Exam 16: Financing Liabilities

Determine the type of Bonds that match the following bond descriptions:

A beneficial conversion option for bonds payable is ________.

The highest Standard and Poor credit rating is a AAA rating.

Arco,Inc.issued $500,000 of 4%,10-year convertible bonds at 102 on July 1,2012.On July 1,2017,bondholders converted all bonds to common stock when the market value of the stock was $40.Arco accounts for premiums and discounts on a straight-line basis.Each $1,000 bond is convertible into 30 shares of Arco's $5 par value stock.What is the proper entry to record the conversion of the bonds?

On January 2,Andrew Corp.issued 1,000,$1,000 bonds to finance a new showroom.The bonds are 5-year,6% bonds that pay interest on December 31 each year.When issued,investors required 5% interest and the bonds are due December 31,Year 5. Required: 1.Compute the selling price of the bonds. 2.Prepare the entry to record the sale of the bonds. 3.Prepare the amortization table for the bonds. 4.Prepare the journal entries for the first annual interest payment and the final repayment of the bonds.

A primary benefit of reclassification of short-term debt into long-term debt is to improve ________.

Sheets,Inc.sold $1,000,000 of bonds at par on January 1,2016.The 4-year,6% bonds pay interest each year on December 31.Sheets incurred $35,000 in bond issue costs using GAAP. Required: Prepare the journal entries to record the issuance of the bonds and the first annual interest payment.

For U.S.GAAP reporters,when a long-term obligation becomes payable within the next year,it should be reclassified as a current liability when it will be paid with current assets or the creation of another current liability.

If a $1,000 bond is issued with a conversion feature that is convertible into 40 shares of common stock,what is the implied exercise price of the shares?

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

Derecognition of debt occurs when all of the following occur except,when the ________.

Under IFRS,debtors in technical default may continue to classify their debt as long-term if the creditor grants a waiver anytime before the financial statements are issued.

Callable bonds can be paid off and retired at the option of the issuing company at specified dates.

The contract between a corporation and its bondholders is a ________.

Harrison Corporation borrowed $35,000 from F&M Bank on June 1 of the current year.The bank required 8% interest.Interest will be paid when the nine-month note becomes due.What is the interest expense for the current year?

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars.The press was installed on January 2,2016.The press had no known market value.Hornet agreed to pay $300,000 December 31,2018 and asked for a 3% interest rate.At the time,Hornet's incremental borrowing rate was 7%.The seller agreed to the terms but requested interest payments on December 31,each year. Required: Compute the selling price of the machine.Prepare the three year amortization table for the note payable.Prepare the journal entries to record the purchase of the machine,the first annual interest payment,and the final payment of interest and principal.

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars.The press was installed on January 2,2016.The press had a market value of $300,000.Hornet agreed to pay for the press in three equal installments beginning December 31,2016.At the time,Hornet's incremental borrowing rate was 7%. Required: Compute the installment payments and prepare the three year amortization table for the note payable.Prepare the journal entries to record the purchase of the machine,the first annual payment,and the final payment on the note.

A company records interest expense by debiting the expense account and crediting notes payable.

When a company has current debt that can be reclassified as long-term,it should do so because ________.

When the bonds are converted,the fair value of the equity issued is not taken into consideration.