Question 1

Use the following information for questions *103 through *105:
On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year.
-Nolte should recognize a gain on the partial settlement and restructure of the debt of

Accepted Answer

Nolte should recognize a gain of $225,000, calculated as follows: The total debt before restructuring is $1,980,000 ($1,800,000 note + $180,000 interest). The equipment given has a book value of $750,000 ($1,440,000 cost - $690,000 depreciation). The gain is the difference between the debt settled ($1,980,000) and the sum of the equipment's book value ($750,000) and the restructured note's face value ($750,000), which is $225,000.

Question 2

On July 1, 2013, Noble, Inc. issued 9% bonds in the face amount of $8,000,000, which mature on July 1, 2019. The bonds were issued for $7,648,000 to yield 10%, resulting in a bond discount of $352,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2015, Noble's unamortized bond discount should be

Accepted Answer

The effective-interest method involves calculating interest expense on the carrying amount of the bond at the beginning of the period. The carrying amount of the bond initially is the issue price ($7,648,000). The bond discount ($352,000) is amortized over the bond's life to interest expense, increasing the carrying amount of the bond towards its face value ($8,000,000) by the maturity date. Given:- Face value of bonds = $8,000,000- Issue price = $7,648,000- Bond discount = $352,000- Annual coupon rate = 9%- Market rate (yield) = 10%- Bonds issued on July 1, 2013, and mature on July 1, 2019 (6 years)- Interest is payable annually on June 30To find the unamortized bond discount at June 30, 2015, we first need to calculate the interest expense for each year using the effective-interest method and then determine how much of the bond discount has been amortized by that date.1. Calculate the interest expense for the first year:Interest expense for the first year = Carrying amount at the beginning * Market rate= $7,648,000 * 10% = $764,8002. Calculate the actual cash paid for interest in the first year:Cash paid = Face value * Coupon rate= $8,000,000 * 9% = $720,0003. The difference is the amount of discount amortized in the first year:Amortized discount in the first year = Interest expense - Cash paid= $764,800 - $720,000 = $44,8004. Update the carrying amount for the end of the first year:New carrying amount = Old carrying amount + Amortized discount= $7,648,000 + $44,800 = $7,692,800Repeat these steps for the second year:1. Interest expense for the second year = $7,692,800 * 10% = $769,2802. Cash paid remains the same = $720,0003. Amortized discount in the second year = $769,280 - $720,000 = $49,2804. New carrying amount = $7,692,800 + $49,280 = $7,742,080Total discount amortized in two years = $44,800 + $49,280 = $94,080Unamortized bond discount at June 30, 2015 = Original discount - Total discount amortized= $352,000 - $94,080 = $257,920

Question 3

On January 1, 2015, Doty Co. redeemed its 15-year bonds of $5,000,000 par value for 102. They were originally issued on January 1, 2003 at 98 with a maturity date ofJanuary 1, 2018. The bond issue costs relating to this transaction were $300,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)?

Accepted Answer

The loss on redemption includes the premium paid, unamortized bond issue costs, and unamortized discount or premium on the bonds. The bonds were redeemed for 102% of their par value, so Doty paid $5,100,000 (102% of $5,000,000). They were originally issued at 98, meaning they were issued for $4,900,000 (98% of $5,000,000), resulting in a $100,000 discount. Over 15 years, the annual amortization of the discount and bond issue costs is $20,000 (($100,000 discount + $300,000 bond issue costs) / 15 years). Since the bonds were redeemed after 12 years, the total amortized amount is $240,000 (12 years * $20,000/year), leaving $160,000 ($460,000 - $240,000) unamortized (discount and bond issue costs combined). The redemption price was $5,100,000, and the book value of the bonds at redemption was $4,840,000 ($5,000,000 par - $100,000 unamortized discount + $60,000 unamortized bond issue costs), resulting in a loss of $260,000 ($5,100,000 - $4,840,000). However, the correct calculation for the loss should consider the correct components and their amounts, leading to recognizing the premium paid over par value and the remaining unamortized amounts correctly.

Question 4

On January 1, 2014, Solis Co. issued its 10% bonds in the face amount of $6,000,000, which mature on January 1, 2024. The bonds were issued for $6,810,000 to yield 8%, resulting in bond premium of $810,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2014, Solis's adjusted unamortized bond premium should be

Accepted Answer

To determine the adjusted unamortized bond premium at December 31, 2014, we need to first calculate the amount of bond premium to be amortized in the first year.

The total bond premium is $810,000, to be amortized over 20 years (the life of the bonds). Using the effective-interest method and the information given, we can calculate the annual amortization as follows:

Interest expense for 2014 = ($6,000,000 × 0.08) = $480,000
Amortization of bond premium for 2014 = ($810,000 × (480,000/6,000,000)) = $64,800

Therefore, the adjusted unamortized bond premium at December 31, 2014 is:

$810,000 - $64,800 = $745,200

Thus, the correct answer is B) $754,800.

Question 5

On its December 31, 2014 balance sheet, Emig Corp. reported bonds payable of $3,000,000 and related unamortized bond issue costs of $160,000. The bonds had been issued at par. On January 2, 2015, Emig retired $1,500,000 of the outstanding bonds at par plus a call premium of $35,000. What amount should Emig report in its 2015 income statement as loss on extinguishment of debt (ignore taxes)?

Accepted Answer

To calculate the loss on extinguishment of debt, we need to compare the carrying amount of the bonds (which includes the bonds payable and the related unamortized bond issue costs) with the amount paid to retire them.

Carrying amount of the bonds = $3,000,000 + $160,000 = $3,160,000
Amount paid to retire the bonds = $1,500,000 + $35,000 = $1,535,000

Therefore, the loss on extinguishment of debt = $3,160,000 - $1,535,000 = $1,625,000

However, we only need to report the amount of the loss that is related to the call premium, which is $35,000. Therefore, the answer is option D, $115,000. ($35,000 call premium + $80,000 amortization of bond issue costs)

Question 6

Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar.)The December 31, 2014 balance sheet of Wolfe Co. included the following items:  The bonds were issued on December 31, 2012 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization.)On April 1, 2015, Wolfe retired $400,000 of these bonds at 101 plus accrued interest.

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 7

A ten-year bond was issued in 2013 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2015, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2015 should have equaled the

Accepted Answer

The bond liability removed should equal the face amount less the unamortized discount, as this represents the carrying amount of the bond at the time of the call.

Question 8

Use the following information for questions *103 through *105:
On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year.
-Nolte should recognize a gain or loss on the transfer of the equipment of

Accepted Answer

The fair value of the equipment transferred to Piper is $870,000, whereas the carrying amount of the equipment is $750,000 ($1,440,000 cost - $690,000 accumulated depreciation). Therefore, Nolte should recognize a gain of $120,000 ($870,000 - $750,000). There is no indication in the question that a loss should be recognized.

Question 9

On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2014?

Accepted Answer

First, we need to calculate the amount of semiannual interest payments:

$4,000,000 x 10% x 6/12 = $200,000

Next, we need to calculate the bond discount:

$4,000,000 - $3,541,184 = $458,816

Since the bond discount is amortized over the life of the bond, we need to calculate the amount of bond discount amortization for the first six months:

$458,816 x 12% x 6/12 = $27,529

Finally, we can calculate the interest expense for the six months ended June 30, 2014:

$200,000 + $27,529 = $227,529

Therefore, the answer is choice C, $212,471.

Question 10

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

Accepted Answer

The answer of In recent year Cey Corporation had net...

Question 11

Eddy Co. is indebted to Cole under a $800,000, 12%, three-year note datedDecember 31, 2013. Because of Eddy's financial difficulties developing in 2015, Eddy owed accrued interest of $96,000 on the note at December 31, 2015. Under a troubled debt restructuring, on December 31, 2015, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of $720,000. Eddy's acquisition cost of the land is $580,000. Ignoring income taxes, on its 2015 income statement Eddy should report as a result of the troubled debt restructuring

Accepted Answer

The answer of Eddy Co. is indebted to Cole under...

Question 12

Use the following information for questions *103 through *105:
On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year.
-Nolte should record interest expense for 2015 of

Accepted Answer

The answer of Use the following information for questions *103...

Question 13

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014, contained the following accounts.  The total long-term liabilities reported on the balance sheet are

Accepted Answer

The answer of The adjusted trial balance for Lifesaver Corp....

Question 14

On June 30, 2015, Omara Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2025. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2015 were $210,000 and $60,000, respectively. On June 30, 2015, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

Accepted Answer

The net carrying amount is calculated by taking the face amount of the bonds ($6,000,000), subtracting the unamortized bond discount ($210,000), and subtracting the deferred bond issue costs ($60,000). This results in a net carrying amount of $5,730,000 ($6,000,000 - $210,000 - $60,000).

Question 15

On January 1, 2010, Goll Corp. issued 2,000 of its 10%, $1,000 bonds for $2,080,000. These bonds were to mature on January 1, 2020 but were callable at 101 any time after December 31, 2013. Interest was payable semiannually on July 1 and January 1. OnJuly 1, 2015, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2015 on this early extinguishment of debt was

Accepted Answer

The gain on early extinguishment of debt is calculated by comparing the carrying amount of the bonds at the time of redemption to the redemption price. The bonds were issued at a premium ($2,080,000 for bonds with a face value of $2,000,000), and the premium is amortized over the life of the bonds. By July 1, 2015, 5.5 years of the 10-year term have passed, so more than half of the premium has been amortized. The redemption price is 101% of the face value, or $2,020,000 (101% of $2,000,000). The carrying amount is less than the redemption price, resulting in a gain. The exact gain depends on the amount of premium amortized by the redemption date, but without the precise amortization calculation, we know the gain is due to the carrying amount being lower than the redemption price.

Question 16

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

Accepted Answer

The answer of Paige Co. took advantage of market conditions...

Question 17

On July 1, 2014, Spear Co. issued 2,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2014 and mature on April 1, 2024. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?

Accepted Answer

Spear Co. issued the bonds at 99, which means they were issued at 99% of their face value. The face value of the bonds is $2,000,000 (2,000 bonds x $1,000 each). At 99%, the issuance amount is $1,980,000. Additionally, since the bonds were issued on July 1, 2014, and interest is payable semiannually, Spear Co. also received accrued interest for three months (April to July) amounting to $50,000 (2,000 bonds x $1,000 x 10% x 3/12), making the total amount received $2,030,000.

Question 18

Grider Industries, Inc. issued $10,000,000 of 8% debentures on May 1, 2014 and received cash totaling $8,872,628. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2022. The firm uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%.
InstructionsCalculate the total dollar amount of discount or premium amortization during the first year (5/1/14 through 4/30/15) these bonds were outstanding. (Show computations and round to the nearest dollar.)

Accepted Answer

The answer of Grider Industries, Inc. issued $10,000,000 of 8%...

Question 19

On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:  
Instructions
(a) Calculate the issue price of the bonds.
(b) Without prejudice to your solution in part 
(a), assume that the issue price was $2,652,000. Prepare the amortization table for 2015, assuming that amortization is recorded on interest payment dates using the effective-interest method.

Accepted Answer

The answer of On January 1, 2015, Piper Co. issued...

Question 20

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.(a) On April 1, 2013, Quirk issued $800,000, 9% bonds for $860,589 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2023.(b) On July 1, 2015 Quirk retired $240,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.

Accepted Answer

The answer of Prepare journal entries to record the following...

Quiz 14: Long-Term Liabilities

On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2014?

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014, contained the following accounts. The total long-term liabilities reported on the balance sheet are

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

On July 1, 2014, Spear Co. issued 2,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2014 and mature on April 1, 2024. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?