Exam 14: Financing Liabilities: Bonds and Notes Payable

Exhibit 14-3 Jones Corporation issued $400,000 of its 8%, 10-year bonds, dated January 1, 2013, at face value plus accrued interest on May 1, 2013. 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 14-3. The entry to record the sale would include a

On January 1, 2015, Leslie Co. issued $100,000 of 8% ten-year bonds at 97. Issuance costs amounted to $2,000. On July 1, 2020, all of the bonds were called at 103. What was the loss on bond retirement, assuming the use of straight-line amortization?

Exhibit 14-7 On January 1, 2014, Jewels, Inc. sold $200,000 of its 12% five-year bonds to yield 10%. Interest is paid each January 1 and July 1, and effective interest amortization is used. On May 1, 2016, Jewels, retired $100,000 of the bonds at 104. The book value of the bonds on December 31, 2015, was $212,926. -Refer to Exhibit 14-7. Which of the following would be included in the interest accrual entry on May 1, 2016?

A $700,000, 20-year, 8% bond issue was sold to yield 10%. Interest was payable annually. Actuarial information for 20 periods follows: Required: Compute the amount of cash that was received when the bonds were issued.

Grandee Company sells $200,000 of 13% bonds dated January 1, 2013, on that date, for $204,650.74 to yield 12%. The bonds pay interest annually on December 31, and bonds of $40,000 mature on each December 31 for the next 5 years. Grandee uses the effective interest method of amortization. The entry to record the issuance would include a

At the time of the issuance of a note payable the incremental interest rate is what one would pay for similar financing.

The bonds outstanding method of amortizing a discount on serial bonds

Eatsy Corp. owes Hardy, Inc., $30,000 on a note payable, plus $1,800 interest. Hardy agrees to accept 400 shares of Eatsy common stock in full settlement of the debt. Eatsy stock has a par value of $10 and a current market value of $70 per share. As a result of the debt restructuring, Eatsy Corp. should record an

When a company issues bonds, the selling price of the bonds is determined by a number of factors. Two factors that affect bond prices are the bond's contract (stated) rate and its effective yield (effective rate). Required: Explain the effect on a bond's selling price caused by the stated and effective rates.

Exhibit 14-3 Jones Corporation issued $400,000 of its 8%, 10-year bonds, dated January 1, 2013, at face value plus accrued interest on May 1, 2013. 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 14-3. The entry to record the payment of interest on July 1, 2013, would include a

What is the difference between the straight line method and the effective interest amortization? Which one is the more common method utilized?

The proper procedure for computing the amortization of a premium using the effective interest method includes multiplying

The creditor of a restructured loan calculates interest revenues during the periods after restructuring based on the

Which of the following characteristics of a bond would an investor look for if they are wanting to become a shareholder at a later date in time?

Durham, Inc. issued $500,000 of its ten-year zero-coupon bonds on January 1, 2013, to yield 9%. The effective interest method is used. Required: a.Compute the cash proceeds from the sale of the bond. b.Prepare the journal entry to record the sale. c.Prepare the journal entry to record interest for 2014.

When a company offers bondholders a sweetener to induce them to convert their bonds to common stock, the cost of this inducement is reflected in the

How do the classification requirements of IFRS for instruments as financial liabilities versus equity differ from those of GAAP?

In which of the following situations will the book value of a bond be equal to its maturity value?

On January 1, 2014, Farmer issued $80,000 of serial bonds that paid 7% interest annually. Each December 31, $16,000 of the bonds comes due. The bonds were issued for $75,200. Required: a.Using the bonds outstanding method, compute the total amount of interest expense for 2017. b.Assume that on January 1, 2016, the issue coming due on December 31, 2018, was redeemed at 101. Compute the gain or loss that should be recognized on the bond redemption.

List the different characteristics of bonds.