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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Reporting bonds

At the beginning of the current year, two bond issues (Simmons Industries 7%, 20-year bonds and Hunter Corporation 8%, 10-year bonds) were outstanding. During the year, the Simmons Industries bonds were redeemed and a significant loss on the redemption of bonds was reported as cost of merchandise sold on the income statement. At the end of the year, the Hunter Corporation bonds were reported as a noncurrent liability. The maturity date on the Hunter Corporation bonds was early in the following year.

Identify the flaws in the reporting practices related to the two bond issues.

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

To Identify: The flaws in the reporting practices related to the two bond issues.

Explanation

The significant loss on redemption of S Industries bonds should be reported in the “Other income or loss” section of the income statement.

H Corporation bonds outstanding at the end of the current year should be reported as a current liability on the balance sheet...

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