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Chapter 13: Question 1Q (page 691)
Distinguish between a current liability and a long-term debt
Both current liability and long-term debt are liabilities but they differ according to their nature and duration of getting paid off.
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Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
Within the current liabilities section, how do you believe the accounts be listed? Defend your position.
Komissarov Company has a debt investments in the bonds issued by Keune Inc. The bonds were purchased at par
for \(400,000 and, at the end of 2017, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economical environment and informs all of its investors that it will be unable to make all payments according to the contractul terms. The controller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment.
December 31, Expected cash flows
2018 \)35,000
2019 35,000
2020 385,000
Total cash flows $455,000
Instructions
(a) Determine the impairement loss for Komissarov at December31, 2017.
(b) Prepare the entry to record the impairement loss for Komissarov at Decembber 31, 2017.
(c) On January 15, 2018, Keune receives a major capiatl infusion from a private equity investor. It informs Komissarov that the bonds now will be paid according to the contractual terms. Briefly describe how the Komissarov would account for the bond investment in light of this new information.
Identify and explain the different types of classifications for investments in equity securities.
Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.
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