Exam 14: Financing Liabilities

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had a market value of $300,000. Hornet agreed to pay for the press in three equal installments beginning December 31, 2018. At the time, Hornet's incremental borrowing rate was 7%. Required: Compute the installment payments and prepare the three-year amortization table for the note payable. Prepare the journal entries to record the purchase of the machine, the first annual payment, and the final payment on the note.

Morrison Corporation borrowed $49,000 from Commercial Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid every three months until the 9-month note is paid. What is the total Interest Expense and the Interest Payable at December 31 of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest cent.)

Credit ratings have a direct impact on the interest rate demanded by lenders because it is a measure of risk to the lender.

When a bond sells at 102, this means the bondholder has paid $102 to acquire the bond.

Separate disclosures are required for the debt and equity components of hybrid securities that are separated on the balance sheet.

Given the following information from an amortization table for December 31, 2017, prepare the journal entry to record the accrual of interest at year end if the fiscal year of the company ends on September 30. Assume the last interest payment occurred on 6/30/2017, and the next interest payment on 12/31/2017. Round numbers to two decimal places. 6\% Cash Interest 5\% Effective Interest Premium Amortization Carrying Value \ 42,000 \ 35,333 \ 6,667 \ 700,000

A beneficial conversion option for convertible bonds payable is ________.

On January 2, 2017, Zamarano, Inc. issued 5,000 10-year, 6%, $1,000 bonds for $5,500,000. Interest is paid each December 31. The market rate of interest for non-convertible bonds is 5%. Each bond is convertible into 25 shares of Zamarano $2 Par Value common stock after two years. The market value of the stock on the date of the issue was $45. On January 2, 2021, when the carrying value of the bonds was $5,253,785, all of the bondholders converted the bonds to stock. Zamarano reports under IFRS. Required: 1. Compute the present value of the bond issue. 2. Prepare the journal entry to record the issuance of the bonds. 3. Record the conversion of the bonds.

When bondholders decide to exercise their convertible bonds, the company values the common stock at the ________. Assume there is no beneficial conversion option at bond issue.

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $280,000 on December 31, 2020 and asked for a 5% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the selling price of the machine given the terms and rates provided? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.)

On January 2, Andrew Corp. issued 1,000, $1,000 bonds to finance a new showroom. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 5% interest and the bonds are due December 31, Year 5. Required: 1. Compute the selling price of the bonds. 2. Prepare the entry to record the sale of the bonds. 3. Prepare the amortization table for the bonds. 4. Prepare the journal entries for the first annual interest payment and the final repayment of the bonds.

Derecognition of debt occurs when all of the following occur, except when the ________.

Distinguish between convertible bonds and bonds issued with detachable stock warrants.

For U.S. GAAP reporters, short-term debt can be reclassified as long-term when the company intends to refinance on a long-term basis and the company can ________.

A beneficial conversion option is an option to convert the debt to equity that is considered to be in the money.

When accounting for a convertible bond issue using IFRS, any equity component is ________.

On November 1, Yung Corp. borrowed $50,000 on a six-month note from its bank. Interest at 8% will be paid when the note is due. Record any journal entries necessary to record these transactions. Yung's fiscal year is the calendar year.

The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $47,690. How much interest is Hudson paying over the life of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

When bonds are sold between interest dates, the amount of accrued interest a buyer pays is equal to the face value of the bond times the market interest rate times the portion of a year since the prior interest date.

Neil Corporation issued 5,000 $1,000 bonds at 103. Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Neil's common stock for $50. Immediately after the issue, the bonds without the warrants were selling for $1,007. The stock warrants had no readily determinable value. How much will be credited to Additional Paid-in Capital-Stock Warrants?