ACG 2021 Lecture Notes - Lecture 14: Current Liability, Regional Policy Of The European Union, Interest Expense

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chocolateleopard236

31 Mar 2018

School

University of Florida

Department

Accounting

Course

ACG 2021

Professor

Jill Kristen Goslinga

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Document Summary

Interest payment date date that interest is actually paid. Held-to-maturity investments: accounted for at amortized cost. Issued in ,000 denominations: price is quoted as percent of par, fluctuate with market interest rates. If market rate > face (stated) rate, sell at discount. If market rate < fact (stated) rate, sell at premium. Interest revenue recorded at semiannual interest payment date: premium or discount is amortized, carrying value is adjusted towards face value, face value received at maturity. Amortization of held-to-maturity investment (bonds purchases at a discount) Increases long-term investment account as it reaches maturity: records interest revenue earned from carrying amount increase. Amortization of held-to-maturity investment (when bond purchased at a premium: decreases long-term investment account as it reaches maturity, decreases interest revenue earned from carrying amount decrease. Amortized cost method: purchase put investment on books at cost, long-term investment xx, cash xx, interest entry. Cash received = maturity value x stated rate interest per period.

Related Questions

USE THE FOLLOWING INFORMATION FOR #3 - 6:

Par Value of Bonds Purchased $ 175,000

Stated Interest Rate 8%

Effective Interest Rate 10%

Purchased On 1/1/20X2

Interest Paid Semi-Annual

Interest for 1/1 - 6/30 paid on July 1st of current year

Interest for 7/1 - 12/31 paid on January 1st of next year

Years to maturity 5

- The bonds were purchased with the positive intent and abilityto hold to maturity.

- The investor corporation has not elected the fair value optionof reporting.

- Use the effective interest method 3.) What is the value of thebond at the original date of purchase?

A. $ 215,536

B. zero

C. $ 175,000

D. $ 161,484

4. Assuming that the fair value option is NOT elected on thisbond what is the impact on net income for the journal entryrequired at each interest payment/accrual date?

A. Increase

B. Decreases

C. No impact

D. Not able to determine

CONSIDER THESE ADDITIONAL FACTS RELATED TO #5 & 6:

Bonds Called on 7/1/X6

Call % 103%

5. What is the gain or loss on these bonds at the date of call?Indicate amount and whether it is a gain or loss.

6.) At the original date of purchase the amount of interestexpected to be earned by the purchasing company approximates what%?

A. 8%

B. 10%

C. 5%

D. 4%

whitelion588

The following bond transactions occurred during 2009 for the University of Higher Learning (UHL) and Otutye Ltd.:

Feb. 1 UHL issued $10 million of five-year, 8% bonds at face value which pay interest semi-annually on August 1 and February 1.

Feb. 1 Otutye Ltd. purchased $3 million of UHL's bonds at 98 as a short-term AFS investment. The purchase price was based on a market interest rate of 8.5%.

Aug. 1 The semi-annual interest on the bonds was paid

Aug.1 After paying the semi-annual interest on the bonds on this date, UHL decided to repurchase $3 million of its bonds to retire them. UHL repurchased all $3 million of the bonds from Otutye at 99.

Instructions:

a) Prepare all required journal entries for Otutye Ltd., the investor, to record the above transactions.

b) Prepare all required entries for UHL, the investee, to record the above transactions.

c) Comment on the differences in recording that you observe between the investor and the investee.

silverhound562

2. A bond issue with a face amount of $400,000 bears interest atthe rate of 7%. The current market rate of interest is 9%. Thesebonds will sell at a price that is:
More than $400,000.
Equal to $400,000.
Less than $400,000.
The answer cannot be determined from the information provided.

3. On January 1, 2016, Solo Inc. issued 1,100 of its 6%, $1,000bonds at 99. Interest is payable semiannually on January 1 and July1. The bonds mature on January 1, 2026. Solo paid $51,000 in bondissue costs. Solo uses straight-line amortization. The amount ofinterest expense for the year is:
$67,100
$72,200
$73,300
$66,000

4. On January 1, 2016, an investor paid $298,000 for bonds witha face amount of $330,000. The stated rate of interest is 11% whilethe current market rate of interest is 13%. Using the effectiveinterest method, how much interest income is recognized by theinvestor in 2016 (assume annual interest payments andamortization)?
$36,300.
$32,780.
$42,900.
$38,740.

5. On January 31, 2016, B Corp. issued $750,000 face value, 10%bonds for $750,000 cash. The bonds are dated December 31, 2015, andmature on December 31, 2025. Interest will be paid semiannually onJune 30 and December 31. What amount of accrued interest payableshould B report in its September 30, 2016, balance sheet? (Do notround intermediate calculations.)
$18,750.
$37,500.
$56,250.
$50,000.

6. Auerbach Inc. issued 7% bonds on October 1, 2016. The bondshave a maturity date of September 30, 2026 and a face value of $325million. The bonds pay interest each March 31 and September 30,beginning March 31, 2017. The effective interest rate establishedby the market was 9%.

How much cash interest does Auerbach pay on March 31, 2017?(Answer should be in million rounded to two decimal places.)
$22.75 million
$14.63 million
$11.38 million
$29.25 million

coralbuffalo105

ACG 2021 Lecture Notes - Lecture 14: Current Liability, Regional Policy Of The European Union, Interest Expense

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