Chapter 10: Q18QS (page 475)
Algoma, Inc., signs a five-year lease for office equipment with Office Solutions. The present value of the lease payments is $15,499. Prepare the journal entry that Algoma records at the inception of this capital lease
The lease asset is debited, and the lease liability is credited.
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Vodafone Group Plc reports the following information among its bonds payable as of March 31, 2015
(pounds in millions).
| Financial Long-Term Liabilities Measured at Amortized Cost | |||
£ millions | Nominal (par) Value | Carrying Value | Fair Value |
4.625% (US dollar 500 million) bond due July 2018 | £337 | £375 | £367 |
a. What is the par value of the 4.625% bond issuance? What is its book (carrying) value?
b. Was the 4.625% bond sold at a discount or a premium? Explain.
Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.
Ike issues \(180,000 of 11%, three-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at \)184,566. Their market rate is 10% at the issue date.
Required
Analysis Component
6. Assume that the market rate on January 1, 2017, is 12% instead of 10%. Without presenting numbers, describe how this change affects the amounts reported on Ike’s financial statements.
Citywide Company issues bonds with a par value of $150,000 on their stated issue date. The bonds mature in five years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%.
1. What is the amount of each semiannual interest payment for these bonds?
2. How many semiannual interest payments will be made on these bonds over their life?
3. Use the interest rates given to determine whether the bonds are issued at par, at a discount, or at a premium.
4. Compute the price of the bonds as of their issue date.
5. Prepare the journal entry to record the bonds’ issuance
Jin Li, an employee of ETrain.com, leases a car at O’Hare airport for a three-day business trip. The rental cost is $250. Prepare the entry by ETrain.com to record Jin Li’s short-term car lease cost.
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