Exam 14: Long-Term Liabilities

In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

The entry to record the issuance of the bonds would include a

On January 1, 2014, Solis Co. issued its 10% bonds in the face amount of $6,000,000, which mature on January 1, 2024. The bonds were issued for $6,810,000 to yield 8%, resulting in bond premium of $810,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2014, Solis's adjusted unamortized bond premium should be

The 12% bonds payable of Nyman Co. had a carrying amount of $3,120,000 onDecember 31, 2014. The bonds, which had a face value of $3,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2015, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is

Hurst, Incorporated sold its 8% bonds with a maturity value of $6,000,000 on August 1, 2013 for $5,892,000. At the time of the sale the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2015. By October 1, 2015, the market rate of interest has declined and the market price of Hurst's bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase $1,000,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds' call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations.

Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities at

Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will

A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $750,000. To extinguish this debt, the company had to pay a call premium of $250,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?

On January 1, 2014, Huber Co. sold 12% bonds with a face value of $1,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,077,250 to yield 10%. Using the effective-interest method of amortization, interest expense for 2014 is

A mortgage bond is referred to as a debenture bond.

The December 31, 2014, balance sheet of Hess Corporation includes the following items: The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes.

A ten-year bond was issued in 2013 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2015, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2015 should have equaled the

On January 1, Patterson Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of

Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

(a) What are the general rules for measuring and recognizing a gain or loss by the debtor on a settlement of troubled debt which includes the transfer of noncash assets?(b) What are the general rules for measuring and recognizing a gain and for recording future payments by the debtor in a troubled debt restructuring?

The interest rate written in the terms of the bond indenture is known as the

At December 31, 2014 the following balances existed on the books of Foxworth Corporation: If the bonds are retired on January 1, 2015, at 102, what will Foxworth report as a loss on redemption?

The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.