Presented below are four independent situations. (a) On March 1, 2015, Wilke Co.
ID: 2456432 • Letter: P
Question
Presented below are four independent situations.
(a) On March 1, 2015, Wilke Co. issued at 104 plus accrued interest $4,468,000, 8% bonds. The bonds are dated January 1, 2015, and pay interest semiannually on July 1 and January 1. In addition, Wilke Co. incurred $25,300 of bond issuance costs.
Compute the net amount of cash received by Wilke Co. as a result of the issuance of these bonds. (Round answer to 0 decimal places, e.g. 38,548.)
Net amount of cash received $
(b) On January 1, 2014, Langley Co. issued 8% bonds with a face value of $719,400 for $630,990 to yield 10%. The bonds are dated January 1, 2014, and pay interest annually.
What amount is reported for interest expense in 2014 related to these bonds, assuming that Langley used the effective-interest method for amortizing bond premium and discount? (Round answer to 0 decimal places, e.g. 38,548.)
Interest expense to be reported for 2014 $
(c) Tweedie Building Co. has a number of long-term bonds outstanding at December 31, 2014. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.
2015 $312,800 $113,200
2016 113,200 261,100
2017 113,200 113,200
2018 209,500 -
2019 209,500 161,200
2020 209,500 113,200
Indicate how above information should be reported in the financial statements at December 31, 2014. (Round answers to 0 decimal places, e.g. 38,548.)
Maturities and sinking fund requirements
2015
$
2016
$
2017
$
2018
$
2019
$
(d) In the long-term debt structure of Beckford Inc., the following three bonds were reported: mortgage bonds payable $10,062,000; collateral trust bonds $5,017,900; bonds maturing in installments, secured by plant equipment $4,015,900.
Determine the total amount, if any, of debenture bonds outstanding.
Total amount $
Year Sinking Fund MaturitiesExplanation / Answer
(a)
Face value OF bonds = $100
Issue price of bonds = $104
Premium per bond = $4 / $100 = 4%
Total premium = $4,468,000 * 0.04 = $178,720
Difference between Bond date and Issue date = 2 months
Accrued interest = $4,468,000 * 0.08 *2/12 = $59,573
Total amount received = Face value + premium + Accrued interest = $4,468,000 + $178,720 + $59,573 = $4,706,293
Issuance cost = $25300
Net amount received = $4,706,293 - $25,300 = $4,680,993
(b)
Carrying amount of bond = $630,990
Effective interest rate = 10%
Interest expense for 2014 = $630,990 * 0.10 = $63,099.00
(c)
Maturities and sinking fund requirements on long-term debt for the next five year are as follows:
2015 $426,000
2016 $374,300
2017 $226,400
2018 $209,500
2019 $370,700
(d)
Since the three bonds are secured by either real estate, securities of other corporations, or plant equipment, none of the bonds are classified as debenture bonds.
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