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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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One way for a corporation to accomplish long-term financing is through the issuance of long-term debt instruments in the form of bonds.

Required:

  1. 1. Explain how to account for the proceeds from bonds issued with detachable stock purchase warrants.
  2. 2. Contrast a serial bond with a term (straight) bond.
  3. 3. For a 5-year term bond issued at a premium, why is the amortization in the first year of the life of the bond different using the interest method of amortization as opposed to the straight-line method? Include in your discussion whether the amount of amortization in the first year of the life of the bond is higher or lower using the interest method as opposed to the straight-line method.
  4. 4. When a company sells a bond issue between interest dates at a discount, what journal entry does it make, and how is the subsequent amortization of bond discount affected? Include in your discussion an explanation of how the amounts of each debit and credit are determined.
  5. 5. Explain how to account for and classify the gain or loss from the reacquisition of a long-term bond prior to its maturity.

1.

To determine

Explain the manner in which the proceeds from bonds issued with detachable stock purchase warrants are accounted.

Explanation
  • The part of the proceeds from bonds issued with “detachable stock purchase warrants” allocable to the warrants is accounted for as “paid in capital” since, the “detachable stock purchases warrants” are instr...

2.

To determine

Differentiate serial bond and the term straight bond.

3.

To determine

State the reason for which the amortization in the first year of bond is different using the interest method as opposed to the straight-line method and state whether the amount of amortization in the first year of bond is higher or lower using the interest method as opposed to the straight-line method

4.

To determine

Provide journal entry, if company sells a bond between interest dates at a discount and explain the manner in which subsequent amortization of bond discount is affected.

5.

To determine

Explain the manner in which the gain or loss from the reacquisition of a long-term bond prior to maturity is accounted and classified.

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