The printing costs and legal fees associated with the issuance ofbonds shouldSelect one:a.be expensed when incurred.O b. be reported as a deduction from the face amount of bondspayable.c. not be reported as an expense until the period the bondsmature or are retired.d. be recorded as a reduction of the bond issue amount andthen amortized over the life of the bonds.

As per IFRS 9 and IAS 39, bonds issuance costs shall be accounted for as a reduction from the issue…

Answered: The printing costs and legal fees…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 7MC

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The premium on bonds payable account is shown on the balance sheet as A contra asset. A reduction of an expense. An addition to a long-term liability. A subtraction from a long-term liability.
Debtholders receive note contracts, one for each note, that describe the payments promised by the issuer of the debt. In addition, the issuing corporation frequently enters a supplementary agreement, callcd a note indenture, with a trustee who represents the debtholders. The provisions or covenants of the indenture may place restrictions on the issuer for the benefit of the debtholders. For example, an indenture may require that the issuers debt to equity ratio never rise above a specified level or that periodic payments be made to the trustee who administers a sinking fund to provide for the retirement of debt. Consider Roswell Manufacturings debt indenture, which requires that Roswells debt to equity ratio never exceed 2:1. If Roswell violates this requirement, the debt indenture specifies very costly penalties, and if the violation continues, the entire debt issue must be retired at a disadvantageous price and refinanced. In recent years, Roswells ratio has averaged about 1.5:1 ($15 million in total liabilities and $10 million in total stockholders equity). However, Roswell has an opportunity to purchase one of its major competitors, Ashland Products. The acquisition will require $4.5 million in additional liabilities, but it will double Roswells net income. Roswell does not believe that a stock issue is feasible in the current environment. The Financial Accounting Standards Board issued a new standard concerning accounting for post employment benefits, which is strongly supported by the Securities and Exchange Commission. Implementation of the new standard will add about S2 million to Roswells long-term liabilities. Roswells CEO. Martha Cooper, has written a strong letter of objection to the FASB. The FASB received similar letters from over 300 companies. Required; 1. Write a paragraph presenting an analysis of the impact of the new standard on Roswell Manufacturing.
Debtholders receive note contracts, one for each note, that describe the payments promised by the issuer of the debt. In addition, the issuing corporation frequently enters a supplementary agreement, called a note indenture, with a trustee who represents the debtholders. The provisions or covenants of the indenture may place restrictions on the issuer for the benefit of the debtholders. For example, an indenture may require that the issuers debt to equity ratio never rise above a specified level or that periodic payments be made to the trustee who administers a sinking fund to provide for the retirement of debt. Consider Roswell Manufacturings debt indenture, which requires that Roswells debt to equity ratio never exceed 2:1. If Roswell violates this requirement, the debt indenture specifies very costly penalties, and if the violation continues, the entire debt issue must be retired at a disadvantageous price and refinanced. In recent years, Roswells ratio has averaged about 1.5:1 ($15 million in total liabilities and $10 million in total stockholders equity). However, Roswell has an opportunity to purchase one of its major competitors, Ashland Products. The acquisition will require $4.5 million in additional liabilities, but it will double Roswells net income. Roswell does not believe that a stock issue is feasible in the current environment. The Financial Accounting Standards Board issued a new standard concerning accounting for post employment benefits, which is strongly supported by the Securities and Exchange Commission. Implementation of the new standard will add about S2 million to Roswells long-term liabilities. Roswells CEO. Martha Cooper, has written a strong letter of objection to the FASB. The FASB received similar letters from over 300 companies. Required; 2. If you were a member of the FASB and met Martha Cooper at a professional meeting, how would you respond to her objection?
If there is neither a premium nor discount present, the journal entry to record bond interest payments is _______.
When bonds are redeemed before maturity, how is the gain or loss on redemption determined? Why does the calculation differ for bonds issued at face value, at a premium, and at a discount?
Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be:(a) expensed in the period when the debt is issued.(b) recorded as a reduction in the carrying value of bonds payable.(c) accumulated in a deferred charge account and amortized over the life of the bonds.(d) reported as an expense in the period the bonds mature or are redeemed.
Bond issue costs, such as printing fees, legal fees, commissions, etc. are most appropriately accounted for by a. charging them to an expense account in the year the bonds are actually sold. b. debiting them to unamortized bond issue costs, setting them as a deferred charge on the statement of financial position, and amortizing them in a manner similar to bond discount over the life of the bond. c. charging them to an expense account in the year the bonds are originally dated whether or not they are sold in that year. d. considering them in the measurement of the bonds payable.
Which of the following is not a valid statement regarding bonds payable? a. Bonds issued by an entity represent a financial liability and shall be measured at amortized cost using the effective interest method. b. The market price of a bond issue is the present value of its principal amount plus the present value of all future interest payments, both discounted at the market rate of interest when the bonds were issued. c. Bonds that mature at a single date are called term bonds. d. The amortization of a bond premium increases both the recorded interest expense and amortized cost.
When using the effective−interest amortization method for bonds, the amount of the interest expense is calculated using the carrying amount of the bonds and the ________________________. A. market value B. original cost C. market interest rate D. stated interest rate
The interest expense recorded on an interest payment date is increased a.by the amortization of premium on bonds payable b.only if the market rate of interest is less than the stated rate of interest on that date c.only if the bonds were sold at face value d.by the amortization of discount on bonds payable
When bonds are acquired between interest payment dates, the price paid for the bond is: a. equal to the acquisition cost. b.increased by a charge for accrued interest to the date of purchase. c.decreased by a credit for accrued interest to the date of purchase. d.equal to the par value increased by a charge for accrued interest to the date of purchase.
Gains on the redemption of bonds are reported in the Other Revenue section of the income statement. O Tre O False

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