Exam 2: Non-Current Financial Liabilities

On May 1, 2020, SBC INC. buys a computer listed for $12,600. The office supply store agrees to accept a $1,600 down payment and a $11,000, three-year note payable at $3,500 per year. The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities. At what amount will the note be recorded at in the accounting records?

On April 15, 2020, Cando Inc. sold $10,000,000 of five-year, 3% bonds for $9,972,469. From the proceeds, Cando paid its investment bank a $200,000 sales commission. Interest is payable semi-annually on April 15 and October 15. What is the effective rate of interest (round to 2 decimal places)?

Contrast the two methods used by investment banks when selling bonds on behalf of a company, their client.

What are some considerations in determining a safe level of debt?

Describe the three steps for derecognition of a financial liability prior to maturity.

Cindy Corp sold $400,000 of three-year bonds for $300,500. Interest is of 7.5% is payable annually. What is the effective rate of interest (round to 2 decimal places)?

Which of the following would be a "non-current liability"?

A $100,000 5-year 7% bond is issued on January 1, 2020. The bond pays interest annually. The market rate is 5%. What is the selling premium or discount on the bonds, rounded to nearest dollar?

What are the reasons for issuing bonds rather than using a bank loan?

Compare and contrast the two methods for amortizing the discount/premium. Interest expense in the first period is higher under which method for bonds sold at a discount? For bonds sold at a premium? Why does IFRS require public companies to use the effective interest method? Why do the Accounting Standards for Private Enterprises allow companies to use the straight-line method?

What is the "best efforts" approach?

Define the following: -Callable bonds

Why do lenders avoid lending large amounts of money to one borrower?

Explain what an "in-substance defeasance" is and whether this arrangement results in the derecognition of a financial liability.

Which statement is correct about financial leverage?

Offsetting is the practice of showing the net amount of related assets and liabilities on the balance sheet, rather than showing each of the components separately. State and explain the pros and cons of offsetting assets against liabilities.

When will bonds sell at a premium?

Which statement best explains the concept of "leverage"?

Why do bonds often include covenants?

Canaroo Inc. sold $800,000 of two-year bonds for $701,500 less commissions of $50,500. Interest is of 5.5% is payable annually. What is the effective rate of interest (round to 2 decimal places)?