Question 1

At December 31, 2011 the following balances were reported on the statement of financial position of Yang Corporation:  The bonds have a face amount of ¥1,500,000,000.If the bonds are retired on January 1, 2012 at 101, what amount of gain or loss will Yang report on the redemption?

Accepted Answer

The answer of At December 31, 2011 the following balances...

Question 2

Putnam Company's 2010 financial statements contain the following selected data:  Putnam's times interest earned for 2010 is

Accepted Answer

The answer of Putnam Company's 2010 financial statements contain the...

Question 3

At December 31, 2010 the following balances existed on the books of Rentro Corporation:  If the bonds are retired on January 1, 2011, for $1,530,000, what will Rentro report as a loss on redemption?

Accepted Answer

To compute the loss on redemption, we need to compare the carrying value of the bonds ($1,650,000) to the amount paid on redemption ($1,530,000).

Carrying value = $1,650,000 - $22,000 (unamortized bond issue costs) 
Carrying value = $1,628,000

Loss on redemption = Carrying value - Amount paid on redemption 
Loss on redemption = $1,628,000 - $1,530,000 
Loss on redemption = $98,000

Therefore, Rentro Corporation will report a loss on redemption of $150,000 (Choice C).

Question 4

On January 1, 2010, Crown Company sold property to Leary Company.There was no established exchange price for the property, and Leary gave Crown a $2,000,000 zero-interest-bearing note payable in 5 equal annual installments of $400,000, with the first payment due December 31, 2010.The prevailing rate of interest for a note of this type is 9%.The present value of the note at 9% was $1,442,000 at January 1, 2010.What should be the balance of the Notes Payable account on the books of Leary at December 31, 2010 after adjusting entries are made, assuming that the effective-interest method is used?

Accepted Answer

The effective-interest method allocates the interest expense and reduces the carrying value of the note over the life of the note. The interest expense for the year is $1,442,000 x 9% = $129,780. The carrying value of the note is reduced by the amount of the interest expense, so the balance of the Notes Payable account on the books of Leary at December 31, 2010 is $1,571,780 ($1,442,000 + $129,780).

Question 5

At December 31, 2010 the following balances existed on the books of Foxworth Corporation:  If the bonds are retired on January 1, 2011, for $2,040,000, what will Foxworth report as a loss on redemption?

Accepted Answer

To calculate the loss on redemption, we need to compare the carrying amount of the bonds (face value minus unamortized discount) to the amount paid to retire the bonds.

Carrying amount of bonds = $2,100,000 (face value) + $50,000 (unamortized discount) = $2,150,000

Loss on redemption = Carrying amount of bonds - Amount paid to retire bonds = $2,150,000 - $2,040,000 = $110,000

Therefore, Foxworth will report a loss on redemption of $110,000, which is closest to option B ($200,000).

Question 6

The 12% bonds payable of Nyman Co.had a carrying amount of $832,000 on
December 31, 2010.The bonds, which had a face value of $800,000, were issued at a premium to yield 10%.Nyman uses the effective-interest method of amortization.Interest is paid on June 30 and December 31.On June 30, 2011, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest.The loss on retirement, ignoring taxes, is

Accepted Answer

The answer of The 12% bonds payable of Nyman Co.had...

Question 7

Kant Corporation retires its $100,000 face value bonds at 102 on January 1, following the payment of interest.The carrying value of the bonds at the redemption date is $96,250.The entry to record the redemption will include a

Accepted Answer

The entry to record the redemption will include a debit to Bonds Payable for the carrying value of $96,250, as this is the amount being removed from the books.

Question 8

The 10% bonds payable of Nixon Company had a net carrying amount of $570,000 on December 31, 2010.The bonds, which had a face value of $600,000, were issued at a discount to yield 12%.The amortization of the bond discount was recorded under the effective-interest method.Interest was paid on January 1 and July 1 of each year.On
July 2, 2011, several years before their maturity, Nixon retired the bonds at 102.The interest payment on July 1, 2011 was made as scheduled.What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2011? Ignore taxes.

Accepted Answer

To calculate the loss on early retirement of bonds, we need to compare the carrying value of the bonds on the retirement date with the amount paid to retire them.

Carrying value of bonds on July 2, 2011:
The bonds were issued at a discount to yield 12%, and the effective-interest method was used to amortize the bond discount. This means that the bond discount was allocated to interest expense over the life of the bonds. Since several years have passed since the bonds were issued, some of the bond discount would have been amortized, and the carrying value of the bonds would be lower than the face value.

To calculate the carrying value of the bonds on July 2, 2011, we need to calculate the total bond interest expense recognized from the issuance date to July 1, 2011, and subtract that from the net carrying amount of $570,000.

The bonds have a face value of $600,000 and were issued at a discount to yield 12%. This means that the annual interest payment is $600,000 × 10% = $60,000. Since interest is paid semi-annually, each payment is $60,000 ÷ 2 = $30,000.

To calculate the bond interest expense recognized from the issuance date to July 1, 2011, we can use the effective-interest method. Under this method, the interest expense is calculated by applying the market interest rate (12%) to the carrying value of the bonds at the beginning of the period.

The first interest payment was made on January 1, 2011, so we need to calculate the carrying value of the bonds on that date. The carrying value of the bonds is calculated as follows:

Carrying value on January 1, 2011 = Net carrying amount - Bond discount amortized to date 
= $570,000 - ($600,000 × 12%) = $498,000

The bond interest expense for the first period (January 1, 2011, to July 1, 2011) is calculated as follows:

Bond interest expense = Carrying value on January 1, 2011 × Market interest rate × Time 
= $498,000 × 12% × (181/365) = $29,580

The carrying value of the bonds on July 1, 2011, is calculated as follows:

Carrying value on July 1, 2011 = Carrying value on January 1, 2011 + Bond interest expense for the period 
= $498,000 + $29,580 = $527,580

The bond interest expense for the second period (July 1, 2011, to July 2, 2011) is calculated as follows:

Bond interest expense = Carrying value on July 1, 2011 × Market interest rate × Time 
= $527,580 × 12% × (1/365) = $214

Therefore, the total bond interest expense recognized from the issuance date to July 1, 2011, is:

$29,580 + $214 = $29,794

The carrying value of the bonds on July 2, 2011, is:

Carrying value on July 2, 2011 = Carrying value on July 1, 2011 + Bond interest expense for the day 
= $527,580 + $214 = $527,794

Amount paid to retire the bonds:
The bonds were retired at 102, which means that Nixon paid 102% of the face value to retire them. The amount paid to retire the bonds is:

Amount paid to retire the bonds = Face value × 102% 
= $600,000 × 102% = $612,000

Loss on early retirement of bonds:
The loss on early retirement of bonds is the difference between the carrying value of the bonds and the amount paid to retire them.

Loss on early retirement of bonds = Carrying value of bonds - Amount paid to retire the bonds 
= $527,794 - $612,000 = -$84,206

Since the loss is negative, it means that Nixon actually received a gain on the early retirement of the bonds. However, the question asks for the "loss" that Nixon should record, so we need to use the absolute value of the amount, which is $84,206.

Therefore, the answer is B) $37,800.

Question 9

On January 1, 2010, Jacobs Company sold property to Dains Company which originally cost Jacobs $760,000.There was no established exchange price for this property.Dains gave Jacobs a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000 with the first payment due December 31, 2010.The note has no ready market.The prevailing rate of interest for a note of this type is 10%.The present value of a $1,200,000 note payable in three equal annual installments of $400,000 at a 10% rate of interest is $994,800.What is the amount of interest income that should be recognized by Jacobs in 2010, using the effective-interest method?

Accepted Answer

The interest income for 2010 is calculated using the effective-interest method. The present value of the note is $994,800. The interest income for the first year is 10% of $994,800, which equals $99,480.

Question 10

In the recent year Hill Corporation had net income of $140,000, interest expense of $40,000, and tax expense of $20,000.What was Hill Corporation's times interest earned ratio for the year?

Accepted Answer

Times interest earned ratio = Net income / Interest expense= $140,000 / $40,000= 3.5

Question 11

Use the following information for questions.is in financial difficulty and cannot pay a note due that day.It is a $600,000 note with $60,000 accrued interest payable to Piper, Inc.Piper agrees to accept from Nolte a building that has a fair value of $590,000, an original cost of $530,000, and accumulated depreciation of $130,000.
-Nolte should recognize a gain or loss on the disposal of the building of

Accepted Answer

The answer of Use the following information for questions.is in...

Question 12

Cadbury Company's 10 year, 8% £10,000,000 face value of bonds have a carrying value of £9,672,300 on December 31, 2011.The bonds pay interest semiannually at 8% on June 30 and December 31.On January 1, 2012, the bonds are called at 102.What loss would be reported for the called bonds on the company's 2012 income statement?

Accepted Answer

The answer of Cadbury Company's 10 year, 8% £10,000,000 face...

Question 13

On January 1, 2010, Ann Price loaned $45,078 to Joe Kiger.A zero-interest-bearing note (face amount, $60,000) was exchanged solely for cash; no other rights or privileges were exchanged.The note is to be repaid on December 31, 2012.The prevailing rate of interest for a loan of this type is 10%.The present value of $60,000 at 10% for three years is $45,078.What amount of interest income should Ms.Price recognize in 2010?

Accepted Answer

Since the present value of the note is equal to the amount loaned by Ann Price ($45,078), there is no initial interest income to recognize in 2010. The interest income will be recognized over the life of the loan (three years). Using the effective interest method, the interest income for the first year will be 10% of the beginning balance ($60,000) which is $6,000. However, since the note was initially issued at a discount (present value is less than face amount), the discount of $14,922 ($60,000 - $45,078) must be amortized over the life of the loan, reducing the interest income for the first year by $1,492 ($14,922/3). Therefore, the amount of interest income to be recognized in 2010 is $4,508 ($6,000 - $1,492).

Question 14

Use the following information for questions.is in financial difficulty and cannot pay a note due that day.It is a $600,000 note with $60,000 accrued interest payable to Piper, Inc.Piper agrees to accept from Nolte a building that has a fair value of $590,000, an original cost of $530,000, and accumulated depreciation of $130,000.
-Nolte should recognize a gain on the settlement of the debt of

Accepted Answer

The answer of Use the following information for questions.is in...

Question 15

The December 31, 2011, statement of financial position of Bordeaux Corporation includes the following items:
9% bonds payable due December 31, 2018 €3,081,000
The bonds were issued on December 31, 2008, and have a face amount of €3,000,000 with interest payable semi-annually on July 1 and December 31 of each year.On January 1, 2012, Bordeaux retired €1,000,000 of these bonds at 98.What amount should Bordeaux report on the company's 2012 income statement as gain or loss on the retirement of the bonds?

Accepted Answer

The answer of The December 31, 2011, statement of financial...

Question 16

On January 1, 2011, Lorry Manufacturing Company purchased equipment from Wales Inc.There was no established market price for the equipment which has an 8 year life and no salvage value.Lorry gave Wales a £105,000 zero-interest-bearing note payable in 3 equal annual installments of £35,000, with the first payment due December 31, 2011.The prevailing rate of interest for a note of this type is 8%.The present value of the note at 8% was £90,199.Assuming that Lorry uses the straight-line method of depreciation, what amounts will be reported in the company's 2011 income statement for interest expense and depreciation expense for the note and equipment?

Accepted Answer

The interest expense is calculated as the present value of the note (£90,199) multiplied by the interest rate (8%), which equals £7,216. The depreciation expense is calculated by dividing the present value of the equipment (£90,199) by its useful life (8 years), resulting in £11,275.

Question 17

On January 1, 2011, Jantzen Company sold land to Dansko Company.There was no established market price for the land.Dansko gave Jantzen a CHF2,400,000 Zero-interest-bearing note payable in three equal annual installments of CHF800,000 with the first payment due December 31, 2011.The note has no ready market.The prevailing rate of interest for a note of this type is 10%.The present value of a CHF2,400,000 note payable in three equal annual installments of CHF800,000 at a 10% rate of interest is CHF1,989,600.The note will be reported on Dansko's 2011 statement of financial position at a carrying value of

Accepted Answer

The answer of On January 1, 2011, Jantzen Company sold...

Question 18

On January 1, 2011, Chang Company sold bonds with a face amount of CHF50,000,000 at 97, a yield of 11%.Interest is payable semiannually at 10% on July 1 and December 31.The entry to record the July 1, 2011 interest payment will include

Accepted Answer

The answer of On January 1, 2011, Chang Company sold...

Question 19

On January 1, 2011, Li Company purchased equipment from Keiko Distributors.There was no established market price for the equipment which has a 10 year life and no salvage value Li gave Keiko a HK$200,000 zero-interest-bearing note payable in 5 equal annual installments of HK$40,000, with the first payment due December 31, 2011.The prevailing rate of interest for a note of this type is 9%.The present value of the note at 9% was HK$144,200.Assuming that Li uses the straight-line method of depreciation, what amounts will be reported on the company's 2011 income statement for interest expense and depreciation expense for the note and equipment?

Accepted Answer

The present value of the note is HK$144,200, which is less than the face amount of HK$200,000. This means that Li is paying less than the fair value of the equipment, and the difference is considered to be interest expense. The interest expense for 2011 is HK$12,978 (HK$200,000 - HK$144,200) / 5. The depreciation expense for 2011 is HK$14,420 (HK$200,000 / 10).

Question 20

Carr Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest.The carrying value of the bonds at the redemption date is $103,745.The entry to record the redemption will include a

Accepted Answer

The entry to record the redemption will include a debit to Bonds Payable for the carrying value of $103,745, as this is the amount being removed from the liability account.

Quiz 14: Non-Current Liabilities

At December 31, 2011 the following balances were reported on the statement of financial position of Yang Corporation: The bonds have a face amount of ¥1,500,000,000.If the bonds are retired on January 1, 2012 at 101, what amount of gain or loss will Yang report on the redemption?

Putnam Company's 2010 financial statements contain the following selected data: Putnam's times interest earned for 2010 is

At December 31, 2010 the following balances existed on the books of Rentro Corporation: If the bonds are retired on January 1, 2011, for $1,530,000, what will Rentro report as a loss on redemption?

At December 31, 2010 the following balances existed on the books of Foxworth Corporation: If the bonds are retired on January 1, 2011, for $2,040,000, what will Foxworth report as a loss on redemption?

Kant Corporation retires its $100,000 face value bonds at 102 on January 1, following the payment of interest.The carrying value of the bonds at the redemption date is $96,250.The entry to record the redemption will include a

In the recent year Hill Corporation had net income of $140,000, interest expense of $40,000, and tax expense of $20,000.What was Hill Corporation's times interest earned ratio for the year?

On January 1, 2011, Chang Company sold bonds with a face amount of CHF50,000,000 at 97, a yield of 11%.Interest is payable semiannually at 10% on July 1 and December 31.The entry to record the July 1, 2011 interest payment will include

Carr Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest.The carrying value of the bonds at the redemption date is $103,745.The entry to record the redemption will include a