Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 10, Problem 16Q
a.
To determine
To explain: How an interest expense is calculated using effective-interest amortization method for a bond issued at discount.
b.
To determine
To explain: How an interest expense is calculated using effective-interest amortization method for a bond issued at premium.
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Part I:. The appropriate method of amortizing a premium or discount on issuance of bonds is the effective‐interest method.
Instructions
a. What is the effective-interest method of amortization and how is it different from and similar to the straight‐line method of amortization?
b. How is amortization computed using the effective‐interest method, and why and how do amounts obtained using the effective‐interest method differ from amounts computed under the straight-line method?
Part II: Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways:
1. Amortized over remaining life of old debt.
2. Amortized over the life of the new debt issue.
3. Recognized in the period of extinguishment.
Instructions
a. Develop supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt.
b. Which of the methods above is generally accepted and how should…
Explain how each of the columns in an amortization schedule is calculated, assuming the bonds are issued at a discount. How is the amortization schedule different if bonds are issued at a premium?
Assuming the bonds are issued at a discount, explain how each column in an amortization schedule is determined. When bonds are issued at a premium, how does the amortization schedule differ?
Chapter 10 Solutions
Fundamentals Of Financial Accounting
Ch. 10 - Prob. 1QCh. 10 - Prob. 2QCh. 10 - What three factors influence the dollar amount...Ch. 10 - Prob. 4QCh. 10 - Why is Deferred Revenue considered a liability?Ch. 10 - Prob. 6QCh. 10 - Prob. 7QCh. 10 - If a company has a long-term loan that has only...Ch. 10 - What are the reasons that some bonds are issued at...Ch. 10 - Prob. 10Q
Ch. 10 - Will the stated interest rate be higher than the...Ch. 10 - What is the carrying value of a bond payable?Ch. 10 - What is the difference between a secured bond and...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - (Supplement D) Over the period to maturity, why...Ch. 10 - Which of the following best describes Accrued...Ch. 10 - Prob. 2MCCh. 10 - Prob. 3MCCh. 10 - Prob. 4MCCh. 10 - Which of the following does not impact the...Ch. 10 - Which of the following is false when a bond is...Ch. 10 - To determine if a bond will be issued at a...Ch. 10 - A bond is issued at a price of 103 and retired...Ch. 10 - In a recent year. Land O Lakes, Inc., reported (in...Ch. 10 - Prob. 10MCCh. 10 - Recording Unearned Revenues A local theater...Ch. 10 - Prob. 2MECh. 10 - Prob. 3MECh. 10 - Reporting Payroll Tax Liabilities Refer to M10-3....Ch. 10 - Reporting Current and Noncurrent Portions of...Ch. 10 - Recording a Note Payable Greener Pastures...Ch. 10 - Reporting Interest and Long-Term Debt, Including...Ch. 10 - On February 6, 2017, the NYSE bond directory...Ch. 10 - E-Tech Initiatives Limited plans to issue...Ch. 10 - Repeat M10-9 assuming the bonds are issued at...Ch. 10 - Recording Bonds Issued at Face Value Schlitterbahn...Ch. 10 - Prob. 12MECh. 10 - Computing the Debt-to-Assets Ratio and the Times...Ch. 10 - Analyzing the Impact of Transactions on the...Ch. 10 - Prob. 15MECh. 10 - Prob. 16MECh. 10 - Prob. 17MECh. 10 - Prob. 18MECh. 10 - Prob. 19MECh. 10 - Prob. 20MECh. 10 - Prob. 21MECh. 10 - Determining Financial Statement Effects of...Ch. 10 - Recording a Note Payable through Its Time to...Ch. 10 - Recording Payroll Costs McLoyd Company completed...Ch. 10 - Recording Payroll Costs with and without...Ch. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Preparing Journal Entries to Record Issuance of...Ch. 10 - Prob. 9ECh. 10 - Calculating and Interpreting the Debt-to-Assets...Ch. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - (Supplement 10B) Recording the Effects of a...Ch. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Determining Financial Statement Reporting of...Ch. 10 - Prob. 6CPCh. 10 - Prob. 7CPCh. 10 - Prob. 8CPCh. 10 - Prob. 9CPCh. 10 - Prob. 10CPCh. 10 - Determining Financial Effects of Transactions...Ch. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Recording and Reporting Current Liabilities...Ch. 10 - Comparing Bonds Issued at Par, Discount, and...Ch. 10 - Prob. 5PACh. 10 - Prob. 6PACh. 10 - Prob. 7PACh. 10 - Prob. 8PACh. 10 - Prob. 9PACh. 10 - Prob. 1PBCh. 10 - Recording and Reporting Current Liabilities with...Ch. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Recording and Explaining the Early Retirement of...Ch. 10 - Prob. 6PBCh. 10 - Prob. 7PBCh. 10 - Prob. 8PBCh. 10 - Zarina Corp. signed a new installment note on...Ch. 10 - Prob. 1COPCh. 10 - Prob. 1SDCCh. 10 - Prob. 2SDCCh. 10 - Prob. 4SDCCh. 10 - Prob. 5SDCCh. 10 - Prob. 6SDCCh. 10 - Prob. 7SDCCh. 10 - Prob. 8SDCCh. 10 - (Supplement 10C) Preparing a Bond Amortization...Ch. 10 - Nicole thinks that her business, Nicole’s Getaway...
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Similar questions
- T or F A discount on bond payable is charged to interest expense using the effective interest method.arrow_forwardHow is interest expense calculatedusing the simplified approach to the effective-interestmethod for a bond issued at ( a ) a discount and ( b ) apremium?arrow_forwardAccording to the PFRS, discount or premium on bonds payable may be amortized using the straight-line method.arrow_forward
- The interest expense recorded on an interest payment date is increased a.by the amortization of premium on bonds payable b.only if the market rate of interest is less than the stated rate of interest on that date c.only if the bonds were sold at face value d.by the amortization of discount on bonds payablearrow_forwardWhat type of account is Discount on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?arrow_forwardWhat amount of interest is expensed on a bond interest payment?arrow_forward
- What is the treatment of transaction costs from issuance to a bond payable measured using the effective interest method? Ignored Added to the initial cost Same as discount Same as premiumarrow_forward19. When bonds are purchased between interest dates, the accrued interest should be a. debited to the Interest Receivable accountb. debited to the Interest Revenue accountc. debited to the Investment in Bonds accountd. either a or barrow_forward16. Bond issue costs a. should be amortized by the straight-line method to interest expenseb. should be included in bond discount or subtracted from bond premium and amortized by the effective-interest methodc. should be subtracted from bonds payable on the balance sheetd. should not be amortized and should be written off at bond retirementarrow_forward
- Which of the following is classified as nonmonetary? a. Warranty liability b. Accrued expense c. Unamortized discount on bonds payable d. Refundable depositarrow_forward2. Bond issue costs, such as printing fees, legal fees, commissions, etc. are most appropriately accounted for by: a. charging them to an expense account in the year the bonds are actually sold. b. debiting them to unamortized bond issue costs, setting them as a deferred charge on the statement of financial position, and amortizing them in a manner similar to bond discount over the life of the bond. c. charging them to an expense account in the year the bonds are originally dated whether or not they are sold in that year. d. considering them in the measurement of the bonds payable.arrow_forwardThe PFRS allows for the straight-line amortization of discount or premium on bonds due.arrow_forward
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