Exam 14: Financing Liabilities

Parrish Industries has bonds outstanding (originally sold for $5,400,000) in the face amount of $5,700,000 with a current bond discount of $100,000. The bonds were selling at 104 on the market at its year end. What should be the balance of the Fair Value Adjustment on Bonds Payable?

Under U.S. GAAP, bond issue costs are capitalized and amortized over the life of the bonds.

Sheets, Inc. sold $1,000,000 of bonds at 98 on January 1, 2018. The 4-year, 6% bonds pay interest each year on December 31. Sheets incurred $35,000 in bond issue costs using GAAP. Required: Prepare the journal entries to record the issuance of the bonds and the first annual interest payment.

Walker, Inc. issued $600,000 of 5%, 5-year bonds dated January 1, 2018 on July 1, 2018 when the market required 6% interest for bonds of similar risk. The bonds pay interest on December 31 each year. Required: Determine the selling price of the bonds and prepare the journal entries for the issuance of the bonds and the payment of the first interest payment.

Short-term notes payable are reported on the balance sheet as current liabilities when they are due and payable within one year from the balance sheet date or operating cycle, whichever is longer.

Muir, Ltd. measures its trading securities at fair value. It has liabilities that it also measures using the fair value option. Muir has bonds outstanding (originally sold for $4,320,000) in the face amount of $3,600,000 with a current bond premium of $612,000. The bonds were selling at 101 on the market at its year end. If the company elects the fair value option for these bonds, at what value should it report for these bonds on its balance sheet at year end?

Darouich Industries decided to retire an $4,000,000 bond issue before its due date. The bonds were callable by the company at 102. At the same time, the bonds were selling at 101 on the open market. The company was able to buy $2,000,000 of the bonds at 101 and called the remaining bonds. At that time, there was $500,000 in the Discount on Bonds Payable account. Compute the gain or loss on the retirement of the called bonds.

Jorge Corp. issued $550,000 of 6%, 10-year bonds on January 2, 2018 for $540,000. In addition, the company incurred $50,000 in bond issue costs. Interest is paid annually. What is the effective interest rate for the bonds given the information provided? Round your answer to two decimal places.

The additional cash received when bonds are issued at a premium is accounted for as an increase of future interest expense.

Given the following information from an amortization table, compute the interest expense and the carrying value for the next line of the table, rounding your answer to the nearest dollar: 2\% Cash Interest 1\% Effective Interest Premium Amortization Carrying Value \ 800 \ 412 \ 388 \ 40,812

Companies using fair value disclosures must disclose the valuation methods used and assumptions made to arrive at the fair value of the liabilities.

Xenia Corporation issued 3,000 term bonds with a face value of $1,000 each and no additional features for $3,200,000. The bonds' selling price indicated that the bonds were paying interest that was ________.

A primary benefit of reclassification of short-term debt into long-term debt is to improve ________.

Gordon Corporation issued $500,000 par value, 2%, 5-year bonds on January 1, 2019. The bonds mature on December 31, 2023 and pay semi-annual interest. The market rate on the date of issue is 4%. Gordon has elected to use the straight-line method for discount amortization. What is the discount on bonds payable on the date of issue?

Actual default by a bond issuer occurs when the debtor ________.

Ripa, Inc. issued $8,000,000 of bonds at par. The bonds contained nondetachable stock warrants. Similar bonds without the warrants were selling at 99. By what amount will Additional Paid-in Capital-Stock Warrants be credited?

Bonds typically have a face value of $1,000.

Describe the difference between GAAP and IFRS in accounting for bond issue costs.

On January 1, the Hudson Company borrowed $190,000 to purchase machinery and agreed to pay 8% interest for six years on an installment note. Each note payment is $41,100 and is due on the last day of the year. What is the carrying value of the loan at the end of the first year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

$100,000 of five-year bonds are sold for $97,300 on the issue date. Interest of $4,000 is paid each year until the bonds are repaid. What is the total interest expense to the company for issuing these bonds?