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Chapter 14: Q21Q (page 753)
What disclosures are required relative to long-term debt and sinking fund requirements?
Futurepaymentsforsinkingfund requirements and the maturity amounts of long-term debt.
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Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. 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.
(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
Pierre Company has a 12% note payable with a carrying value of \(20,000. Pierre applies the fair value option to this note. Given an increase in market interest rates, the fair value of the note is \)22,600. Prepare the entry to record the fair value option for this note, assuming
(a) no change in credit risk, and
(b) the change is due to a change in credit risk.
Presented below are two independent situations.
(a) On January 1, 2017, Robin Wright Inc. purchased land that had an assessed value of \(350,000 at the time of purchase. A \)550,000, zero-interest-bearing note due January 1, 2020, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2017, and the interest expense to be reported in 2017 related to this transaction.
(b) On January 1, 2017, Field Furniture Co. borrowed $5,000,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Field Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2017.
All of the following are differences between IFRS and GAAP in accounting for liabilities except:
a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount.
b) Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond.
c) GAAP, but not IFRS, uses the term 鈥渢roubled-debt restructurings.鈥�
d) GAAP, but not IFRS, uses the term 鈥減rovisions鈥� for contingent liabilities which are accrued.
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