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Chapter 14: Q20E (page 758)

(Long-Term Debt Disclosure) At December 31, 2017, Redmond Company has outstanding three long-term debt issues. The first is a \(2,000,000 note payable which matures June 30, 2020. The second is a \)6,000,000 bond issue that matures September 30, 2021. The third is a \(12,500,000 sinking fund debenture with annual sinking fund payments of \)2,500,000 in each of the years 2019 through 2023.

Instructions

Prepare the required note disclosure for the long-term debt at December 31, 2017.

Short Answer

Expert verified

On 31 December 2017, notes disclosure for the long-term debt will be as follows:

Requirements for maturities and sinking funds:

Year

Amount $

2018

$0

2019

$2,500,000

2020

$4,500,000 ($2,000,000+$2,500,000)

2021

$8,500,000 ($6,000,000+$2,500,000)

2022

$2,500,000

Step by step solution

01

Definition of Notes to Financial Statement

The information presented at the bottom of the financial statement that provides additional information regarding the assumptions made by the accountant is known as notes to the financial statement.

02

Notes disclosure for long-term debt

(a) $2,500,000 is added to each year’s disclosure because it is an annual payment for sinking funds.

(b) $2,000,000 is added in 2020 because the note payable will mature on 30 June 2020.

(c) $6,000,000 is added in 2021 because the bond payable will mature on 30 September 2021.

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Most popular questions from this chapter

On December 31, 2017, Hyasaki Corporation has the following account balance:

Bonds payable, due January 1, 2026 \(2,000,000

Discount on bonds payable \) 88,000

Interest payable $ 80,000

Show how the above accounts should be presented on the December 31, 2017, balance sheet, including the proper classifications.

Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Using the same information as in E14-22, answer the following questions related to American Bank (creditor).

Instructions

  1. What interest rate should American Bank use to calculate the loss on the debt restructuring?
  2. Compute the loss that American Bank will suffer from the debt restructuring. Prepare the journal entry to record the loss.
  3. Prepare the interest receipt schedule for American Bank after the debt restructuring.
  4. Prepare the interest receipt entry for American Bank on December 31, 2019.
  5. What entry should American Bank make on January 1, 2021?

BE14-1 (L01) Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semi-annually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.

All of the following are differences between IFRS and GAAP in accounting for liabilities except:

a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount.

b) Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond.

c) GAAP, but not IFRS, uses the term “troubled-debt restructurings.”

d) GAAP, but not IFRS, uses the term “provisions” for contingent liabilities which are accrued.
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