CHAPTER 14
Long-Term Liabilities
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Topics 1. Long-term liability; classification; definitions. Issuance of bonds; types of bonds. Premium and discount; amortization schedules. Questions 1, 10, 14, 20, 23, 24, 25 2, 3, 4, 9, 10, 11 5, 6, 7, 8, 11 1, 2, 3, 4, 5, 6, 7 3, 4, 6, 7, 8, 10 Brief Exercises Exercises 1, 2 Problems 10, 11 Concepts for Analysis 1, 2, 3
2.
3, 4, 5, 6, 7, 8, 9, 10, 11 4, 5, 6, 7, 8, 9, 10, 11, 13, 14, 15 12, 13, 14, 15 16, 17, 18 19
1, 2, 3, 4, 5, 6, 7, 10 1, 2, 3, 4, 5, 6, 7, 10, 11 2, 4, 5, 6, 7, 10 8, 9 10
1, 3, 6
3.
1, 2, 3, 4
4. 5. 6.
Retirement and refunding of debt. Imputation of interest on notes. Disclosures of long-term obligations. Troubled
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Effective-interest method. Level of Difficulty Simple Simple Simple Simple Simple Simple Simple Moderate Moderate Moderate Simple Simple Simple Simple Simple Simple Simple Moderate Simple Moderate Moderate Moderate Moderate Moderate Simple Moderate Simple Moderate Moderate Simple Moderate Moderate Moderate Simple Moderate Moderate Moderate Time (minutes) 15–20 15–20 15–20 15–20 15–20 15–20 15–20 15–20 20–30 15–20 20–30 15–20 15–20 12–16 10–15 15–20 15–20 15–20 10–15 15–20 20–30 25–30 25–30 20–30 15–20 20–25 15–20 25–30 20–30 15–20 50–65 20–25 20–25 15–25 20–25 20–25 40–50
Copyright © 2010 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 13/e, Solutions Manual
(For Instructor Use Only)
14-3
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Item *P14-12 *P14-13 *P14-14 Description Debtor/creditor entries for continuation of troubled debt. Restructure of note under different circumstances. Debtor/creditor entries for continuation of troubled debt with new effective-interest. Bond theory: balance sheet presentations, interest rate, premium. Various long-term liability conceptual issues. Bond theory: price, presentation, and retirement. Bond theory: amortization and gain or loss recognition. Off-balance-sheet financing. Bond issue, ethics Level of Difficulty Moderate Moderate Complex Time (minutes) 15–25 30–45 40–50
CA14-1 CA14-2 CA14-3 CA14-4 CA14-5 CA14-6
Moderate Moderate Moderate Simple Moderate Moderate
25–30 10–15 15–25 20–25 20–30
2, 2, 0, 5,1, 4,1, 3, 0, 0, 1, 4, 4, 0,1, 4, 3, 4, 2, 1
Mr. Shields’ should accept Mr. Fordham’s proposal in relation to the acquisition of Upstate Canning Company, Inc. In this case, Mr. Shields attempts to conclude if he should acquire the company from its owner, Mr. Fordham, using his personal savings of $35,000 in addition to an investment of $65,000 from his associates. Moreover, Mr. Fordham proposes that he will loan Mr. Shields’ $300,000 worth of income bonds, to be repaid in up to 10 years. Mr. Fordham provides Mr. Shields’ with a bond repayment schedule which allows Mr. Shields’ to repay the bonds at a discount if he meets the wishes to repay the bonds back early. Mr. Shields’ faces a
My process to solve this problem is as follows: I started out by picking 1 to 20, but none of the
6. 7. 8. 9. 10. 11. 12. 13. 14. 15. i. b d j c k e l a f
2, 2, 0, 5,1, 4,1, 3, 0, 0, 1, 4, 4, 0,1, 4, 3, 4, 2, 1
1, 2, 4, 5, 6, 7, 8, 9, 10, 13, 14, 15, 18, 21, 19, 26
Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Periods (n) 1 2 3
One appreciates the recommendation of providing information on restructuring debt to help the company combat its recent financial troubles. Even though the company is in the process of reorganizing one believes this information will help a company in reporting the restructuring of debt. One will provide information on the requirements of reporting debt on bonds, notes, and capital leases. In performing this one will also provide the journal entries one would need to record to restructure the
Long-term liabilities: Note Payable with total balance due in 5 years and Mortgage Loan with payments made monthly over 5 years.
This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.
13 52 57 47 43 19 14 18 35 41 25 11 12 10 11 17 10 10 1
Based on the Time Interest Earned Ratio Landry’s ability to pay interest bills from profit earned decreased. In 2002 Landry’s could pay their interest bill just over 13 times from earnings before interest tax. In 2003 Landry’s ability to pay interest bills was almost cut in-half to 7 times. We think that as a result of the decrease in ability to pay interest bills, creditors could be concerned about these findings.
1,2,3,4,5 1,2,3,5,4 1,2,4,3,5 1,2,4,5,3 1,2,5,3,4 1,2,5,4,3 1,3,2,4,5 1,3,2,5,4 1,3,4,2,5 1,3,4,5,2 1,3,5,2,4 1,3,5,4,2 1,4,2,3,5 1,4,2,5,3 1,4,3,2,5 1,4,3,5,2 1,4,5,2,3 1,4,5,3,2 1,5,2,3,4 1,5,2,4,3 1,5,3,2,4 1,5,3,4,2 1,5,4,2,3 1,5,4,3,2 2,1,3,4,5 2,1,3,5,4 2,1,4,3,5 2,1,4,5,3 2,1,5,3,4 2,1,5,4,3 2,3,1,4,5 2,3,1,5,4 2,3,4,1,5 2,3,4,5,1 2,3,5,1,4 2,3,5,4,1 2,4,1,3,5 2,4,1,5,3 2,4,3,1,5 2,4,3,5,1 2,4,5,1,3 2,4,5,3,1 2,5,1,3,4 2,5,1,4,3 2,5,3,1,4 2,5,3,4,1 2,5,4,1,3 2,5,4,3,1 3,1,2,4,5 3,1,2,5,4 3,1,4,2,5 3,1,4,5,2 3,1,5,2,4 3,1,5,4,2 3,2,1,4,5 3,2,1,5,4 3,2,4,1,5 3,2,4,5,1 3,2,5,1,4 3,2,5,4,1 3,4,1,2,5 3,4,1,5,2 3,4,2,1,5 3,4,2,5,1 3,4,5,1,2 3,4,5,2,1 3,5,1,2,4 3,5,1,4,2 3,5,2,1,4 3,5,2,4,1 3,5,4,1,2 3,5,4,2,1 4,1,2,3,5 4,1,2,5,3 4,1,3,2,5
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 1 2 4 6 6 7 7 8 8 8 9 10 10 10