Exam 2: Non-Current Financial Liabilities

Cynthia Dixie Accounting Inc.takes advantage of a well-known office furnishings store's low-interest-rate financing.Cynthia buys furniture on the first day of its fiscal year,signing a $19,000,five-year note.The note is payable in full at maturity.Interest is payable annually at 2%.The market rate of interest for similar transactions is 5%. Required: Prepare journal entries to record: a.The purchase of the office furniture. b.The payment of interest and related amortization of the discount at the end of year 1.

What are "secured bonds"?

What is the market rate?

Cartwright Corporation had a $1,350,000,5% bond available for issue on September 1,2017.Interest is to be paid quarterly beginning November 30^th.All of the bonds were issued at par on October 1^st.Prepare the journal entries for October 1^st and November 30^th.

What are "debentures"?

Why are banks able to pay such low interest rates on customer deposits?

When should an entity offset a financial asset and a financial liability?

How should non-current financial liabilities be recorded initially?

What are "callable bonds"?

Which statement best explains a "leveraged buyout"?

Fredericton Aerospace Inc.raised $5,369,210 by selling $5,000,000 of six-year,12% bonds dated January 1,2013.Fredericton used part of the proceeds to pay its investment bank's fee of $100,000 and related legal and accounting fees of $600,000. Interest is payable on June 30 and December 31 each year.Fredericton can call the bonds on January 1,2016 at 103.The company exercises this privilege,redeeming 40% of the bonds on the call date and retiring them.The company year ends on December 31. Required: Prepare journal entries to record: a.The issuance of the bonds on January 1,2013. b.Before completing the entries for parts (b)and (c),prepare the amortization table for the bonds through to December 21,2015.Prepare entry for the payment of interest and related amortization on December 31,2015. c.Repurchase of the bonds on January 1,2016.

Which statement is correct about the derecognition of an obligation before maturity?

Really Amazing Vacations Ltd.issues $1,000,000 of ten-year,10% bonds dated January 1,2017.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $1,048,801 sales price less the $80,000 fee charged by Really Amazing's investment bank.Really Amazing's year-end is December 31. Required: Prepare journal entries: a.The issuance of the bonds. b.Payment of interest and related amortization on July 1,2017. c.Accrual of interest and related amortization on December 31,2017.

Blue Sky Travel Inc.issues $2,000,000 of ten-year,8% bonds dated January 1,2017.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $1,821,367 sales price less the $20,000 fee charged by Blue Sky's investment bank.Blue Sky's year-end is December 31. Required: Prepare journal entries: a.The issuance of the bonds. b.Payment of interest and related amortization on July 1,2017. c.Accrual of interest and related amortization on December 31,2017.

Bailey's Gold Mines Inc.(BGMI)purchases a piece of land for the purpose of developing a gold mine.BGMI is legally required to remove all structures and convert the mine site to a wildlife sanctuary at the end of its estimated 10-year useful life.BGMI estimates that it will have to spend $11,000,000 to decommission the site and reclaim the land when operations cease.The present value of this $11,000,000 site restoration cost,assuming a discount rate of 5%,is $6,753,046.BGMI uses straight-line depreciation. Required: Prepare the journal entries to recognize this site restoration cost the company would record upon initial acquisition and subsequently.

Flint Corporation issues a $2,000,five-year,6% bond,dated January 1,2017,that pays interest on June 30 and December 31 and is sold at par on March 1,2017.Provide the journal entry on March 1,2017,and June 30,2017.

When will bonds sell without a premium or discount?

Explain how non-current liabilities are measured after initial recognition.

What is the role of debt rating agencies and what two benefits result from their rating a company?

What is a "covenant"?