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Chapter 14: 3IFRS (page 718)
Describe the two criteria for determining the valuation of financial assets.
Managing and cash flow are two criteria for the valuation of financial assets.
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How is the present value of a non-interest-bearing note computed?
Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay鈥檚 Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.
Carrying Value | Fair Value | |
December 31, 2017 | \(54,000 | \)54,000 |
December 31, 2018 | 44,000 | 42,500 |
December 31, 2019 | 36,000 | 38,000 |
Instructions
(a) Prepare the journal entry at December 31 (Fallen鈥檚 year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.
(b) At what amount will the note be reported on Fallen鈥檚 2018 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Fallen鈥檚 2019 income?
(d) Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen鈥檚 creditworthiness has improved or declined in 2019? Explain.
Question: How are gains and losses from extinguishment of a debt classified in the income statement? What disclosures are required of such transactions?
(Entries for Redemption and Issuance of Bonds) Matt Perry, Inc. had outstanding \(6,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued \)9,000,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $120,000) at 102 on August 1.
Instructions
Prepare the journal entries necessary to record issue of the new bonds and refunding of the bonds.
Assume the same information as in E14-4, except that Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%
Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2017.
(c) The accrual of interest and the related amortization on December 31, 2017.
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