Exam 16: Financing Liabilities

When allocating proceeds from the issuance of bonds with stock warrants,U.S.GAAP allocates the proceeds between the debt and equity components using the proportional method when detachable stock warrants have a determinable market value.

When exercising the warrants,the firm removes the additional paid-in capital-stock warrants account,credits common stock for the par value,and credits the remainder to additional paid-in capital.

Georgia International borrowed $1,000,000 for eight months from its bank during the current year.Interest is payable in full on the due date of the note. Required: Determine the amount of interest expense for the current year based on the following borrowing dates,fiscal year end dates,and interest rates.

Typically when convertible bonds are issued using GAAP,the journal entry to record the issue contain ________.

The selling price of a bond is the ________.

Barker Industries issued $5,000,000 of bonds at 104.Each bond contains 20 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50.Immediately after the issue,the warrants were selling for $4 each and the bonds without the warrants were selling for $1,010.How much will be credited to Paid-in Capital-Stock Warrants?

The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note.Each note payment is $47,690.How much interest is Hudson paying over the life of the loan?

When bonds are issued at par,the market rate is equal to the stated rate.

Callable obligations are liabilities for which the creditor can require immediate payment when specified conditions exist.

The incremental method allocates proceeds from the issuance of bonds with warrants between debt and equity based on relative separate fair values of the bonds and warrants.

Lincoln,Inc.issued $500,000 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.The bonds sold at $493,251 including accrued interest. Required: Prepare the journal entries for the sale of the bonds and the December 31 payment for the interest for these bonds.

When bonds are sold between interest dates,the issuer will pay the bondholder a lower amount of interest on the next interest date.

When determining how to compute the present value of a bond,the buyer computes the ________.

Jorge Corp issued $500,000 of 6%,5-year bonds on January 2,2016 for par.The company incurred $25,000 in bond issue costs.What is the correct amount of bond issue expense to be recorded each semi-annual interest period using GAAP?

IFRS rules for reclassification of short-term debt are similar to U.S.GAAP except the short-term debt refinancing must occur ________.

Distinguish between convertible bonds and bonds issued with stock warrants.

Describe the difference between the valuation of convertible bonds at issue using GAAP and IFRS.

A technical default occurs when a debtor misses interest and/or principal payments.

Given the following information from an amortization table,compute the effective interest expense,discount amortization,and the carrying value for the next line of the table:

Bonds sold with nondetachable stock warrants do not recognize the value of the stock warrants.