Exam 14: Long-Term Liabilities

On June 30, 2015, Omara Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2025. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2015 were $210,000 and $60,000, respectively. On June 30, 2015, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

Grove Corporation issued $4,000,000 of 8% bonds on October 1, 2014, due on October 1, 2019. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Grove Corporation closes its books annually on December 31. Instructions (a) Complete the following amortization schedule for the dates indicated. (Round all answers to the nearest dollar.) Use the effective-interest method. (b) Prepare the adjusting entry for December 31, 2015. Use the effective-interest method. (c) Compute the interest expense to be reported in the income statement for the year ended December 31, 2015.

On January 1, 2014, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $4,000,000 zero-interest-bearing note payable in 5 equal annual installments of $800,000, with the first payment due December 31, 2014. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,884,000 at January 1, 2014. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2014 after adjusting entries are made, assuming that the effective-interest method is used?

The interest rate of variable-rate mortgages is tied to changes in the fluctuating market rate.

Putnam Company's 2014 financial statements contain the following selected data: Putnam's times interest earned for 2014 is

If the market rate is greater than the coupon rate, bonds will be sold at a premium.

On January 1, 2008, Hernandez Corporation issued $9,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).On December 31, 2014, when the fair value of the bonds was 96, Hernandez repurchased $2,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2014. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as

Harper Company commonly issues long-term notes payable to its various lenders. Harper has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Harper has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Instructions (a) Prepare the journal entry at December 31 (Harper's year-end) for 2013, 2014, and 2015 to record the fair value option for these notes. (b) At what amount will the note be reported on Harper's 2014 balance sheet? (c) What is the effect of recording the fair value option on these notes on Harper's 2015 income?

The following information applies to both questions 77 and 78. On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. -The entry to record the issuance of the bonds would include a credit of

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,144. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2014 balance sheet?

The times interest earned ratio is computed by dividing income before interest expense by interest expense.

In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.

In the recent year Hill Corporation had net income of $210,000, interest expense of $60,000, and tax expense of $90,000. What was Hill Corporation's times interest earned ratio for the year?

Use the following information for questions *103 through *105: On December 31, 2012, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,800,000 note with $180,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $870,000, an original cost of $1,440,000, and accumulated depreciation of $690,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2015, reduces the face amount of the note to $750,000, and reduces the interest rate to 6%, with interest payable at the end of each year. -Nolte should record interest expense for 2015 of

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

Use the following information for questions 60 through 62: On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: -The issue price of the bonds is

A bond may only be issued on an interest payment date.

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.(a) On April 1, 2013, Quirk issued $800,000, 9% bonds for $860,589 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2023.(b) On July 1, 2015 Quirk retired $240,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.