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Chapter 14: 22Q (page 753)
What disclosures are required relative to long-term debt and sinking fund requirements?
The disclosures required in relation to long-term obligations and sinking fund requirements include maturity value and future disbursements.
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(Entries for Zero-Interest-Bearing Note) On December 31, 2017, Faital Company acquired a computer from Plato Corporation by issuing a \(600,000 zero-interest-bearing note, payable in full on December 31, 2021. Faital Company’s credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a \)70,000 salvage value.
Instructions
(Round answers to the nearest cent.)
(a) Prepare the journal entry for purchase on December 31, 2017.
(b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective interest method) on December 31, 2018.
(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2019.
How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?
McCormick Corporation issued a 4-year, \(40,000, 5% note to Greenbush Company on January 1, 2017, and received a computer that normally sells for \)31,495. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 12%. Prepare McCormick’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.
E14-3 (L01) (Entries for Bond Transactions) Presented below are two independent situations.
1. On January 1, 2017, Simon Company issued \(200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, andJanuary 1.
2. On June 1, 2017, Garfunkel Company issued \)100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semi-annually on July 1 and January 1.
Instructions
For each of these two independent situations, prepare journal entries to record the following.
(a) The issuance of the bonds.
(b) The payment of interest on July 1.
(c) The accrual of interest on December 31.
What is done to record properly a transaction involving the issuance of a non-interest -bearing long-term note in exchange for property?
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