest method to amortize bond premium or discount. The of interest, and amortization
bonds pay annual interest on each January 1. of premium using effective-
interest method.
Instructions (LO 4, 6)
(Round all computations to the nearest dollar.)
(a) Prepare the journal entries to record the following transactions.
(1) The issuance of the bonds on January 1, 2016.
(2) Accrual of interest and the amortization of the premium on December 31, 2015. (a) (2) Amortization $36,510
(3) The payment of interest on January 1, 2016.
(4) Accrual of interest and amortization of the premium on December 31, 2016. (a) (4) Amortization $39,431
(b) Show the proper long-term liabilities balance sheet presentation for the liability for (b) Bond carrying value
bonds payable at December 31, 2016. $4,467,686
(c) Provide the answers to the following questions in letter form.
(1) What amount of interest expense is reported for 2016?
(2) Would the bond interest expense reported in 2016 be the same as, greater than, or
less than the amount that would be reported if the straight-line method of amor-
tization were used?