Question 1

Accounting for a troubled debt restructuring On December 31, 2014, Riverside Inc.is in financial difficulty and cannot pay a $350,000 note (with $35,000 accrued interest payable)to Stockton Corp.Stockton agrees to forgive the accrued interest, extend the maturity date to December 31, 2016, and reduce the interest rate to 4%.The present value of the restructured cash flows is $299,500. Instructions Prepare entries for the following:
a.the restructure on Riverside's books
b.the payment of interest on December 31, 2015
c.the restructure on Stockton's books.

Accepted Answer

The answer of Accounting for a troubled debt restructuring On...

Question 2

Bond interest and discount amortization On October 1, 2014, Irvine Corp.issued $400,000 8% bonds, due on October 1, 2019.Interest is to be paid semi-annually on April 1 and October 1.The bonds were sold to yield 10% effective annual interest.Irvine has a calendar year end. Instructions
a.Complete the following amortization schedule for the dates indicated.Round all answers to
the nearest dollar.Use the effective interest method.
  
December 31, 2016.

Accepted Answer

The answer of Bond interest and discount amortization On October...

Question 3

On July 1, 2014, Pike Inc.issued $500,000, 9% bonds, which mature on July 1, 2024.The bonds were issued for $469,500 to yield 10%.Pike uses the effective interest method of amortizing bond discount.Interest is payable annually on June 30.At June 30, 2016, the adjusted balance in the Bonds Payable account should be

Accepted Answer

The adjusted balance in the Bonds Payable account is calculated by adding the amortized discount to the initial carrying amount. The initial carrying amount is $469,500. For two years, the interest expense is calculated using the effective interest rate (10%), and the cash interest is calculated using the coupon rate (9%). The difference is the amortized discount. After two years, the adjusted balance is $473,595.

Question 4

On its December 31, 2014 statement of financial position, Codfish Ltd.reported bonds payable of $1,000,000.The bonds had been issued at par.On January 2, 2015, Codfish retired one half of the outstanding bonds at 103 plus a call premium of $35,000.Ignoring income taxes, what amount should Codfish report on its 2015 income statement as loss on extinguishment of debt?

Accepted Answer

Codfish retired $500,000 of bonds at 103% of par, which is $515,000. The call premium is $35,000. The total cost to retire the bonds is $550,000. The loss is the difference between the retirement cost and the par value of the bonds retired: $550,000 - $500,000 = $50,000.

Question 5

Bond issue price and discount amortization On January 1, 2014, Oxnard Corp.issued ten-year, 10% bonds with a face value of $500,000, with interest payable semi-annually on June 30 and December 31.At the time, the market rate was 12%. Instructions
a.Use your calculator to calculate the issue price of the bonds.Round the answer to the
nearest dollar.
a., assume that the issue price was $442,000.Prepare
the amortization table for 2014.Round values to the nearest dollar.
b.Independent of your solution to part

Accepted Answer

The answer of Bond issue price and discount amortization On...

Question 6

Entries for bonds payable Long-Term Financial Liabilities 14- 27 Prepare journal entries to record the following transactions related to Chico Ltd.'s long-term bonds:
a.On April 1, 2014, Chico issued $600,000, 9% bonds (dated January 1, 2014)for $645,442
including accrued interest.Interest is payable annually on January 1, and the bonds mature
on January 1, 2024.
b.On July 1, 2016, Chico retired 30% of the bonds at 102 plus accrued interest.Chico uses
straight-line amortization.

Accepted Answer

The answer of Entries for bonds payable Long-Term Financial Liabilities...

Question 7

Pineapple owes Dole a $600,000, 12%, three-year note dated December 31, 2012. Pineapple has been experiencing financial difficulties, and still owes accrued interest of $72,000 on this note at December 31, 2014.Under a troubled debt restructuring, on December 31, 2014, Dole agrees to settle the note plus the accrued interest for land that Pineapple owns, which has a fair value of $540,000.Pineapple's original cost of the land is $435,000.Ignoring income taxes, on its 2014 income statement, what should Pineapple report as a result of the troubled debt restructuring?

Accepted Answer

The answer of Pineapple owes Dole a $600,000, 12%, three-year...

Question 8

On January 1, 2014, Bass Inc.redeemed its 15-year, $900,000 par value bonds at 102. They were originally issued on January 1, 2002 at 98 with a maturity date of January 1, 2017. Bass amortizes bond discounts and premiums using the straight-line method.Ignoring income taxes, what amount of loss should Bass recognize on the redemption of these bonds?

Accepted Answer

The answer of On January 1, 2014, Bass Inc.redeemed its...

Question 9

On January 1, 2014, Trout Corp.sold $500,000, 10% bonds for $442,648 to yield 12%. Interest is payable semi-annually on January 1 and July 1.Trout uses the effective interest method of amortizing bond discount.What amount should Trout report as interest expense for the six months ended June 30, 2014?

Accepted Answer

The correct answer is B.The semi-annual interest payment is $25,000 (10% x $500,000 / 2). The effective interest expense for the six months ended June 30, 2014 is $26,559 ($442,648 x 12% / 2).

Question 10

Entries for bonds payable Prepare journal entries to record the following transactions relating to long-term bonds of Lancaster Inc.Show calculations and round to the nearest dollar.
a.On June 1, 2014, Lancaster Inc.issued $400,000, 6% bonds for $391,760, including
accrued interest.The bonds were dated February 1, 2014, and interest is payable semi-
annually on February 1 and August 1 with the bonds maturing on February 1, 2024.The
bonds are callable at 102.
b.On August 1, 2014, Lancaster paid the semi-annual interest and recorded the amortization
of the discount or premium, using straight-line amortization.
c.On February 1, 2016, Lancaster paid the semi-annual interest and recorded amortization of
the discount or premium.
d.The company then purchased $240,000 of the bonds at the call price.Assume that a
reversing entry was made on January 1, 2016.

Accepted Answer

The answer of Entries for bonds payable Prepare journal entries...

Question 11

On July 1, 2014, Tilapia Corp.had outstanding 8%, $1,000,000, 15-year bonds maturing on June 30, 2024.Interest is payable semi-annually on June 30 and December 31.Assume all appropriate entries had been prepared and posted at June 30, 2014.The carrying value of the bond at June 30, 2014 was $965,000.At this time, Tilapia purchased all the bonds at 94 and retired them.What is the gain or loss on this early extinguishment of debt?

Accepted Answer

The answer of On July 1, 2014, Tilapia Corp.had outstanding...

Question 12

Accounting procedures for bond redemptions Describe the accounting procedures for the early redemption of bonds.

Accepted Answer

The answer of Accounting procedures for bond redemptions Describe the...

Question 13

Note issued for cash and other rights Rebecca Land Corp.issued a 5-year, zero-interest-bearing note with a $1,000,000 face value to Lindsay Inc.for $1,000,000 cash.Rebecca also gave Lindsay the right to use a parcel of land for equipment storage for 5 years.Interest rates for notes of this type were 8% at the time of issue. Instructions Prepare the journal entries to record the issuance of the note by (1)Rebecca and (2)Lindsay. Use your calculator and round values to the nearest dollar.

Accepted Answer

The answer of Note issued for cash and other rights...

Question 14

Sale and subsequent buyback of bonds On July 1, 2014, Davis Corp.issued $800,000 par value, 10%, 10-year bonds, with interest payable semi-annually on January 1 and July 1.The bonds were issued for $908,722.On January 2, 2016, Davis offered to buy back the bonds at 103.Forty percent of the bondholders accepted the offer.Davis uses the effective interest method of amortizing premium or discount. Instructions
a.Prepare the journal entry to record the bond issuance.
b.Prepare the adjusting entry at December 31, 2014, the end of the fiscal year.
c.Prepare the entry for the interest payment on January 1, 2015.
d.Prepare the entry to record the retirement of the bonds on January 2, 2016.
Round all values to the nearest dollar.

Accepted Answer

The answer of Sale and subsequent buyback of bonds On...

Question 15

Amortization of discount or premium On May 1, 2014, Salinas Industries Ltd.issued $2,000,000, 8% bonds and received cash proceeds of $1,774,526.The bonds pay interest semi-annually on May 1 and November 1.The maturity date on these bonds is November 1, 2026.Salinas uses the effective interest method of amortizing bond discounts and premiums.The bonds were sold to yield an effective interest rate of 10%. Instructions Calculate the total dollar amount of discount or premium amortization during the first year that these bonds were outstanding.Show calculations and round values to the nearest dollar.

Accepted Answer

The answer of Amortization of discount or premium On May...

Question 16

Early extinguishment of debt On August 1, 2012, Fresno Inc.sold 8%, five year bonds with a maturity value of $2,000,000 for $1,964,000.Interest on the bonds is payable semi-annually on August 1 and February 1.The bonds are callable at 104 at any time after August 1, 2014.By October 1, 2014, the market rate of interest has declined, and the market price of Fresno's bonds has increased to 102.The company decides to refund the bonds by selling a new 6% bond issue to mature in five years. Fresno begins to reacquire its 8% bonds in the market and is able to purchase $600,000 worth Long-Term Financial Liabilities 14- 29 at 102.The remainder of the outstanding bonds are acquired by exercising the bond call feature. Instructions Calculate Fresno's total gain or loss in reacquiring the 8% bonds.Assume the company uses straight-line amortization.Show calculations.

Accepted Answer

The answer of Early extinguishment of debt On August 1,...

Question 17

Accounting for a troubled debt settlement At December 31, 2014, Oscar Ltd.owes Wilde Corp.for a $300,000 note payable, plus accrued interest of $27,000.Oscar is now in financial difficulty and cannot repay Wilde.To settle the debt, Wilde agrees to accept from Oscar equipment with a fair value of $285,000, an original cost of $420,000, and accumulated depreciation to date of $98,000. Instructions
a.Calculate the gain or loss to Oscar on the settlement of the debt.
b.Calculate the gain or loss to Oscar on the transfer of the equipment.
c.Prepare the journal entry on Oscar's books to record the settlement of the debt.
d.Prepare the journal entry on Wilde's books to record the settlement of the receivable.

Accepted Answer

The answer of Accounting for a troubled debt settlement At...

Question 18

Fair value option Explain the fair value option for accounting for long-term debt, including both the ASPE approach and the IFRS requirements.

Accepted Answer

The answer of Fair value option Explain the fair value...

Question 19

Entries for bonds payable Prepare the necessary journal entries to record the following transactions relating to the long- term issuance of bonds by Glendale Corp.Show calculations and round to the nearest dollar. March 1 Issued $200,000 (face value)8% bonds for $218,040, including accrued interest.Interest is payable semi-annually on December 1 and June 1 with the bonds maturing 10 years from the previous December 1.The bonds are callable at 102. June 1 Paid semi-annual interest on the bonds.Use straight-line amortization for any premium or discount. December 1 Paid semi-annual interest on the bonds, and then purchased $100,000 face value bonds at the Long-Term Financial Liabilities 14- 37 call price in accordance with the provisions of the bond indenture.

Accepted Answer

The answer of Entries for bonds payable Prepare the necessary...

Question 20

Note issued for non-cash consideration On July 1, 2014, Modesto Holdings Ltd.issued a $50,000 face value note due June 30, 2017 with a stated interest rate of 4% to Modern Consultants in return for consulting services provided in 2014.The value of the consulting services is not readily determinable and the note is not readily marketable.On the basis of a credit analysis, a reasonable imputed interest rate would be 12%. Instructions Prepare the journal entry to record the issuance of the note by Modesto.Use your calculator and round values to the nearest dollar.

Accepted Answer

The answer of Note issued for non-cash consideration On July...

Quiz 2: Intermediate Accounting Volume 2

Accounting procedures for bond redemptions Describe the accounting procedures for the early redemption of bonds.

Fair value option Explain the fair value option for accounting for long-term debt, including both the ASPE approach and the IFRS requirements.