Question & Answer

Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $16,000. At year-end, Shonen Knife’s borrowing rate has declined; the fair value of the note payable is now $17,500. (a) Determine the unrealized holding gain or loss on the note. (b) Prepare the entry to record any unrealized holding gain or loss.

Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on

January 1, 2014, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 12%. Prepare Shlee Corporation’s January 1 journal entry.

McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on January 1,

2014, and received a computer that normally sells for $31,495. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 12%. Prepare McCormick’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.

Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on

January 1, 2014, and received cash of $47,664. The implicit interest rate is 12%. Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

Coldwell, Inc. issued a $100,000, 4-year, 10% note at face value to Flint Hills Bank on January 1,

2014, and received $100,000 cash. The note requires annual interest payments each December 31. Prepare

Coldwell’s journal entries to record (a) the issuance of the note and (b) the December 31 interest payment.

On January 1, 2014, Henderson Corporation redeemed $500,000 of bonds at 99. At the time of redemption, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

Wasserman Corporation issued 10-year bonds on January 1, 2014. Costs associated with the bond issuance were $160,000. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the December 31, 2014, entry to record 2014 bond issue cost amortization.

At December 31, 2014, Hyasaki Corporation has the following account balances:

Bonds payable, due January 1, 2023 $2,000,000

Discount on bonds payable 88,000

Interest payable 80,000

Show how the above accounts should be presented on the December 31, 2014, balance sheet, including the proper classifications.

Teton Corporation issued $600,000 of 7% bonds on November 1, 2014, for $644,636. The bonds were dated November 1, 2014, and mature in 10 years, with interest payable each May 1 and November 1.

Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s December 31, 2014, adjusting entry.

Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

On January 1, 2014, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.

Devers Corporation issued $400,000 of 6% bonds on May 1, 2014. The bonds were dated January 1, 2014, and mature January 1, 2017, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

Assume the bonds in BE14-2 were issued at 98. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

The Colson Company issued $300,000 of 10% bonds on January 1, 2014. The bonds are due January 1, 2020, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.

Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?

What is meant by “accounting symmetry” between the entries recorded by the debtor and creditor in a troubleddebt restructuring involving a modification of terms? In what ways is the accounting for troubled-debt restructurings non-symmetrical?

What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in a troubleddebt restructuring involving a modification of terms?

(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?

(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?

What are the general rules for measuring gain or loss by both creditor and debtor in a troubled-debt restructuring involving a settlement?

What are the types of situations that result in troubled debt?

Explain how a non-consolidated subsidiary can be a form of off-balance-sheet financing.

What are some forms of off-balance-sheet financing?

What is off-balance-sheet financing? Why might a company be interested in using off-balance-sheet financing?