/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 4Q Distinguish between the followin... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 14: 4Q (page 752)

Distinguish between the following values relative to bonds payable:

(a) Maturity value. (c) Market (fair) value.

(b) Face value. (d) Par value.

Short Answer

Expert verified

Maturity value

Value payable at the end of life of the bond.

Face value

The value is established by the bond issuer.

Market value

Present value of all the future cash flows from the bonds.

Par value

Value of each bond as stated by the issuing entity.

Step by step solution

01

Definition of Bonds Payable

Bonds payable can be defined as the security issued by the business entity for generating cash for the business entity. These securities are debt securities.

02

Difference between the values relative to bonds payable

  1. Maturity value: Maturity value can be defined as the value payable to the holder at the end of the bond鈥檚 life. This value can also be stated as the principal value of the bond payable.
  2. Face value: The price of each bond established by the issuer is the face value of the bonds payable. The bonds might be issued at a higher or lower price than the face value.
  3. Market (fair) value: Fair value of the bond can be defined as the present value of the bond calculated using the stream of future cash flow. This value is calculated using the discounted rate.
  4. Par value: Par value can be defined as the value of a bond as stated by the company issuing it. Discount and premium on the bond are calculated using the par value and issued value of the bond payable.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Matt Ryan Corporation is interested in building its own soda can manufacturing plant adjacent to its existing plant in Partyville, Kansas. The objective would be to ensure a steady supply of cans at a stable price and to minimize transportation costs. However, the company has been experiencing some financial problems and has been reluctant to borrow any additional cash to fund the project. The company is not concerned with the cash flow problems of making payments, but rather with the impact of adding additional long-term debt to its balance sheet.

The president of Ryan, Andy Newlin, approached the president of the Aluminum Can Company (ACC), its major supplier, to see if some agreement could be reached. ACC was anxious to work out an arrangement, since it seemed inevitable that Ryan would begin its own can production. The Aluminum Can Company could not afford to lose the account.

After some discussion, a two-part plan was worked out. First, ACC was to construct the plant on Ryan鈥檚 land adjacent to the existing plant. Second, Ryan would sign a 20-year purchase agreement. Under the purchase agreement, Ryan would express its intention to buy all of its cans from ACC, paying a unit price which at normal capacity would cover labor and material, an operating management fee, and the debt service requirements on the plant. The expected unit price, if transportation costs are taken into consideration, is lower than current market. If Ryan did not take enough production in any one year and if the excess cans could not be sold at a high enough price on the open market, Ryan agrees to make up any cash shortfall so that ACC could make the payments on its debt. The bank will be willing to make a 20-year loan for the plant, taking the plant and the purchase agreement as collateral. At the end of 20 years, the plant is to become the property of Ryan.

Instructions

  1. What are project financing arrangements using special-purpose entities?
  2. What are take-or-pay contracts?
  3. Should Ryan record the plant as an asset together with the related obligation?
  4. If not, should Ryan record an asset relating to the future commitment?
  5. What is meant by off-balance-sheet financing?

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semi-annually.

Determine Proper Amounts in Account Balances) Presented below are two independent situations.

(a) George Gershwin Co. sold \(2,000,000 of 10%, 10-year bonds at 104 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Gershwin uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017.

(b) Ron Kenoly Inc. issued \)600,000 of 9%, 10-year bonds on June 30, 2017, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017.

E14-2 (L01) (Classification) The following items are found in the financial statements.

(a) Discount on bonds payable.

(b) Interest expense (credit balance).

(c) Unamortized bond issue costs.

(d) Gain on repurchase of debt.

(e) Mortgage payable (payable in equal amounts over next 3 years).

(f) Debenture bonds payable (maturing in 5 years).

(g) Notes payable (due in 4 years).

(h) Premium on bonds payable.

(i) Bonds payable (due in 3 years).

Instructions

Indicate how each of these items should be classified in the financial statements.

(Comprehensive Problem: Issuance, Classification, Reporting) The following are four independent situations.

(a) On March 1, 2018, Wilke Co. issued at 103 plus accrued interest \(4,000,000, 9% bonds. The bonds are dated January 1, 2018, and pay interest semiannually on July 1 and January 1. In addition, Wilke Co. incurred \)27,000 of bond issuance costs. Compute the net amount of cash received by Wilke Co. as a result of the issuance of these bonds.

(b) On January 1, 2017, Langley Co. issued 9% bonds with a face value of \(700,000 for \)656,992 to yield 10%. The bonds are dated January 1, 2017, and pay interest annually. What amount is reported for interest expense in 2017 related to these bonds, assuming that Langley used the effective-interest method for amortizing bond premium and discount?

(c) Tweedie Building Co. has a number of long-term bonds outstanding at December 31, 2017. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Sinking Fund

Maturities

2018

\(300,000

\)100,000

2019

100,000

250,000

2020

100,000

100,000

2021

200,000

-

2022

200,000

150,000

2023

200,000

100,000

Indicate how this information should be reported in the financial statements at December 31, 2017.

(d) In the long-term debt structure of Beckford Inc., the following three bonds were reported: mortgage bonds payable \(10,000,000; collateral trust bonds \)5,000,000; bonds maturing in installments, secured by plant equipment $4,000,000. Determine the total amount, if any, of debenture bonds outstanding
See all solutions

Recommended explanations on Business Studies Textbooks

Managerial Economics

Read Explanation

Organizational Behavior

Read Explanation

Sales in Business

Read Explanation

Intermediate Accounting

Read Explanation

Public Relations Business Studies

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.