Exam 14: Financing Liabilities

The debt component of convertible bonds issued using IFRS is the ________.

Harrison Corporation borrowed $36,000 from F&M Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

Short-term debt typically carries a higher interest rate than long-term notes.

Debtors in technical default may be required to reclassify long-term debt as short-term debt unless the creditor waives or loses the right to demand payment.

Given the following information from an amortization table, compute the interest expense, discount amortization, and the carrying value for the next line of the table, rounding your answer to the nearest dollar:: 6\% Cash Interest 7\% Effective Interest Discount Amortization Carrying Value \ 42,000 \ 47,340 \ 5340 \ 681,630

When the convertible bonds are issued with a beneficial conversion option, U.S. GAAP typically increases additional paid-in capital and IFRS typically increases other capital reserves.

A technical default occurs when a debtor misses interest and/or principal payments.

Bonds that do not pay cash interest are referred to as zero-coupon bonds.

Acme Entertainment had $1,600,000 of 6%, $1,000 par callable bonds outstanding on December 31, 2019, with a carrying value of $1,700,000. Acme decides to call the bonds on January 2, 2020. The call price is 103. Compute the gain or loss on early extinguishment of debt.

When a company has current debt that can be reclassified as long-term, it should do so because ________.

Under IFRS, the straight-line method of amortization can be used when the results are not significantly different from the effective interest method.

The stated interest rate is also referred to as the yield rate.

Debt covenants include all of the following except ________.

When bonds are sold at a discount between interest dates, the buyer ________.

Elmira, Inc. had $20,000,000 of callable bonds outstanding on December 31, 2018. The ten-year bonds were issued on January 1, 2012 for $21,000,000. Elmira can call the bonds at 102 anytime after January 1, 2018. At the end of 2018, the Premium on Bonds Payable account had a credit balance of $346,000. Acme decides to call the bonds on January 2, 2019. Required: 1. Compute the gain or loss on early extinguishment of debt. 2. Prepare the journal entry to record the debt extinguishment.

When the stated interest rate for bonds is lower than the market rate, the bonds will be issued at a discount.

Gordon Corporation issued $100,000 par value, 6%, 5-year bonds on January 1, 2019. The bonds mature on December 31, 2023 and pay semi-annual interest on June 30 and December 31. The market rate on the date of issue is 8%. Prepare the journal entries for the issuance of the bond and payment of the first interest payment, assuming that Gordon uses the straight-line method of discount amortization.

Miller, Inc. sold $1,000,000 of bonds at par on January 1, 2018. The 3-year, 6% bonds pay interest each year on December 31. Miller incurred $40,000 in bond issue costs and records transactions using IFRS. Required: 1. Compute the effective interest rate of the bond issue. 2. Prepare the journal entry to record the bond issuance.

Under the fair value option, companies can elect to value most types of financial assets and obligations at fair value even if they are not required to do so.

Hudson, Inc. issued $500,000 of 5%, 5-year bonds dated January 1, 2016 on July 1, 2016 when the market required 4% interest for bonds of similar risk. The bonds pay interest on December 31 each year. The bonds sold at $532,744 including accrued interest. Required: Prepare the journal entries for the sale of the bonds and the December 31 payment for the interest for these bonds.