Survey Of Accounting
Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 20E

a.

To determine

Indicate the event that affects the balance sheet, income statement, and statement of cash flows and indicate whether the increases (+), decreases (-), or does not affect (NA) for each element of the financial statements.

a.

Expert Solution
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Explanation of Solution

Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Balance Sheet: Balance sheet summarizes the assets, the liabilities, and the stockholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Statement of cash flows: The financial statement that shows the changes in cash flows from operating, investing, and financing activities is referred to as statement of cash flows.

Indicate the event that affects the balance sheet, income statement, and statement of cash flows and also indicate whether the increases (+), decreases (-), or does not affect (NA) for each element of the financial statements as follows:

Survey Of Accounting, Chapter 7, Problem 20E

Table (1)

b.

To determine

Ascertain the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018.

b.

Expert Solution
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Explanation of Solution

Bonds: Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Straight-line amortization bond: Straight line method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the same amount of interest expense in each period of interest payment.

Ascertain the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018:

Particulars$
Bonds payable200,000
Add: Premium on bonds payable3,600
Carrying value of the bond at December 31, Year 1203,600

Table (2)

Therefore, the carrying value of the bond at December 31, 2018 is $203,600.

Working notes:

Calculate the premium rate.

Premium rate = (Issued price per bondPar value per bond)Par value per bond×100=($102$100)$100×100=$2$100×100=2%

Calculate the value of premium.

Bond premium = Issuance cost×Premium rate  = $200,000×2100=$4,000

Calculate bond premium amortized during 2018.

Bond premium amortized during 2018} = Bond premium Time period=$4,00010 years=$400

Calculate the premium on bonds payable at the end of 2018.

Premium on bonds payable at the end of 2018}=[Bond premium   (Bond premium amortized during 2018 )]=$4,000$400=$3,600

c.

To determine

Calculate the amount of interest expense reported on the 2018 income statement.

c.

Expert Solution
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Explanation of Solution

Calculate the interest expense reported on the 2018 income statement.

ParticularsAmount ($)
Interest expense12,000
Less: Bond premium amortized during 2018400
Interest expense paid in 201811,600

Table (3)

Therefore, the interest expense reported on the 2018 income statement is $11,600.

Working note:

Calculate the value of interest expense

Interest expense = Principal amount ×Interest rate×Time period=$200,000×6100×1212=$12,000

d.

To determine

Ascertain the carrying value of the bond liability as of December 31, 2019.

d.

Expert Solution
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Explanation of Solution

Ascertain the carrying value of the bond liability as of December 31, 2019.

Particulars$
Bonds payable200,000
Add: Premium on bonds payable3,200
Carrying value of the bond at December 31, Year 2203,200

Table (4)

Therefore, the carrying value of the bond liability as of December 31, 2019 is $203,200.

Working note:

Calculate bond premium amortized during 2018.

Bond premium amortized during 2019} = Bond premium Time period=$4,00010 years=$400

Calculate the premium on bonds payable at the end of the 2019.

Premium on bonds payable at the end of 2019}=[(Premium on bond payable at the end of 2018 )  (Bond premium amortized during 2019 )]=$3,600$400=$3,200

e.

To determine

Calculate the amount of interest expense reported on the 2019 income statement.

e.

Expert Solution
Check Mark

Explanation of Solution

Calculate the interest expense reported on the 2018 income statement.

ParticularsAmount ($)
Interest expense12,000
Less: Bond premium amortized during 2019400
Interest expense paid in 201911,600

Table (5)

Therefore, the interest expense reported on the 2019 income statement is $11,600.

Working note:

Calculate the value of interest expense

Interest expense = Principal amount ×Interest rate×Time period=$200,000×6100×1212=$12,000

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Chapter 7 Solutions

Survey Of Accounting

Ch. 7 - 11. Are contingent liabilities recorded on a...Ch. 7 - Prob. 12QCh. 7 - Prob. 13QCh. 7 - Prob. 14QCh. 7 - Prob. 15QCh. 7 - Prob. 16QCh. 7 - 1. What is the difference between classification...Ch. 7 - 2. At the beginning of Year 1, B Co. has a note...Ch. 7 - 3. What is the purpose of a line of credit for a...Ch. 7 - 4. What are the primary sources of debt financing...Ch. 7 - 5. What are some advantages of issuing bonds...Ch. 7 - 6. What are some disadvantages of issuing bonds?Ch. 7 - 7. Why can a company usually issue bonds at a...Ch. 7 - 15. If Roc Co. issued 100,000 of 5 percent,...Ch. 7 - 16. What is the mechanism is used to adjust the...Ch. 7 - 17. When the effective interest rate is higher...Ch. 7 - 18. What type of transaction is the issuance of...Ch. 7 - 19. What factors may cause the effective interest...Ch. 7 - 20. If a bond is selling at 97, how much cash will...Ch. 7 - Prob. 30QCh. 7 - 22. Gay Co. has a balance m the Bonds Payable...Ch. 7 - Prob. 32QCh. 7 - Prob. 33QCh. 7 - Recognizing accrued interest expense Abardeen...Ch. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Effect of warranties on income and cash flow To...Ch. 7 - Effect of warranty obligations and payments on...Ch. 7 - Principle due at maturity versus installments...Ch. 7 - Prob. 9ECh. 7 - Amortization of a long-term loan A partial...Ch. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Exercise 7-15 Straight-line amortization of a bond...Ch. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - Prob. 20ECh. 7 - Prob. 21ECh. 7 - Exercise 7-22 Preparing a classified balance sheet...Ch. 7 - Exercise 7-23 Effective interest amortization of a...Ch. 7 - Prob. 24ECh. 7 - Prob. 25ECh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Problem 7-29 Current liabilities The following...Ch. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Problem 7-32 Accounting for a line of credit Elite...Ch. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Problem 7-35 Straight-line amortization of a bond...Ch. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Writing Assignment Definition of elements of...Ch. 7 - Prob. 5ATC
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