Exam 14: Long-Term Liabilities and Receivables

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

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

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.

When the conversion of bonds payable to common stock is recorded under the book value method and the par value of the common stock exceeds the book value of the bonds, the difference is recorded as a

Singer Corporation sold $200, 000 of 12% bonds at par.Each $1, 000 bond carried ten warrants, each of which allows the holder to acquire one share of $10 par common stock for $30 per share.After issuance, the bonds were quoted at 99 ex rights, and the warrants were quoted at $4 each.Singer Corporation should have assigned to the rights a value of

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,

Discount on Bonds Payable is a(n)

Exhibit 14-5 Quail issued $200, 000 of its ten-year 12% bonds for $224, 924 on October 1, 2010.The effective rate on the bonds was 10% and interest is paid each October 1 and April 1. - Refer to Exhibit 14-5.Assuming Quail uses the effective interest method, the adjusting entry on December 31, 2010, would include a

On January 1, 2010, Tran, Inc.rendered services to another company at an agreed price of $80, 000.Tran received a $20, 000 cash down payment and a note for the balance.The note was non-interest-bearing and was to be paid off in three equal installments beginning December 31, 2010.An assumed 11% interest rate is implicit in the agreement.Actual information for 11%, three periods, follows: Present value of 1 0.73119 Present value of annulity of 1 2.44371 What amount of interest revenue should Tran record in 2011?

On January 1, 2010, the Krueger Co.issued $140, 000 of 20-year 8% bonds for $172, 000.Interest was payable annually.The effective yield was 6%.The effective interest method was used to amortize the premium.What amount of premium would be amortized for the year ended December 31, 2011?

Which of the following is not another term for the true rate or cost of borrowing considering compound interest?

Exhibit 14-11 Hernandez, Ltd.issued a three-year, $100, 000, non-interest-bearing note to a customer on January 1, 2010.Hernandez also agrees to sell inventory to the customer at reduced rates over a five-year period.Hernandez's incremental interest rate is 10%, and the present value of the note is $75, 132. - Refer to Exhibit 14-11.Hernandez's total liabilities after recording the note have increased by

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:

When the market rate of interest is less than the contract rate of interest, the bonds should sell at

Exhibit 14-5 Quail issued $200, 000 of its ten-year 12% bonds for $224, 924 on October 1, 2010.The effective rate on the bonds was 10% and interest is paid each October 1 and April 1. - Refer to Exhibit 14-5.Assuming Quail uses the effective interest method and reversing entries, the entry to record the payment of interest on April 1, 2011, would include a

When a company issues a long-term non-interest-bearing note payable in exchange for cash and special rights, the difference between the cash proceeds and the present value of the note is recorded as

Exhibit 14-12 Shaw owes Lawrence Co.$15, 000 on a note payable, plus $3, 000 of unpaid interest.Lawrence agrees to accept equipment in full settlement of the debt.The equipment is recorded on Shaw's books at $12, 000, and it is currently worth $14, 200. - Refer to Exhibit 14-12.What total amount of ordinary gains should be recorded by Shaw on this troubled debt restructuring?

A material gain or loss from debt refunding should be

After a troubled debt restructuring, which does not have to be disclosed by the debtor?

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.