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Chapter 14: Q1Q (page 752)

Question: (a) From what sources might a corporation obtain funds through long-term debt? (b) What is a bond indenture? What does it contain? (c) What is a mortgage?

Short Answer

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Answer

  1. By issuing bonds as well as by signing of long-term mortgages and notes.
  2. A bond indenture is an agreement made in contract between the issuer of the bonds as well as the bondholders and is signed by the bond issuer.
  3. A mortgage is an agreement made between borrower and the lender that provides the right to the lender to take one鈥檚 property in case of failure of amount borrowed inclusive of interest.

Step by step solution

01

Meaning of long-term debt

Long-term debt is a debt that gets matured within a year and its treatment differs with that of the short-term debt.

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Most popular questions from this chapter

(Term Modification with Gain鈥擠ebtor鈥檚 Entries) Use the same information as in E14-22 above except that American Bank reduced the principal to \(1,900,000 rather than \)2,400,000. On January 1, 2021, Barkley pays $1,900,000 in cash to American Bank for the principal. Instructions

(a) Can Barkley Company record a gain under this term modification? If yes, compute the gain for Barkley Company.

(b) Prepare the journal entries to record the gain on Barkley鈥檚 books.

(c) What interest rate should Barkley use to compute its interest expense in future periods? Will your answer be the same as in E14-22 above? Why or why not?

(d) Prepare the interest payment schedule of the note for Barkley Company after the debt restructuring.

(e) Prepare the interest payment entries for Barkley Company on December 31, of 2018, 2019, and 2020.

(f) What entry should Barkley make on January 1, 2021?

On January 1, 2017, JWS Corporation issued \(600,000 of 7% bonds, due in 10 years. The bonds were issued for \)559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company鈥檚 journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%

(Long-Term Debt Disclosure) At December 31, 2017, Redmond Company has outstanding three long-term debt issues. The first is a \(2,000,000 note payable which matures June 30, 2020. The second is a \)6,000,000 bond issue that matures September 30, 2021. The third is a \(12,500,000 sinking fund debenture with annual sinking fund payments of \)2,500,000 in each of the years 2019 through 2023.

Instructions

Prepare the required note disclosure for the long-term debt at December 31, 2017.

BE14-2 (L01) The Colson Company issued $300,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson鈥檚 journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

What are the two methods of amortizing discount and premium on bonds payable? Explain each.
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