Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter A2, Problem 7MCQ
To determine
Introduction:
The debt security is a security that is issued when a company owes a blend of interest amount and principal amount to another company.
To choose:
The option that states the unrealized gain or loss at year end.
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Students have asked these similar questions
Parrish Industries has bonds outstanding
(originally sold for $5,400,000) in the
amount of $6,000,000 with a current bond
discount at 104 on the market at its year
end. What should be the balance of the Fair
Value Adjustment on Bonds Payable? Show
your work.
A. $840,000 debit balance
B. $340,000 debit balance
C. $840,000 credit balance
D. $340,000 credit balance
Presented below are two independent situations.(a) Waterway Co. sold $1,950,000 of 12%, 10-year bonds at 106 on January 1, 2020. The bonds were dated January 1, 2020, and pay interest on July 1 and January 1. If Waterway uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2020, and December 31, 2020. (Round answer to 0 decimal places, e.g. 38,548.)
Interest expense to be recorded
$
(b) Wildhorse Inc. issued $570,000 of 9%, 10-year bonds on June 30, 2020, for $471,929. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Wildhorse uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)
Interest expense to be recorded
$
(a) Stellar Co. sold $1,950,000 of 12%, 10-year bonds at 106 on January 1, 2020. The bonds were dated January 1, 2020, and pay
interest on July 1 and January 1. If Stellar uses the straight-line method to amortize bond premium or discount, determine the amount
of interest expense to be reported on July 1, 2020, and December 31, 2020. (Round answer to O decimal places, e.g. 38,548.)
Interest expense to be recorded
$
Interest expense to be recorded
LA
(b) Pearl Inc. issued $570,000 of 9%, 10-year bonds on June 30, 2020, for $471,929. This price provided a yield of 12% on the bonds.
Interest is payable semiannually on December 31 and June 30. If Pearl uses the effective-interest method, determine the amount of
interest expense to record if financial statements are issued on October 31, 2020. (Round intermediate calculations to 6 decimal places,
e.g. 1.251247 and final answer to O decimal places, e.g. 38,548.)
$
111150
LA
Chapter A2 Solutions
Cornerstones of Financial Accounting
Ch. A2 - How do long-term investments differ from...Ch. A2 - Prob. 2DQCh. A2 - Prob. 3DQCh. A2 - Prob. 4DQCh. A2 - Prob. 5DQCh. A2 - Prob. 6DQCh. A2 - Prob. 7DQCh. A2 - How does the equity method discourage the...Ch. A2 - Prob. 9DQCh. A2 - Prob. 10DQ
Ch. A2 - Prob. 11DQCh. A2 - Prob. 12DQCh. A2 - Prob. 13DQCh. A2 - Prob. 14DQCh. A2 - Prob. 15DQCh. A2 - Prob. 1MCQCh. A2 - Prob. 2MCQCh. A2 - Prob. 3MCQCh. A2 - Prob. 4MCQCh. A2 - Prob. 5MCQCh. A2 - Prob. 6MCQCh. A2 - Prob. 7MCQCh. A2 - Prob. 8MCQCh. A2 - Prob. 9MCQCh. A2 - Prob. 10MCQCh. A2 - Prob. 11MCQCh. A2 - When the market value of a companys...Ch. A2 - Prob. 13MCQCh. A2 - Prob. 14MCQCh. A2 - Prob. 15MCQCh. A2 - Prob. 16MCQCh. A2 - Prob. 17ECh. A2 - Trading Securities Pear Investments began...Ch. A2 - Prob. 19ECh. A2 - Prob. 20ECh. A2 - Adjusting the Allowance to Adjust Trading...Ch. A2 - Prob. 22ECh. A2 - Prob. 23ECh. A2 - Prob. 24ECh. A2 - Prob. 25ECh. A2 - Prob. 26ECh. A2 - Prob. 27ECh. A2 - Prob. 28ECh. A2 - Prob. 29ECh. A2 - Prob. 30E
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- On September 30, Franz Corporation notices a decline in value of its investment in held-to-maturity bonds. On that date, the carrying value of the bonds is 38,500 and the fair value is 22,980. Franz evaluation of this investment reveals that expected credit losses are 10,000. Prepare the journal entry to record the impairment.arrow_forwardWhirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________. A. a credit to cash for $28,733 B. a debit to interest expense for $31,267 C. a debit to Discount on Bonds Payable for $1,267 D. a debit to Premium on Bonds Payable for $1.267arrow_forwardOn January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?arrow_forward
- Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.arrow_forwardGingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________. A. more than 7% B. less than 7% C. equal to 7% D. equal to 1.3%arrow_forwardNaval Inc. issued $200,000 face value bonds at a discount and received $190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is $5,000. This years balance sheet will show a net liability of ________. A. $200,000 B. $180,000 C. $195,000 D. $205,000arrow_forward
- Bonds Payable has a balance of $896,000 and Premium on Bonds Payable has a balance of $9,856. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption? a.$9,856 loss b.$17,024 loss c.$9,856 gain d.$922,880 gainarrow_forwardBonds Payable has a balance of $987,000 and Premium on Bonds Payable has a balance of $10,857. If the issuing corporation redeems the bonds at 102, what is the amount of gain or loss on redemption? Select the correct answer. a-$10,857 loss b-$8,883 gain c-$10,857 gain d-$8,883 lossarrow_forwardMarigold Co. sold $5,230,000 of 6%, 10-year bonds at 103 on January 1, 2025. The bonds were dated January 1, 2025, and pay interest on July 1 and January 1. If Marigold uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be recognized on July 1, 2025, and December 31, 2025. Interest expense to be recorded $ LAarrow_forward
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