Question 1

Exhibit 14-13 On January 1, 2010, Marty Co.issued $80, 000 of serial bonds that pay 9% interest annually.Each December 31, $16, 000 of the bonds comes due.The bonds were issued for $84, 800.
-
Refer to Exhibit 14-13.If the bonds outstanding method is in use, what would be the total amount of interest expense for 2012?

Accepted Answer

The total amount of interest expense for 2012 would be $4,320. This is because the bonds outstanding method is used, which means that the interest expense is calculated based on the number of bonds outstanding at the end of the period. On December 31, 2012, there are $64,000 of bonds outstanding, and the annual interest rate is 9%. Therefore, the interest expense for 2012 is $64,000 x 9% = $5,760. However, since $16,000 of the bonds come due on December 31, 2012, the interest expense for 2012 is reduced by the amount of interest that has accrued on these bonds since the last interest payment date. The interest that has accrued on these bonds since the last interest payment date is $16,000 x 9% x 1/12 = $120. Therefore, the total amount of interest expense for 2012 is $5,760 - $120 = $4,320.

Question 2

On January 1, 2010, a creditor has a $200, 000 note receivable with an impaired value of $178, 571.43.The contract interest rate is 12%, and the current market rate is 10%.The principal is due on December 31, 2013.Interest payments will only be made on December 31 of 2011, 2012, and 2013.
Required:
 a. Prepare the journal entry to record the 2010 interest revenue.
b. Prepare the journal entry to record the 2011 interest revenue and cash received.
c. Prepare the joumal entry to record the 2012 interest revenue and cash received.
d. Prepare the journal entry to record receipt of the final interest and principal.

Accepted Answer

The answer of On January 1, 2010, a creditor has...

Question 3

Hoosier Co.sold $300, 000 of 10% bonds for $311, 600.Each $1, 000 bond carried ten warrants and each warrant allowed the holder to acquire one share of $10 par value common stock for $25 a share.After the issuance of the securities, the bonds were quoted at 103.5 and each warrant was quoted at $9.
Required:
Prepare the entry to record the sale of the bonds.

Accepted Answer

The answer of Hoosier Co.sold $300, 000 of 10% bonds...

Question 4

On January 1, 2010, Reece Co.issued $120, 000 of 14% serial bonds for $114, 540.The bonds are to be redeemed at the rate of $30, 000 per year, beginning January 1, 2012.Using the bonds outstanding method, what would be total interest expense for 2010?

Accepted Answer

The total interest expense for 2010 is calculated by multiplying the face value of the bonds ($120,000) by the interest rate (14%), resulting in $16,800. However, since the bonds were issued at a discount, the discount of $5,460 ($120,000 - $114,540) must be amortized over the life of the bonds. The bonds outstanding method allocates the discount based on the proportion of bonds outstanding. For 2010, the full amount is outstanding, so the entire discount is considered, resulting in an interest expense of $16,800 - $5,460 = $11,340. However, the correct calculation should consider the amortization of the discount over the life of the bonds, leading to a total interest expense of $9,180 for 2010.

Question 5

The bonds outstanding method of amortizing a discount on serial bonds

Accepted Answer

The bonds outstanding method amortizes a proportional share of the discount each period based on the face value of the bonds outstanding at the beginning of the period relative to the sum of the face values of the bonds outstanding at the beginning of each period over the life of the entire issue. This method reflects the changing amount of bonds outstanding over time as serial bonds are gradually redeemed.

Question 6

IFRS require which of the following that is not required by GAAP?

Accepted Answer

IFRS requires that convertible debt must contain a separate valuation for both the debt and the option, which is not required by GAAP. The other options listed are required by both IFRS and GAAP.

Question 7

Companies can raise additional capital either by issuing bonds or by selling common stock.And investors can buy either bonds or common stock as a way to earn additional revenue.Both alternatives have ramifications for both the issuing company and the investor.
Required:
Discuss the advantages and disadvantages of bonds versus common stock from both the issuing company's and the investor's perspective.

Accepted Answer

The answer of Companies can raise additional capital either by...

Question 8

Exhibit 14-13 On January 1, 2010, Marty Co.issued $80, 000 of serial bonds that pay 9% interest annually.Each December 31, $16, 000 of the bonds comes due.The bonds were issued for $84, 800.
-
Refer to Exhibit 14-13.On January 1, 2011, Marty Co.redeemed at 98 the issue coming due on December 31, 2011.What amount of gain or loss should be recorded on this early bond redemption?

Accepted Answer

The bonds were issued at a premium, so the carrying amount of the $16,000 bond due is $16,960 ($16,000 + $960 premium). Redeeming at 98 means paying $15,680. The gain is $16,960 - $15,680 = $1,280.

Question 9

Siena sold $120, 000 of 6% bonds for $127, 125.Each $1, 000 bond carried five warrants and each warrant allowed the holder to acquire one share of $5 par common stock for $20 a share.After the issuance of the securities, the bonds were quoted at 108 and the warrants were quoted at $10.Later, one-fourth of the rights were exercised.
Required:
Journalize the exercise of the warrants.

Accepted Answer

The answer of Siena sold $120, 000 of 6% bonds...

Question 10

How do the classification requirements of IFRS for instruments as financial liabilities versus equity differ from those of GAAP?

Accepted Answer

The answer of How do the classification requirements of IFRS...

Question 11

San Juan Co.owes Santa Clara Ltd.$94, 000 on a note payable, plus $4, 000 interest.Santa Clara agrees to accept land in full settlement.The land is recorded on the books of San Juan at $20, 000 and is currently worth $76, 000.
Required:
Prepare the journal entries to record the debt settlement on the books of San Juan.

Accepted Answer

The answer of San Juan Co.owes Santa Clara Ltd.$94, 000...

Question 12

Match each of the following bond classifications (a-h)with the appropriate characteristic (1-8)by entering the appropriate letter in the space provided.

Accepted Answer

The answer of Match each of the following bond classifications...

Question 13

When a company issues bonds, the selling price of the bonds is determined by a number of factors.Two factors that affect bond prices are the bond's contract (stated)rate and its effective yield (effective rate).
Required:
Explain the effect on a bond's selling price caused by the stated and effective rates.

Accepted Answer

The answer of When a company issues bonds, the selling...

Question 14

Cramer, Inc.owes Billings, Inc.$22, 000 on a note payable, plus $2, 200 interest.Billings agrees to accept 700 shares of Cramer common stock in full settlement of the debt.The stock has a par value of $10 per share and a current market value of $32 a share.
Required:
Record this debt restructuring on the books of Cramer.

Accepted Answer

The answer of Cramer, Inc.owes Billings, Inc.$22, 000 on a...

Question 15

Because of a difference between IFRS and GAAP with respect to the classification of an instrument as a financial liability or as equity, certain instruments classified as liabilities under IFRS may be, under GAAP,

Accepted Answer

Under GAAP, certain instruments that are classified as liabilities under IFRS may be classified as equity. This is due to a difference in the criteria used to classify an instrument as a financial liability or as equity under the two standards. Therefore, choice C is correct - certain instruments may be classified as equity under GAAP.

Question 16

There are two ways, conceptually, that can be used to account for convertible debt.However, only one of them is acceptable under GAAP.
Required:
Identify the two methods that could be used to record convertible debt and indicate which one is acceptable under GAAP.Also, explain why the APB selected the acceptable method.

Accepted Answer

The answer of There are two ways, conceptually, that can...

Question 17

Two methods of amortization of a discount or premium are used by businesses.These two methods are the effective interest method and the straight-line method.
Required:

Accepted Answer

The answer of Two methods of amortization of a discount...

Question 18

A $700, 000, 20-year, 14% bond issue was sold to yield 12%.Interest was payable annually.Actuarial information for 20 periods follows:
 $\begin{array}{lll}
&12\%&14\%\
\text { Future value of } 1 & 9.646 & 13.743 \
\text { Present value of } 1 & 0.104 & 0.073 \
\text { Future value of annuity of } 1 & 72.052 & 91.02 \
\text { Present value of annuity of } 1 & 7.469 & 6.623
\end{array}$
 Required:
Compute the amount of cash that was received when the bonds were issued.

Accepted Answer

The answer of A $700, 000, 20-year, 14% bond issue...

Question 19

While IFRS require separate financial reporting of the separate components of all compound instruments, GAAP requires separate financial reporting of the components of all of the following compound instruments except

Accepted Answer

Under GAAP, a compound instrument like debt with a conversion feature (e.g., convertible debt) is not required to be reported as separate components. Instead, it is reported as a single, combined financial instrument. Other compound instruments, such as debt with detachable warrants or bonds combined with other types of stock, may require separate reporting of their components under GAAP.

Question 20

Match between columns
                        Premises: Portions of the bond mature in periodic installments.
Unregistered bonds.
Bonds that are secured by a lien against specific assets.
Bonds that can be exchanged for a predetermined number of shares of stock.
Bonds whose marketability is based on the general credit rating of the issuing company.
Bonds whose interest is paid to the individuals listed in the corporate records as owners of the bonds.
Bonds that the company has the right to retire before their maturity date.
Bonds on which no interest is paid until the maturity date.

Accepted Answer

The Answer of Debenture bonds and Mortgage bonds and Registered is...

Quiz 14: Long-Term Liabilities and Receivables