Learning Materials
Features
Discover
Chapter 14: Q4BE (page 753)
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.
The total for both the debit and credit sides is $339,000.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
Gottlieb Co. owes \(199,800 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept some land and cancel the entire debt. The property has a book value of \)90,000 and a fair value of $140,000.
Instructions
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.
On January 1, 2017, Nichols Company issued for \(1,085,800 its 20-year, 11% bonds that have a maturity value of \)1,000,000 and pay interest semiannually on January 1 and July 1. The following are three presentations of the long-term liability section of the balance sheet that might be used for these bonds at the issue date.
1 | Bonds payable (maturing January 1, 2037) | \(1,000,000 |
Unamortized premium on bonds payable | 85,800 | |
Total bond liability | \)1,085,800 | |
2 | Bonds payable鈥攑rincipal (face value \(1,000,000 maturing January 1, 2037) | \) 142,050a |
Bonds payable鈥攊nterest (semiannual payment \(55,000) | 943,750b | |
Total bond liability | \)1,085,800 | |
3 | Bonds payable鈥攑rincipal (maturing January 1, 2037) | \(1,000,000 |
Bonds payable鈥攊nterest (\)55,000 per period for 40 periods) | 2,200,000 | |
Total bond liability | \(3,200,000 |
aThe present value of \)1,000,000 due at the end of 40 (6-month) periods at the yield rate of 5% per period
bThe present value of \(55,000 per period for 40 (6-month) periods at the yield rate of 5% per period.
Instructions
(a) Discuss the conceptual merit(s) of each of the date-of-issue balance sheet presentations shown above for these bonds.
(b) Explain why investors would pay \)1,085,800 for bonds that have a maturity value of only $1,000,000.
(c)Assuming that a discount rate is needed to compute the carrying value of the obligations arising from a bond issue at any date during the life of the bonds, discuss the conceptual merit(s) of using for this purpose: (1) The coupon or nominal rate. (2) The effective or yield rate at date of issue.
(d)If the obligations arising from these bonds are to be carried at their present value computed by means of the current market rate of interest, how would the bond valuation at dates subsequent to the date of the issue be affected by an increase or a decrease in the market rate of interest?
What is off-balance sheet financing? Why might a company be interested in using off-balance sheet financing?
What is done to record properly a transaction involving the issuance of a non-interest -bearing long-term note in exchange for property?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine