Use the following information for the next four questions:On Jan. 1, 20x1, Red Co. acquires P500,000 face amount, 10%,bonds of Ball Co, for P487,656. Red Co. incurred transaction costsequal to 5% of the face amount of the bonds. The bonds mature onDec. 31, 20x3 and pay annual interest every Dec. 31. The bondswere quoted at 102 and 104 on Dec. 31, 20x1 and Dec. 31, 20x2,respectively.* What is the effective interest rate on the bonds and how muchIs the difference between the interest received and the interestincome recognized in 20x2?a. 9%; 3,861c. 14%; 5,389d. 9%; 4,208b. 11%; 6,3928. How much is the unamortized bond discount or premiumDec. 31, 20x2 if the bonds were measured at amortized cosc. 8,795 premiumd. 4,587 premium4,587 discountb. 5,129 discounta.9. What amounts of fair value gain (loss) is recognized in othercomprehensive income (OCI) and in equity in 20x2 if thebonds were measured at FVOCI?OCIЕquity14,208OCIEquity15,413с. 14,20815,413b. 17,899a.32,410d. 1,20515,41310. How much is the gain (loss) if half of the bonds were sold onJuly 1, 20x3 at 103, transaction costs of P7,000 were incurred onthe sale, and the bonds were measured at amortized cost?a. (13,147)b. (78,123)c. (25,647)d. (6,541)11. On Jan. 1, 20x1, Forgiven Co. acquires 1,000, P5,000 face value,10%, 5-year 'term' bonds for P4.639,522. The bonds aremeasured at fair value through other comprehensive incolmeThe bonds are quoted at 98 on Dec. 31, 20x1. How much 15 ueinterest income and the fair value gain (loss) in 20x1?a. 556,743; 203,735b. 296,298; (13,772)c. 556,743; 260,478d. 412,516; 21,354

Since you have asked multiple question, we will solve the first question for you. If you want any…

On Jan. 1, 20x1, Red Co. acquires P500,000 face amount, 10%, bonds of Ball Co. for P487,656. Red Co. incurred transaction costs equal to 5% of the face amount of the bonds. The bonds mature on Dec. 31, 20x3 and pay annual interest every Dec. 31. The bonds were quoted at 102 and 104 on Dec. 31, 20x1 and Dec. 31, 20x2, respectively. 7. What is the effective interest rate on the bonds and how much Is the difference between the interest received and the interest income recognized in 20x2? a. 9%; 3,861 c. 14%; 5,389 d. 9%; 4,208 b. 11%; 6,392

On Jan. 1, 20x1, Red Co. acquires P500,000 face amount, 10%, bonds of Ball Co. for P487,656. Red Co. incurred transaction costs equal to 5% of the face amount of the bonds. The bonds mature on Dec. 31, 20x3 and pay annual interest every Dec. 31. The bonds were quoted at 102 and 104 on Dec. 31, 20x1 and Dec. 31, 20x2, respectively. 7. What is the effective interest rate on the bonds and how much Is the difference between the interest received and the interest income recognized in 20x2? a. 9%; 3,861 c. 14%; 5,389 d. 9%; 4,208 b. 11%; 6,392

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 7MCQ

See similar textbooks

Similar questions

Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________. A. a credit to cash for $28,733 B. a debit to interest expense for $31,267 C. a debit to Discount on Bonds Payable for $1,267 D. a debit to Premium on Bonds Payable for $1.267
Oak Branch Inc. issued $700,000 of 5%, 10-year bonds when the market rate was 4%. They received $757,243. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds.
Starmount Inc. sold bonds with a $50,000 face value, 12% interest, and 10-year term at $48,000. What is the total amount of interest expense over the life of the bonds?
Irving Inc. sold bonds with a $50,000, 10% interest, and 10-year term at $52,000. What is the total amount of interest expense over the life of the bonds?
Haiku Inc. issued $600,000 of 10-year bonds with a stated rate of 11% when the market rate was 12%. The bonds pay interest semi-annually. Prepare the first three years of an amortization schedule. Assume that the bonds were issued for $565,710.
Diana Inc. issued $100,000 of its 9%, 5-year bonds for $96,149 when the market rate was 10%. The bonds pay interest semi-annually. Prepare an amortization table for the first three payments.
On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________. A. $120,000 B. $60,000 C. $7,500 D. $15,000
On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization