Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 13, Problem 13.13E
Current– noncurrent classification of debt
• LO13–1, LO13–4
At December 31, 2018, Newman Engineering’s liabilities include the following:
1. $10 million of 9% bonds were issued for $10 million on May 31, 1999. The bonds mature on May 31, 2029, but bondholders have the option of calling (demanding payment on) the bonds on May 31, 2019. However, the option to call is not expected to be exercised, given prevailing market conditions.
2. $14 million of 8% notes are due on May 31, 2022. A debt covenant requires Newman to maintain current assets at least equal to 175% of its current liabilities. On December 31, 2018, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2019, having convinced the bank that the company’s normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2019.
3. $7 million of 11% bonds were issued for $7 million on August 1, 1989. The bonds mature on July 31, 2019. Sufficient cash is expected to be available to retire the bonds at maturity.
Required:
What portion of the debt can be excluded from classification as a current liability (that is, reported as a noncurrent liability)? Explain.
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Students have asked these similar questions
Problem 10.5A (Static) Bond Interest (Bonds Issued at Face Value) (LO10-5)
Green Mountain Power Company obtained authorization to issue 20-year bonds with a face value of $10 million. The bonds are dated
May 1, 2021, and have a contract rate of interest of 10 percent. They pay interest on November 1 and May 1. The bonds were issued on
August 1, 2021, at 100 plus three months' accrued interest
Required:
Prepare the necessary journal entries in general journal form on the following
a. August 1, 2021, to record the issuance of the bords.
b. November 1, 2021, to record the first semiannual interest payment on the bond issue.
c. December 31, 2021, to record interest expense accrued through year-end. (Round to the nearest dollar)
d. May 1, 2022, to record the second semiannual interest payment. (Round to the nearest dollar)
e. What was the prevailing market rate of interest on the date that the bonds were issued?
(If no entry is required for a transaction/event, select "No journal entry…
Question 25
On June 1, 2020, Mitchell Inc. issued 100, 8%, $1,000 bonds dated June 1, 2020 for $108,530. The bonds pay cash interest
semiannually each June 30, and December 31, and were issued to yield 6%. The bonds mature May 31, 2025, and the compar
uses the effective interest method to amortize bond discounts or premiums. The partial amortization schedule is as follows:
Amortization schedule
Cash
Effective
Premium Outstanding
Interest
Interest
amortization
Balance
0 06/01/20
$108.530
1 11/30/20
$4.000
$3.256
($744)
107,786
2 05/31/21
4,000
3,234
(766)
107,020
Required: Prepare journal entries on the following dates. Round to the nearest dollar.
1. June 1, 2020, bond issuance.
2. November 30, 2020, interest payment.
3. December 31, 2020, adjusting entry.
Note: You may create a table as follows to organize your journal entries.
Date
Account titles
Debit
Credit
1
Cash
10,000
Sales Revenue
10,000
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Required information
[The following information applies to the questions displayed below.]
Temptation Vacations issues $49 million in bonds on January 1, 2024, that pay interest semiannually on June 30 and
December 31. Portions of the bond amortization schedule appear below:
(1)
Date
1/1/2024
6/30/2024
12/31/2024
(2)
Cash Paid for
Interest
$1,470,000
1,470,000
Market annual interest rate
(3)
Interest Expense
$1,378,755
1,376,473
(4)
Decrease in
%
Carrying
Value
$91,245
93,527
(5)
Carrying Value
$55,150, 180
5. What is the market annual interest rate? (Round your answer to the nearest whole percent.)
55,058,935
54,965,408
4
Chapter 13 Solutions
Intermediate Accounting
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