Exam 14: Financing Liabilities: Bonds and Long-Term Notes Payable

Exhibit 14-2 A $500,000, ten-year, 7% bond issue was sold to yield 6% interest payable annually. Actuarial information for 10 periods is as follows: -Refer to Exhibit 14-2. At date of issuance cash received would be

In the event of a debt restructuring, the required disclosures are only for the related income tax effects associated with the debt.

The effective interest method of amortization assumes a stable

When the market rate of interest is equal to the contract rate of interest, the bonds should sell at

On December 31, 2015, Albright Bank restructures an $800,000, 12% note receivable with $192,000 of accrued interest so that the new principal is $750,000, payable in four years at 10%. Present value factors for n = 4 years are: Required: a. Prepare the journal entry to record the loss on restructuring. b. Prepare the journal entry to record the 2015 interest revenue. c. Compute the carrying value of the note on December 31, 2013. d. Compute the carrying value of the note on December 31, 2019 before the payment is received.

Exhibit 14-10 Hawk issued $500,000 of its ten-year 5% bonds for $463,197 on October 1, 2016 so as to yield an effective rate of 6%. Interest is paid each October 1 and April 1 -Refer to Exhibit 14-9. Assuming Hawk uses the effective interest method, the adjusting entry on December 31, 2016, would include

The rate of interest used to compute the present value of an impaired note is the

Which of the following statements is false?

Nassau Co. owes Dominion Ltd. $115,000 on a note payable, plus $7,500 interest. Dominion agrees to accept land in full settlement. The land is recorded on the books of Nassau at $55,600 and is currently worth $85,000. Required: Prepare the journal entries to record the debt settlement on the books of Nassau.

Which of the following is not a reason for the issuance of long-term liabilities?

For bonds, nominal rate is another term for contract rate.

When a company amortizes a premium, the interest expense recorded is

Cherry Corporation sold $200,000 of 12% bonds at par. Each $1,000 bond carried ten warrants, each of which allows the holder to acquire one share of $10 par common stock for $30 per share. After issuance, the bonds were quoted at 99 ex rights, and the warrants were quoted at $4 each. Cherry Corporation should have assigned to the rights a value of

In June 2016, Goslyn Corporation issued a three-year non-interest-bearing note with a face value of $15,000 and received cash of $11,025.00 in exchange. The difference between the face value and the cash proceeds is accounted for as

If a company sells its bonds at face value, the effective interest rate is

An unsecured bond is called a

At issuance, bonds payable with a conversion privilege are accounted for as

The Bellefonte Company is delinquent on a $100,000, 12% note plus $20,000 accrued interest to the Hollywood National Bank. The note was due on June 1, 2016. On June 2, 2016, the bank agrees to restructure the debt by forgiving the accrued interest, reducing the face value of the note to $90,000, reducing the interest rate to 7%, and extending the maturity date to June 1, 2019. The interest is due each year on June 1. Required: Prepare the journal entries for Bellefonte Company to record the restructuring on June 2, 2016, and the payment of interest on June 1, 2017.

Sand Castle Co. borrowed $40,000 by issuing a four-year non-interest-bearing note to a customer. In addition, Sand Castle agreed to sell inventory to the same customer at reduced prices over the four-year period. Sand Castle's incremental borrowing rate was 8%, so the present value of the note was $29,400. The customer agreed to purchase an equal amount of inventory each year over the four-year period. Required: Prepare journal entries to: a. Issue the note b. Adjust at the end of the first year c. Adjust at the end of the second year

Exhibit 14-6 Jones Corporation issued $400,000 of its 8%, 10-year bonds, dated January 1, 2016, at face value plus accrued interest on May 1, 2016. Interest is paid on January 1 and July 1. Jones uses the most common method to record the sale of the bonds between interest payment periods. -Refer to Exhibit 14-6. The entry to record the sale would include a