Exam 14: Long-Term Liabilities and Receivables

Under the straight-line amortization method, interest expense on a bond sold at a discount is equal to the

The theoretical justification in support of the effective interest method of amortizing a discount is that it represents

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.

Which of the following bonds pay no interest until maturity?

The straight-line method of amortization assumes a stable

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows: 6\% 7\% Present value of 1 .558 .508 Present value of an anmuity of 1 7.360 7.024 - Refer to Exhibit 14-4.At date of issuance cash received would be

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

A theoretical difference between the effective interest method and the straight-line amortization method is that

On January 2, 2010, Laura Co.issued 8% bonds with a face amount of $1, 000, 000 maturing on January 2, 2020.The bonds were issued to yield 12%, resulting in a discount.Laura incorrectly used the straight-line method instead of the effective interest method to amortize the discount.How is the carrying amount of the bonds affected by this error as of December 31, 2011?

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

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?

Which of the following may not be equal to the contract rate of interest?

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.

If a company sells its 20-year bonds at a premium, the premium account should be reported on the balance sheet as a(n)

Current GAAP requires companies

Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were: Bonds \ 980 (ex rights) Warrants \ 14 each Common stock \ 60 each -Refer to Exhibit 14-8.The entry to record the sale of the bonds would include a

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

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows: 6\% 7\% Present value of 1 .558 .508 Present value of an anmuity of 1 7.360 7.024 - Refer to Exhibit 14-4.Using the effective interest method interest expense at the end of the first year is

When the market rate of interest is equal to the contract rate of interest, the bonds should sell at

If a company sells its bonds at more than face value, the effective interest rate is