Deck 12: Non-Current Financial Liabilities

Question 1

Universal Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Requirements:
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?

Answer 1

Question 2

What is a "covenant"?

A)Guarantee of the price to the borrower.
B)Contract that outlines the terms of the borrowing agreement.
C)Promise from the borrower to restrict certain activities.
D)Feature that permits the issuer to redeem before maturity.

Answer 2

C

Question 3

What are "non-current liabilities"?

A)Obligations that are expected to be settled in the next operating cycle of the company.
B)Obligations that are expected to be settled within the next the company's next 12 months.
C)Obligations that are expected to be settled more than 12 months after the company's year end.
D)Obligations that are expected to be settled more than 24 months after the company's year end.

Answer 3

C

Question 4

Which statement is not correct about financial leverage?

A)There are many ways to calculate financial leverage.
B)It represents the relative debt to a company's equity base.
C)It allows a shareholder to increase their return on equity.
D)There is only one way to calculate financial leverage.

Question 5

Which statement is correct about financial leverage?

A)It reduces the risk of bankruptcy to the company.
B)It reduces the level of risk exposure of the shareholders.
C)It represents the relative assets to a company's equity base.
D)It represents the relative debt to a company's equity base.

Question 6

Which is not a reason why companies borrow funds?

A)To pay for long-term assets when the company wants to conserve its operating cash.
B)To invest in assets for the company that will generate income less than borrowing costs.
C)To invest in assets for the company that will generate income greater than borrowing costs.
D)To pay for acquisitions when the company has insufficient cash to pay for the acquisition.

Question 7

What are "secured bonds"?

A)Bonds that never mature.
B)Bonds that protect investors against inflation.
C)Bonds that mature at different dates.
D)Bonds backed by specific collateral.

Question 8

Fast Track Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Requirements:
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?

Question 9

Explain the meaning of financial leverage and leveraged buyout.

Question 10

Which statement best explains a "leveraged buyout"?

A)A purchase where a small portion of the purchase price is raised by borrowing against the acquired assets.
B)A purchase where a significant portion of the purchase price is raised by borrowing against the acquired assets.
C)A purchase that is deemed too risky from a solvency perspective for the shareholders.
D)A purchase that is deemed too risky from a solvency perspective for the bondholders.

Question 11

What are "zero-coupon bonds"?

A)Bonds that pay the market rate of interest.
B)Bonds that are unsecured.
C)Bonds that do not pay interest.
D)Bonds that are sold at a premium.

Question 12

Which of the following would be a "non-current liability"?

A)Payment due after 3 years,but the company has violated the debt covenants.
B)Payment due to a supplier 45 days after year end for supplies received before year end.
C)Payment due to a supplier in 18 months for goods to be received 3 months after year end.
D)Payment due after 3 years,on which the debt covenants have been not been violated.

Question 13

Which statement is not correct about financial leverage for a $300,000 investment versus a $100,000 investment?

A)The probability of success is the same under both investment options.
B)The payout will be 3 times higher or 3 times lower with the larger investment.
C)The probability of success is the 3 times greater with the larger investment.
D)The larger investment increases the return on equity but also faces a greater potential for loss.

Question 14

What is a bond indenture?

A)Guarantee of the price to the borrower.
B)Contract that outlines the terms of the borrowing agreement.
C)Promise from the borrower to restrict certain activities.
D)Feature that permits the borrower to redeem before maturity.

Question 15

Bank Buy Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Requirements
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?
c.What is the primary benefit of leveraging an investment decision? What are two drawbacks to leveraging an investment decision?

Question 16

Which statement is correct about financial leverage?

A)Leverage can increase an investor's returns but also increases the risk of loss.
B)Leverage can decrease an investor's returns and also decrease the risk of loss.
C)Leverage decreases the payments that a company makes on an ongoing basis.
D)Leverage decreases the debt level relative to a company's equity base.

Question 17

Which statement best explains the concept of "leverage"?

A)A measure of the efficiency of the company.
B)A measure of solvency of the company.
C)A measure of the company's operations.
D)A measure of the company's debt-paying ability.

Question 18

Why do bonds often include covenants?

A)To reduce information asymmetry.
B)To reduce moral hazard.
C)To compensate for value-added services.
D)To ensure repayment of the bond.

Question 19

Blue Corp is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
Requirements
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?
c.What is the primary benefit of leveraging an investment decision? What are two drawbacks to leveraging an investment decision?

Question 20

Which statement is correct about the financial leverage of a company with an equity base of $400,000?

A)A company that borrows $150,000 is more leveraged than a company that borrows $250,000.
B)A company that borrows $250,000 is more leveraged than a company that borrows $150,000.
C)The return on equity of the company is unaffected by the financial leverage.
D)The return on equity of the company will be higher if it has a lower leverage.

Question 21

What are positive and negative covenants? Give an example of a positive and negative covenant.

Question 22

What are "serial bonds"?

A)Bonds that are seldom used in Canada.
B)Bonds that mature at regular scheduled dates.
C)Bonds that are sold at a discount.
D)Bonds that are sold at a premium.

Question 23

How should non-current financial liabilities be recorded initially?

A)At face value.
B)At fair value.
C)At fair value less transactions costs.
D)At face value less transactions costs.

Question 24

When will bonds sell without a premium or discount?

A)When the coupon rate equals the par value.
B)When the coupon rate is below the market rate.
C)When the coupon rate is above the market rate.
D)When the coupon rate is equal to the market rate.

Question 25

Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.

Question 26

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the selling price of the bonds,rounded to nearest dollar?

A)$4,500
B)$95,500
C)$100,000
D)$104,213

Question 27

What is the effective interest rate?

A)Yield on the issue date.
B)Amount to be repaid at maturity.
C)Rate of return earned by the investor.
D)Interest rate specified in the bond indenture.

Question 28

What is "firm commitment" underwriting?

A)Broker's guarantee of the price to the borrower.
B)Broker sells as much of the debt issue as possible.
C)Debt that is backed by specific collateral.
D)Feature that permits the borrower to redeem before maturity.

Question 29

What is the market rate?

A)Yield on the issue date.
B)Amount to be repaid at maturity.
C)Rate of return earned by the investor.
D)Interest rate specified in the bond indenture.

Question 30

What is the "best efforts" approach?

A)Broker's guarantee of the price to the borrower.
B)Broker sells as much of the debt issue as possible.
C)Debt that is backed by specific collateral.
D)Feature that permits the issuer to redeem before maturity.

Question 31

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?

A)$7,986
B)$92,014
C)$100,000
D)$108,425

Question 32

When will bonds sell at a premium?

A)When the coupon rate is equal to the par value.
B)When the coupon rate is below the market rate.
C)When the coupon rate is above the market rate.
D)When the coupon rate is equal to market value.

Question 33

When will bonds sell at a discount?

A)When the coupon rate is below the par value.
B)When the coupon rate is below the market rate.
C)When the coupon rate is above the market rate.
D)When the coupon rate is above the par value.

Question 34

What are "stripped bonds"?

A)Bonds that pay the market rate of interest.
B)Bonds that are unsecured.
C)Bonds that are sold at a discount.
D)Bonds that are sold at a premium.

Question 35

What is the coupon rate?

A)Yield on the issue date.
B)Amount to be repaid at maturity.
C)Rate of return earned by the investor.
D)Interest rate specified in the bond indenture.

Question 36

Non-current debt instruments exchanged for assets are recognized at:

A)book value.
B)fair value.
C)cash paid.
D)cash equivalents paid.

Question 37

What are "callable bonds"?

A)Bonds that have cash flows indexed to inflation.
B)Bonds that can be redeemed 1 year before maturity.
C)Bonds that can be redeemed before maturity.
D)Bonds that are sold at a premium.

Question 38

Explain what real-return bonds,convertible bonds and perpetual bonds.

Question 39

What are "debentures"?

A)Bonds that are unsecured.
B)Bonds that protect investors against inflation.
C)Bonds that mature at different dates.
D)Bonds backed by specific collateral.

Question 40

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

A)$4,500 discount
B)$4,500 premium
C)$95,500
D)$100,000

Question 41

On April 15,2014,Cando Inc.sold $10,000,000 of five-year,3% bonds for $9,972,469. From the proceeds,Cando paid its investment bank a $200,000 sales commission.
Interest is payable semi-annually on April 15 and October 15.What is the effective rate of interest?

A)1)53%
B)1)75 %
C)3)00%
D)3)50%

Question 42

Explain how non-current liabilities are measured after initial recognition.

Question 43

On May 1,2012,Sea Escape Ltd.purchases a new automobile for $18,000 from the dealer who provides the financing.The three-year,interest-free loan is repayable at $500 per month.The market rate of interest for similar transactions is 0.25% per month.
Requirement:
Prepare journal entries to record:
a.the purchase of the automobile.
b.the accrual of interest and the loan payment at the end of May 2012.

Question 44

A $100,000 5-year 7% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

A)$4,213 discount
B)$4,213 premium
C)$100,000
D)$104,213

Question 45

On May 5,2015,Bennix sold $1,000,000 of five-year,3% bonds for $900,500. From the proceeds,the company paid fees of 100,000.Interest is payable semi-annually on May 5 and November 5.What is the effective rate of interest to 2 decimal places?

A)3)00%
B)3)72 %
C)3)96%
D)6)27%

Question 46

Stay Fit for Life Inc.issues three series of $10,000,000 ten-year bonds dated January 1,2011 on the issue date.Interest is payable on June 30 and December 31 each year.Series A has a coupon rate of 7%; series B is 8%; and series C is 11 %.The market rate of interest at time of issue is 8%.
Requirement:
a.Prior to making any numerical calculations,comment on whether:
i.Series A will sell at a discount,par,or premium and briefly explain why.
b.Prepare journal entries to record the issuance of:
i.The series A bonds.

Question 47

Ginny Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable semi-annually.What is the effective rate of interest (round to 2 decimal places)?

A)5)50 %
B)8)43%
C)8)65%
D)17.29%

Question 48

Bold Accountants Co.sells $6,000,000 of 10-year,6% bonds priced to yield 5.5%.The bonds are dated and issued on January 1,2011.Interest is payable on January 1 and July 1 each year.Bold's year-end is June 30.
Requirement:
Prepare entries for
a.The issuance of the bonds.
b.Accrual of interest and related amortization on June 30,2011.
c.Payment of interest on July 1,2011.
d.Payment of interest and related amortization on January 1,2012.

Question 49

On April 1,2013,a company sold $3,500,000 of ten year,6% bonds for $2,222,400. From the proceeds,the company paid $200,000 sales commission.Interest is payable semi-annually on April 1 and October 1.What is the effective rate of interest (round to 2 decimal places)?

A)6)25%
B)6)98%
C)9)81%
D)11.46%

Question 50

Compare and contrast the two methods for amortizing the discount/premium.
Interest expense in the first period is higher under which method for bonds sold at a discount? For bonds sold at a premium?
Why does IFRS require public companies to use the effective interest method?
Why do the Accounting Standards for Private Enterprises allow companies to use the straight-line method?

Question 51

On November 1,2012,FastCare sold $5,000,000 of three-year bonds for $4,750,325. From the proceeds,the company paid accounting fees of 50,000.Interest of 5% is payable annually.What is the effective rate of interest to 2 decimal places?

A)7)30%
B)5)00%
C)4)69%
D)3)63%

Question 52

Blue Sky Travel Inc.issues $2,000,000 of ten-year,8% bonds dated January 1,2012.Interest is payable on January 1 and July I each year.The proceeds realized from the issue were the $1,821,367 sales price less the $20,000 fee charged by Blue Sky's investment bank.Blue Sky's year-end is December 31.
Requirement:
Prepare journal entries:
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2012.
c.Accrual of interest and related amortization on December 31,2012.

Question 53

Canaroo Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

A)5)50 %
B)8)43%
C)8)65%
D)17.29%

Question 54

A $100,000 5-year 7% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 6%.What is the selling price of the bonds,rounded to nearest dollar?

A)$4,213
B)$95,500
C)$100,000
D)$104,213

Question 55

Cynthia Dixie Accounting Inc.takes advantage of a well-known office furnishings store's low-interest-rate financing.Cynthia buys furniture on the first day of its fiscal year,signing a $19,000,five-year note.The note is payable in full at maturity.Interest is payable annually at 2%.The market rate of interest for similar transactions is 5%.
Requirement:
Prepare journal entries to record:
a.The purchase of the office furniture.
b.The payment of interest and related amortization of the discount at the end of year 1.

Question 56

Really Amazing Vacations Ltd.issues $1,000,000 of ten-year,10% bonds dated January 1,2012.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $1,048,801 sales price less the $80,000 fee charged by Really Amazing's investment bank.Really Amazing's year-end is December 31.
Requirement:
Prepare journal entries:
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2012.
c.Accrual of interest and related amortization on December 31,2012.

Question 57

Cindy Corp sold $400,000 of three-year bonds for $300,500.Interest is of 7.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

A)19.15%
B)14.57%
C)13.88%
D)7)50%

Question 58

Over the River Co.(OTRC)sells $1,200,000 of 6-year,10% bonds at par plus accrued interest.The bonds are dated January 1,2012 but due to market conditions are not issued until May 1,2012.Interest is payable on June 30 and December 31 each year.
Requirement:
Prepare journal entries to record:
a.The issuance of the bonds on May I,2012.Assume that OTRC has adopted a policy of crediting accrued interest payable for the accrued interest on the date of sale.
b.Payment of interest on June 30,2012.
c.Payment of interest on December 31,2012.

Question 59

Canadian Sea Rides Ltd.issues $8,000,000 of four-year,4% bonds dated January 1,2011.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $8,529,082 sales price less the $50,000 fee charged by Sea's lawyers.Sea's year-end is December 31.
Requirement:
Prepare entries for
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2011.
c.Accrual of interest and related amortization on December 31,2011.

Question 60

On June 1,2012,ABC LTD.provides a vendor with an $18,500 non-interest-bearing note due on July 1,2013 in exchange for furniture with a list price of $18,100.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 12% per annum for loans that mature in one year or less and 15% for loans with longer maturities.

A)$16,087
B)$16,518
C)$18,100
D)$18,500

Question 61

Which statement is not correct about offsetting?

A)Offsetting is required under IFRS when the entity is willing and legally able to offset.
B)Offsetting is required when it better reflects the economic substance of the transaction.
C)Offsetting is generally permitted under IFRS,unless it violates an accounting principle.
D)Offsetting is generally permitted of the allowance for doubtful accounts.

Question 62

Fredericton Aerospace Inc.raised $5,369,210 by selling $5,000,000 of six-year,12% bonds dated January 1,2013.Fredericton used part of the proceeds to pay its investment bank's fee of $100,000 and related legal and accounting fees of $600,000.
Interest is payable on June 30 and December 31 each year.Fredericton can call the bonds on January 1,2016 at 103.The company exercises this privilege,redeeming 40% of the bonds on the call date and retiring them.The company year ends on December 31.
Required:
Prepare journal entries to record:
a.The issuance of the bonds on January 1,2013.
b.Before completing the entries for parts (b)and (c),prepare the amortization table for the bonds through to December 21,2015.Prepare entry for the payment of interest and related amortization on December 31,2015.
c.Repurchase of the bonds on January 1,2016.

Question 63

Which statement is correct about the derecognition of an obligation before maturity?

A)There will be a gain on retirement.
B)There will be a loss on retirement.
C)There will be no gain or loss on retirement.
D)There could be either a gain or loss on retirement.

Question 64

Which statement is correct about offsetting?

A)It deteriorates key financial ratios.
B)It shows the net amount of related assets and liabilities.
C)It shows the related assets and liabilities as contra accounts.
D)It makes it easier for borrowers to fulfill covenants.

Question 65

Which step is not required to record the derecognition of a financial liability?

A)Update the accounting records to account for the interim interest expense.
B)Amortize any unamortized discount or premium to the derecognition date.
C)Record the difference between the future value and book value as the gain or loss.
D)Record the difference between the amount paid and book value as the gain or loss.

Question 66

Which statement is correct about offsetting?

A)Offsetting generally provides decision-useful information for financial statement users.
B)Offsetting aids in financial statement user's ability to correctly interpret financial results.
C)Offsetting is generally prohibited under IFRS,unless it is specifically required.
D)Offsetting is required under IFRS when there is a legally enforceable right of offset.

Question 67

On May 1,2014,SBC INC.buys a photocopier listed for $2,600.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the note be recorded at in the accounting records?

A)$1,853
B)$1,950
C)$2,100
D)$2,600

Question 68

On June 1,2012,Bean LTD.provides a vendor with a $125,500 non-interest-bearing note due on July 1,2015 in exchange for equipment with a list price of $118,100.At what amount will the equipment be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 9% for loans with longer maturities.

A)$118,100
B)$105,372
C)$96,909
D)$91,195

Question 69

Explain what an "in-substance defeasance" is and whether this arrangement results in the derecognition of a financial liability.

Question 70

Arlington Corp issued $7,000,000,5% 4-year bonds on January I,2011 at par.Interest is due annually on December 31.The market rate of interest has since increased dramatically to 9%.As such,Arlington can repurchase its bonds on the open market for $6,507,449.They decided to take advantage of this situation,and on January 1,2013 issued a new series of bonds in the amount of $6,507,449 [two-year bonds,9% interest payable annually].The bonds were sold at par and the proceeds were used to retire the 5% bonds.
Entry for sale of new bonds
Arlington has recorded a gain on the retirement which increases its net income for the year.Ignoring transaction costs and taxation effects,is Arlington any better off? Discuss.

Question 71

Missouri Wheels Ltd.(MW)sold $9,000,000 of fourteen-year,3% bonds at par on January 1,2012.Interest is payable on June 30 and December 31 each year.The bonds can be called at any time at 103 plus accrued interest.On April 1,2013,MW bought back $3,500,000 of bonds on the open market for $2,600,000 including accrued interest and retired them.On August 1,2014,MW called $4,500,000 of bonds and retired them.MW prepares accrual entries only at year-end.
Requirement:
Prepare journal entries to record:
a.The open market purchase of the bonds on April 1,2013.
b.The calling of the bonds on August 1,2014.
c.Retirement of the remaining bonds on December 31,2025,assuming that the final interest payment has already been recorded in the company's books.

Question 72

On May 1,2014,SBC INC.buys a computer listed for $12,600.The office supply store agrees to accept a $1,800 down payment and a $11,000,three-year note payable at $3,500 per year.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the note be recorded at in the accounting records?

A)$1,800
B)$8,126
C)$8,553
D)$11,000

Question 73

Which statement is correct about offsetting?

A)Offsetting is required under IFRS when the entity is willing and legally able to offset.
B)Offsetting is required under IFRS when the company intends to settle on a net basis.
C)Offsetting is generally permitted under IFRS,unless it is specifically prohibited.
D)Offsetting is required under IFRS when there is a legally enforceable right of offset.

Question 74

There are three independent situations summarized below.In all three cases the bonds are sold on January 1,2011 and the issuing company has a December 31 year-end.In situation three,the bonds were all repurchased at par on January 1,2015.
Requirement:
Prepare journal entries to record:
a.The issuance of the three bonds.
b.Payment of interest and related amortization on December 31,2011.Prepare the amortization table to help you.
c.Retirement of the situation 3 bond on January 1,2015.

Question 75

Which statement is correct about the derecognition of a matured obligation?

A)There will be a gain on retirement.
B)There will be a loss on retirement.
C)There will be no gain or loss on retirement.
D)There could be either a gain or loss on retirement.

Question 76

Which statement is not true for a partial derecognition-say 30%-of a financial liability?

A)Record derecognition of 30% of the book value of the financial liability.
B)Record derecognition and the acquisition of 70% as a new liability.
C)Record derecognition of 30% of the unamortized premium or discount.
D)Record the gain or loss on derecognition of 30% of the financial liability.

Question 77

On May 1,2014,SBC INC.buys a photocopier listed for $2,600.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7%.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the photocopier be recorded at in the accounting records?

A)$1,950
B)$2,100
C)$2,600
D)$2,653

Question 78

On May 1,2012,VeryFine LTD.provides a vendor with a $18,000 non-interest-bearing note due on May 1,2013 in exchange for furniture with a list price of $17,400.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 8% for loans with longer maturities.

A)$16,415
B)$16,667
C)$16,981
D)$18,000

Question 79

Legally Yours,a law firm,sells $8,000,000 of four-year,8% bonds priced to yield 6.6%.The bonds are dated January 1,2011,but due to some regulatory hurdles are not issued until March 1,2011.Interest is payable on January 1 and July 1 each year.The bonds sell for $8,388,175 plus accrued interest.
In mid-June,Legally Yours earns an unusually large fee of $11,000,000 for one of its cases.They use part of the proceeds to buy back the bonds in the open market on July 1,2011 after the interest payment has been made.Legally Yours pays a total of $8,456,234 to reacquire the bonds and retires them.
Required:
Prepare journal entries to record:
a.The issuance of the bonds-assume that Legally Yours has adopted a policy of crediting interest expense for the accrued interest on the date of sale.
b.Payment of interest and related amortization on July 1,2011.
c.Reacquisition and retirement of the bonds.

Question 80

When can a non-current liability not be derecognized?

A)When the company discharges the obligation or it expires.
B)When the company pays the debt and continues to be liable for the liability.
C)When the underlying debt contract is canceled.
D)When the creditor provides the services specified in the debt contract.