Exam 16: Financing Liabilities

When bonds are issued with a beneficial conversion option,the present value of the bond issue is revalued as the net value of the bonds and ________.

Muir,lad.measures its trading securities at fair value.It has liabilities that it also measures using the fair value option.Muir has bonds outstanding (originally sold for $2,400,000)in the amount of $2,000,000 with a current bond premium of $340,000.The bonds were selling at 101 on the market at its year end.At what value should it report these bonds on its balance sheet at year end?

Actual default by a bond issuer occurs when the debtor ________.

Companies using fair value disclosures must disclose the valuation methods used and assumptions made to arrive at the fair value of the liabilities.

When working with bonds issued between interest dates,the accountant must ________.

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

Companies use a fair value adjustment account to adjust the related liability account when remeasuring the liability to its fair value.

Convertible bonds are one type of hybrid security.

Before computing the gain or loss on the early extinguishment,the company must amortize any discount,premium,or bond issue costs up to the retirement date.

Notes payable are reported on the balance sheet as current liabilities when they are due and payable within one year from the balance sheet date or operating cycle,whichever is longer.

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.

The additional cash received when bonds are issued at a premium is accounted for as an increase of future interest expense.

Neil Corporation issued $5,000,000 of bonds at 103.Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50.Immediately after the issue,the bonds without the warrants were selling for $1,010.The stock warrants had no readily determinable value.How much will be credited to Paid-in Capital-Stock Warrants?

Short-term debt typically carries a higher interest rate than long-term notes.

Mainord Corporation issues $100,000 of 10-year,6% convertible bonds.Each $1,000 bond is convertible into 25 common shares.On the date of the issue,the shares had a market value of $50 per share.What is the intrinsic value of the conversion feature?

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

The effective interest rate properly reflects the effective cost of borrowing at the ________.

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,assuming the last interest payment occurred on 6/30/2017.

Jacobsen,Inc.borrowed $500,000 from F&M Bank on June 15 of the current year.The bank required 6% interest.Interest will be paid when the 12-month note becomes due.What amount should be accrued as Interest Payable for the December 31 end of the current year?

Walker,Inc.issued $600,000 of 5%,5-year bonds dated January 1,2016 on July 1,2016 when the market required 6% interest for bonds of similar risk.The bonds pay interest on December 31 each year. Required: Determine the selling price of the bonds and prepare the journal entries for the issuance of the bonds and the payment of the first interest payment.