(a)
Introduction:
Under
To prepare:
Amortization table.
(b)
Introduction:
A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of a large debt to borrow, as it may be too large for an individual lender.
To discuss:
If the constructed plant will be recorded as an asset in the company’s books.
(c)
Introduction:
A bond is long term liability wherein the issuer is entitled to pay the face value of the bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.
To discuss:
If the bonds are to be recorded as a liability in the company’s books.
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Cornerstones of Financial Accounting
- A county builds a new road for residents in a previously undeveloped section of the county, financing the project with $15,000,000 in 2.5% bonds issued on July 1, 2019. The bond principal will be repaid in ten equal installments over the next ten years, on June 30 of each year, starting on June 30, 2020. Affected residents will be assessed over the next ten years to retire the bonds and pay interest on outstanding bonds. The county has no liability for the bonds, and records transactions related to assessment of the residents and payment of the bond principal and interest using a custodial fund. Assume uncollectible amounts are negligible. The county’s year ends on June 30. Using the attached T-account template or a spreadsheet with proper classifications and account names, prepare the journal entries in the custodial fund to: Record the levy for fiscal 2020. Record collection of the fiscal 2020 assessment. Record payment of principal and interest for fiscal 2020. Record the levy…arrow_forwardTeal Mountain Inc. is building a new hockey arena at a cost of $2,900,000. It received a down payment of $580,000 from local businesses to support the project, and now needs to borrow $2,320,000 to complete the project. It therefore decides to issue $2,320,000 of 10-year, 10.5% bonds. These bonds were issued on January 1, 2020, and pay interest annually on each January 1. The bonds yield 10% to the investor and have an effective interest rate to the issuer of 10.4053%. (There is an increased effective interest rate due to the capitalization of the bond issue costs.) Any additional funds that are needed to complete the project will be obtained from local businesses. Teal Mountain Inc. paid and capitalized $58,000 in bond issuance costs related to the bond issue. Teal Mountain prepares financial statements in accordance with IFRS. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. (a) Using (1) factor tables, (2)…arrow_forwardSun Inc. began construction of a new facility and took out a $13,000,000 10% construction loan on March 1, 2022. Sun made payments to the general contractor of $750,000 on May 1, $550,000 on August 31, and $400,000 on December 31. Required: Compute the amount of interest that Sun Inc. would capitalize in 2022.arrow_forward
- . During 2022, Romart Company constructed a new building at a cost of P30,000,000. The expenditures for the building, which was finished late in 2022, were incurred evenly during the year. The entity had the following loans outstanding on December 31, 2022: > 10% note to finance specifically construction of the building dated January 1, 2022, P10,000,000 and unpaid on December 31, 2022. Investments were made on the proceeds from the loan and income of P100,000 was realized in 2022. > 12% 20-year bonds payable issued at face value on April 30, 2021, P30,000,000 > 8% five-year note payable, dated March 1, 2021, P10,000,000 What amount of interest is capitalized as cost of the new building? A. 1,550,000 B. 1,450,000 C. 1,400,000 D. 1,500,000arrow_forwardSnowbird Company is constructing a building that qualifies for interest capitalization. It is built between January 1 and December 31, 2019. Snowbird made the following expenditures related to this building: April 1 $396,000 July 1 400,000 September 1 510,000 December 1 120,000 The company borrowed $500,000 at 12% to help finance the project. In addition, Snowbird had outstanding borrowings of $2 million at 8% and $1 million at 9%. Required: Compute the amount of interest capitalized related to the construction of the building. Do not round your interim calculations. Round your final answer to the nearest dollar. Next Level In the current period, the capitalization of interest ; in future period the effect of capitalized interest is to .arrow_forwardCurrent Attempt-in Progress Swifty Co. is building a new hockey arena at a cost of $2,360,000. It received a downpayment of $510,000 from local businesses to support the project, and now needs to borrow $1,850,000 to complete the project. It therefore decides to issue $1,850,000 of 11.0%, 10-year bonds. These bonds were issued on January 1, 2024, and pay interest annually on each January 1. The bonds yield 10%. Click here to view factor table. (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2024. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places, e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Date January 1, 2024 Account Titles and Explanation Debit Creditarrow_forward
- Early in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $270,000 immediately and signing a noninterest-bearing note requiring the company to pay $670,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $27,000 were paid at closing. At the end of April, the old building was demolished at a cost of $77,000, and an additional $57,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: May 1 $2,250,000 July 30 1,850,000 September 1 1,320,000 October 1 2,220,000 San Antonio borrowed $4,100,000 at 8% on May 1 to help…arrow_forwardEarly in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $270,000 immediately and signing a noninterest-bearing note requiring the company to pay $670,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $27,000 were paid at closing.At the end of April, the old building was demolished at a cost of $77,000, and an additional $57,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) May 1 $ 2,250,000…arrow_forwardEarly in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $270,000 immediately and signing a noninterest-bearing note requiring the company to pay $670,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $27,000 were paid at closing.At the end of April, the old building was demolished at a cost of $77,000, and an additional $57,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)San Antonio borrowed $4,100,000 at 8%…arrow_forward
- Early in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $270,000 immediately and signing a noninterest-bearing note requiring the company to pay $670,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $27,000 were paid at closing.At the end of April, the old building was demolished at a cost of $77,000, and an additional $57,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: May 1 $ 2,250,000 July 30 1,850,000 September 1 1,320,000 October 1 2,220,000 San Antonio borrowed $4,100,000 at 8% on…arrow_forwardEarly in its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $270,000 immediately and signing a noninterest-bearing note requiring the company to pay $670,000 on March 28, 2023. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $27,000 were paid at closing.At the end of April, the old building was demolished at a cost of $77,000, and an additional $57,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: May 1 $2,250,000 July 30 1,850,000 September 1 1,320,000 October 1 2,220,000 How much interest expense will San Antonio report in its 2021…arrow_forwardEarly In Its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $200,000 Immediately and signing a noninterest-bearing note requiring the company to pay $600,000 on March 28, 2023. An Interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, Insurance, and other closing costs totaling $20,000 were paid at closing. At the end of April, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) May 1 July 30 September 1 October 1…arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning