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Exam 14: Bonds and Long-Term Notes

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Question 1

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How much cash interest does Auerbach pay on March 31, 2014?

A) $6.0 million
B) $12.0 million
C) $9.0 million
D) $18.0 million

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A

Question 2

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Determine the price of a $500,000 bond issue under each of the following independent assumptions:

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Question 3

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What would be the total interest expense recognized for the bond issue over its full term?

Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

Is IFRS or U.S.GAAP more restrictive for determining when firms are allowed to elect the fair value option for financial assets and liabilities? Explain.

In its 2013 annual report to shareholders, Bare Sturns Group Inc. disclosed the following: On October 28, 2013, the Company issued $475,000,000 aggregate principal amount of 9-1/4% Senior Notes Due 2018 ("Senior Notes") and $618,670,000 aggregate principal amount at maturity of 10-1/4% Senior Discount Notes Due 2018 ("Senior Discount Notes" and collectively the "Notes") in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. Gross proceeds from the offering amounted to $850,000,000. The discount on the Senior Discount Notes is being accreted under the effective interest method. Explain the last sentence of the disclosure to clarify what accounting was necessary and why.

The interest expense on an installment note decreases with each periodic payment.

Straight-line amortization of bond discount or premium:

A $500,000 bond issue sold for 98. Therefore, the bonds:

The times interest earned ratio indicates:

When bonds and other debt are issued, costs such as legal costs, printing costs, and underwriting fees are referred to as debt issuance costs (called transaction costs under IFRS) . If Brown Imports prepares its financial statements using IFRS:

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance at December 31, 2013, rounded up to the nearest thousand?

LPC calls the bonds at 103 immediately after the interest payment on 12/31/2014 and retires them. What gain or loss, if any, would LPC record on this date?

Distinguish between: (a) Secured and unsecured bonds. (b) Coupon and registered bonds.

Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow's:

Required: Determine the gain or loss that Health Foods would have reported in its 2013 income statement if it had redeemed (and retired) the debentures at fair value at the end of the fiscal year.

Miranda Company contracted with Stewart Corporation to construct custom-made equipment. The equipment was completed and ready for use on January 1, 2013. Miranda paid for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4%, payable annually on December 31 each year. Since the machine was custom-built, the cash price was unknown. However, when compared to similar contracts, 10% was deemed to be a reasonable rate of interest. Required: 1. Prepare the journal entry by Miranda to record the purchase of equipment. 2. Prepare journal entries to record interest for each of the first two years.

In each succeeding payment on an installment note:

On January 1, 2013, Ozark Minerals issued $10 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Ozark's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99. Upon issuance, Ozark should:

When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?