Login Registrieren

Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 14: Q6Q (page 752)

How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?

Short Answer

Expert verified

The discount or the premium on bonds payable that is yet to disbursed for interest expense will be listed promptly after the maturity amount of the bonds in the liabilities portion of the balance sheet.

Step by step solution

01

Meaning of Bonds Payable

Bonds payable is a liability account that comprises the amount that the issuer has to pay to the bondholders. It usually appears within the long-term liabilities portion of the balance sheet, as bonds payable generally mature after one year.

02

Reporting of discount or premium on bonds payable on the financial statements

The discount on bonds payable should be recorded in the balance sheet by directly subtracting it from the bond’s face value. However, the premium on bonds payable should be recorded by adding it to the maturity amount of the bond. Both are considered liability valuation accounts.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Briggs and Stratton recently issued debt with issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?

On March 1, 2017, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2017, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2017. Sealy uses the effective-interest method of amortization. The bonds can be called by Sealy at 101 at any time on or after March 1, 2018.

Instructions

a. (1) How would the selling price of the bond be determined?

(2) Specify how all items related to the bonds would be presented in a balance sheet prepared immediately after the bond issue was sold.

b. What items related to the bond issue would be included in Sealy’s 2017 income statement, and how would each be determined?

c. Would the amount of bond discount amortization using the effective-interest method of amortization be lower in the second or third year of the life of the bond issue? Why?

d. Assuming that the bonds were called in and redeemed on March 1, 2018, how should Sealy report the redemption of the bonds on the 2018 income statement?

Teton Corporation issued \(600,000 of 7% bonds on November 1, 2017, for \)644,636. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s December 31, 2017, adjusting entry.

Find the polynomials $q (x) a n d r (x)$ such that $f (x) = g (x) q (x) + r (x), a n d r (x) o r d e g r (x) < d e g g (x) :$

$(a) f (x) = 3 x^{4} - 2 x^{3} + 6 x^{2} - x + 2 a n d g (x) = x^{2} + x + 1 i n □ [x] . (b) f (x) = x^{4} - 7 x + 1 a n d g (x) = 2 x^{2} + 1 i n □ [x] . (c) f (x) = 2 x^{4} + x^{2} - x + 1 a n d g (x) = 2 x - 1 i n □_{5} [x] . (d) f (x) = 4 x^{4} + 2 x^{3} + 6 x^{2} + 4 x + 5 a n d g (x) = 3 x^{2} + 2 i n □_{7} [x] .$

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. Any changes in fair value are due to changes in market rates, not credit risk.

	Carrying Value	Fair Value
December 31, 2017	\(54,000	\)54,000
December 31, 2018	44,000	42,500
December 31, 2019	36,000	38,000

Instructions

(a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.

(b) At what amount will the note be reported on Fallen’s 2018 balance sheet?

(c) What is the effect of recording the fair value option on these notes on Fallen’s 2019 income?

(d) Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen’s creditworthiness has improved or declined in 2019? Explain.

See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Sales in Business

Read Explanation

Business Case Studies

Read Explanation

Operational Management

Read Explanation

Change Management

Read Explanation

Business Operations

Read Explanation

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free