LOL Company is unable to meet interest payments and fund requirements to retire its 1,500,000 bonds payable. Accrued interest on the bonds amounted to 150,000. The bonds are held by Easy Investments , Inc. In order to prevent bankruptcy, LOL entered into an agreement with Easy to exchange equity securities for the debt. LOL is issuing 20,000 shares of its 50 par value ordinary shares. The ordinary share is currently selling at 65.

LOL Company is unable to meet interest payments and fund requirements to retire its 1,500,000 bonds payable. Accrued interest on the bonds amounted to 150,000. The bonds are held by Easy Investments , Inc. In order to prevent bankruptcy, LOL entered into an agreement with Easy to exchange equity securities for the debt. LOL is issuing 20,000 shares of its 50 par value ordinary shares. The ordinary share is currently selling at 65.

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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Indigo Corporation purchased trading investment bonds for $64,000 at par. At December 31, Indigo received annual interest of $2,560, and the fair value of the bonds was $61,200.Prepare Indigo' journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
Brooks Company purchases debt investments as trading securities at a cost of $71,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $90,000. Brooks sells a portion of its trading securities (costing $35,500) for $40,250 cash. Analyze each transaction above by showing its effects on the accounting equation-specifically, identify the accounts and amounts (including + or -) for each transaction.
As part of a reorganization plan, a bankruptcy court has permitted a new indenture on an outstandingbond issue to be put into effect for Cardinal Corporation, which recently filed for bankruptcy. It isknown that the issue has $1,000 par value per bond, 15 years to maturity, and a coupon rate of 5percent paid semi-annually. The reorganization plan allows the following arrangement: For the firstfive years, there will be no coupon paid (that is, coupon = $0). After five years, regular couponpayments will resume. At maturity, the par value plus the sum of all coupon payments that were notpaid during the first seven years must be paid. However, no additional interest will be paid on thedeferred coupon payments. If the required rate of return is 4 percent (APR), calculate the current pricethe Cardianl bonds would sell for in the market.
Daniel Sandhill is the sole shareholder of Sandhill Inc., which is currently under bankruptcy court protection. As a debtor in possession, he has negotiated a revised loan agreement with United Bank. Sandhill Inc.’s $696,000, 10-year, 11% note issued at par was refinanced with a $696,000, 10-year, 4% note. Assume the market rate of interest is 11% at the refinancing date. Both Sandhill and United Bank prepare financial statements in accordance with IFRS 9. Prepare the journal entries to record this refinancing (1) on the books of Sandhill Inc. and (2) on the books of United Bank. Assume for simplicity that United Bank had not previously recognized any impairment, although under the expected loss method, it is likely that it would have recognized some loss. (Use the amounts arrived at from using the time value of money tables for the journal entries.)
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