9th Edition

ISBN: 9781259722660

Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher: McGraw-Hill Education

Concept explainers

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as th…

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

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Textbook Question

Chapter 14, Problem 14.30E

Reporting bonds at fair value

• LO14–6

On January 1, 2018, Rapid Airlines issued $200 million of its 8% bonds for $184 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Rapid Airlines records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $188 million as determined by their market value in the over-the-counter market. Rapid determined that $1,000,000 of the increase in fair value was due to a decline in general interest rates.

Required:

1. Prepare the journal entry to record interest on June 30, 2018 (the first interest payment).

2. Prepare the journal entry to record interest on December 31, 2018 (the second interest payment).

3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Chapter 14 Solutions

Intermediate Accounting

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Solution Summary: The author explains that bonds are a kind of interest bearing notes payable, usually issued by companies, universities, and governmental organizations.

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Chapter 14 Solutions