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brief_exercise_14.docxBrief Exercise 14-15
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Account Titles and Explanation |
Debit |
Credit |
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January 1, 2014 |
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Warning
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Exercise 14-9
On June 30, 2014, Mischa Auer Company issued $4,089,000 face value of 11%, 18-year bonds at $4,427,311, a yield of 10%. Auer uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31. (a) Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
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(1) |
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The issuance of the bonds on June 30, 2014. |
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(2) |
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The payment of interest and the amortization of the premium on December 31, 2014. |
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(3) |
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The payment of interest and the amortization of the premium on June 30, 2015. |
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(4) |
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The payment of interest and the amortization of the premium on December 31, 2015. |
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No. |
Date |
Account Titles and Explanation |
Debit |
Credit |
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(1) |
June 30, 2014 |
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(2) |
December 31, 2014 |
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(3) |
June 30, 2015 |
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(4) |
December 31, 2015 |
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(b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2015, balance sheet. (Round answers to 0 decimal places, e.g. 38,548.)
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Auer Company Balance Sheet December 31, 2015 |
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$ |
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$ |
(c) Provide the answers to the following questions. (1) What amount of interest expense is reported for 2015? (Round answer to 0 decimal places, e.g. 38,548.)
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Interest expense reported for 2015 |
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$ |
(2) Will the bond interest expense reported in 2015 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
The bond interest expense reported in 2015 will be EAT_1362998146233_0_2200884220914059_111 the amount that would be reported if the straight-line method of amortization were used.
(3) Determine the total cost of borrowing over the life of the bond.
(Round answer to 0 decimal places, e.g. 38,548.)
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Total cost of borrowing over the life of the bond |
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$ |
(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
The total bond interest expense for the life of the bond will be EAT_1362998146233_0_2200884220914059_118 the total interest expense if the straight-line method of amortization were used.
Warning
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Exercise 14-19 Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay’s Bank and has the following data related to the carrying and fair value for these notes.
(a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2014, 2015, and 2016, to record the fair value option for these notes. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) At what amount will the note be reported on Fallen’s 2015 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Fallen’s 2016 income?
Warning
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less than
the same as
0
loss
