Assume a company purchased an investment inAyayai Ltd. bonds for $99,800 at par value at thebeginning of the year. The bonds pay interest onDecember 31 each year. The bond is carried atamortized cost. Ayayai is experiencing financialdifficulties and is not able to make the payment ofprincipal and interest on the bond. The presentvalue of the discounted revised cash flows is$76,500 using the current market interest rate.The company follows ASPE.Is the investment impaired? If so, prepare thejournal entry to reflect the impairment. (Creditaccount titles are automatically indented when theamount is entered. Do not indent manually. If noentry is required, select "No Entry" for the accounttitles and enter O for the amounts. List debit entrybefore credit entry.)Account TitlesSUPPORTeTextbook and Media

The objective of the question is to determine whether the investment in Ayayai Ltd. bonds is…

Answered: Assume a company purchased an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A corporation issues for cash $1,000,000 of 10%, 20 year bonds, interest payable annually, at a time when the market rate of interest is 12% . The amortization Bond discount or premium. Which of the following statements is true A. The amount of annual interest expense gradually decreases over the life of the bonds B. The amount of annual interest expense is commuted at 10% of the bond carrying amount at the beginning of the year. C. The bonds will be issued at a premium. D. The amount of unmortized discount decreases from its balance at issuance date to a zero balance at maturity.
On October 1, Year 1 Hernandez Company loaned $60,000 cash to Acosta Company. The one-year note carried a 6% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will affect Hernandez's financial statements? Assets A. 900 B. 900 C. 2,700 D. 2,700 Balance Sheet Liabilities + ΝΑ ΝΑ ΝΑ ΝΑ Multiple Choice Option A Option C Option D Option B Stockholders' Equity 900 900 2,700 2,700 Income Statement Revenue Expense = 900 ΝΑ 900 2,700 ΝΑ ΝΑ 2,700 ΝΑ Net Income 900 900 2,700 2,700 Statement of Cash Flows 900 IA ΝΑ 2,700 IA ΝΑ
The Supple Hardware Company has $2,000,000 in current assets and $600,000 in current liabilities. Its initial inventory level is $450,000, and it will raise funds as additional short-term notes payable and use them to increase inventory. How much can Supple's current liabilities (notes payable) increase without violating a contractual agreement (the debt covenant) with its bondholders that requires a minimum current ratio of 2 to 1? Compute the dollar value of 1) inventory, 2) total current assets, and 3) total current liabilities after the maximum new financing has been obtained and the funds allocated.
Kier Company issued $740,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 3-year term to maturity. The bonds have a 5.50% stated rate of interest interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1? Multiple Choice O Zero and $40,700 $40,700 and $40,700 Zero and Zero $40,700 and Zero
1. On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%.The bonds paid interest semi-annually. Assuming the bonds sold at 58.55, what was the selling price of thebonds? Explain why the cash received from selling this bond is different from the $200,000 face value of thebond
7
An investor spends $25,000 for corporate bonds of another company late in Year One. The bonds are worth $26,000 at the end of that year on the open market. Early in Year Two, $1,300 in interest is received from this investment. Shortly thereafter, the debt investment is sold for $27,000. If this asset is an investment in trading debt securities, what is the impact on net income in Year Two? O Increase by $4,300. O Increase by $3,300. O Increase by $1,300. O Increase by $2,300.
4. Compute the annual cost for interest and redemption of these bonds
Thompson Distributors sold $50,000 worth of bonds to raise money for a new warehouse. The bonds pay interest annually at 4% for 10 years. The market rate of interest for a similar instrument was 3%; therefore, the bonds sold for a premium at $54,265. a. Record the sale of the bonds. b. Record the first interest payment and the amortization of the bond premium. Round the interest to the nearest dollar. c. Determine the carrying value (book value) of the bonds after the first year. General Journal Date Account Debit Credit a. b.
On 1 January 20X5, Franco Ltd. purchased $440,000 of Gentron Company 7.00% bonds. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 8% on the date of purchase. The bonds mature on 31 December 20X10. The company has a 31 December year-end. Required: 1. Calculate the price paid by Franco Ltd. (Do not round Intermediate calculations. Round your final answer to the nearest dollar amount.) Price paid Period 2. Assume that the bond is classified as an AC investment. Construct a table that shows interest revenue reported by Franco, and the carrying value of the investment, for four interest periods. Use the effective-interest method. (Do not round Intermediate calculations. Round your final answers to the nearest dollar amount.) 0 $ 1 2 3 4 Cash Payment 361,607 View transaction list Interest Revenue Amortization Bond Carrying Value 3. Prepare the entries for the first four interest periods based on your calculations in requirement 2. (If no entry is…
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Komissarov Company has a debt investment in the bonds issued by Keune Inc. The bonds were purchased at par for $400,000 and, at the end of 2020, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economic environment and informs all of its investors that it will be unable to make all payments according to the contractual terms. The controller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment. Dec. 31 Expected Cash Flows 2021 $ 35,000 2022 35,000 2023 385,000 Total cash flows $455,000 Instructions a. Determine the impairment loss for Komissarov at December 31, 2020. b. Prepare the entry to record the impairment loss for Komissarov at December 31, 2020. c. On January 15, 2021, Keune receives a major capital infusion from a private equity investor. It informs Komissarov that the…

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