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Chapter 14: Q6Q (page 752)

How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?

Short Answer

Expert verified

The discount or the premium on bonds payable that is yet to disbursed for interest expense will be listed promptly after the maturity amount of the bonds in the liabilities portion of the balance sheet.

Step by step solution

01

Meaning of Bonds Payable

Bonds payable is a liability account that comprises the amount that the issuer has to pay to the bondholders. It usually appears within the long-term liabilities portion of the balance sheet, as bonds payable generally mature after one year.

02

Reporting of discount or premium on bonds payable on the financial statements

The discount on bonds payable should be recorded in the balance sheet by directly subtracting it from the bond鈥檚 face value. However, the premium on bonds payable should be recorded by adding it to the maturity amount of the bond. Both are considered liability valuation accounts.

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Most popular questions from this chapter

Using the same information as in E14-22, answer the following questions related to American Bank (creditor).

Instructions

  1. What interest rate should American Bank use to calculate the loss on the debt restructuring?
  2. Compute the loss that American Bank will suffer from the debt restructuring. Prepare the journal entry to record the loss.
  3. Prepare the interest receipt schedule for American Bank after the debt restructuring.
  4. Prepare the interest receipt entry for American Bank on December 31, 2019.
  5. What entry should American Bank make on January 1, 2021?

Question: Under IFRS, bonds issuance costs, including the printing costs and legal fees associated with the issuance, should be:

  1. expensed in the period when the debt is issued.
  2. recorded as a reduction in the carrying value of bonds payable.
  3. accumulated in a deferred charge account and amortized over the life of the bonds.

d.reported as an expense in the period the bonds mature or are redeemed.

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

  1. Prepare the journal entry on Gottlieb鈥檚 books for debt restructure.
  2. Prepare the journal entry on Ceballos鈥檚 books for debt restructure

Question: What is the required method of amortizing discount and premium on bonds payable? Explain the procedures.

What disclosures are required relative to long-term debt and sinking fund requirements?
See all solutions

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