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Intermediate Accounting 13th Edition Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield - Solutions
Steve Allen invested $10,000 today in a fund that earns 8% compounded annually. To what amount will the investment grow in 3 years? To what amount would the investment grow in 3 years if the fund earns 8% annual interest compounded semiannually?
Itzak Perlman needs $20,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?
Janet Jackson will invest $30,000 today. She needs $222,000 in 21 years. What annual interest rate must she earn?
Dan Webster will invest $10,000 today in a fund that earns 5% annual interest. How many years will it take for the fund to grow to $13,400?
Anne Boleyn will invest $5,000 a year for 20 years in a fund that will earn 12% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years?
William Cullen Bryant needs $200,000 in 10 years. How much must he invest at the end of each year, at 11% interest, to meet his needs?
Jack Thompson’s lifelong dream is to own his own fishing boat to use in his retirement. Jack has recently come into an inheritance of $400,000. He estimates that the boat he wants will cost $350,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of 12%
Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 12%, how much of Jack Thompson’s inheritance must be invested to have enough at retirement to buy the boat?
Luther Vandross is investing $12,961 at the end of each year in a fund that earns 10% interest. In how many years will the fund be at $100,000?
Grupo Rana wants to withdraw $20,000 each year for 10 years from a fund that earns 8% interest. How much must he invest today if the first withdrawal is at year-end? How much must he invest today if the first withdrawal takes place immediately?
Mark Twain’s VISA balance is $1,124.40. He may pay it off in 18 equal end-of-month payments of $75 each. What interest rate is Mark paying?
Corinne Dunbar is investing $200,000 in a fund that earns 8% interest compounded annually. What equal amounts can Corinne withdraw at the end of each of the next 20 years?
Bayou Inc. will deposit $20,000 in a 12% fund at the end of each year for 8 years beginning December 31, 2005. What amount will be in the fund immediately after the last deposit?
Hollis Stacy wants to create a fund today that will enable her to withdraw $20,000 per year for 8 years, with the first withdrawal to take place 5 years from today. If the fund earns 8% interest, how much must Hollis invest today?
Acadian Inc. issues $1,000,000 of 7% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 8%. What amount will Acadian receive when it issues the bonds?
Walt Frazier is settling a $20,000 loan due today by making 6 equal annual payments of $4,864.51. Determine the interest rate on this loan, if the payments begin one year after the loan is signed.
Consider the loan in BE6-16. What payments must Walt Frazier make to settle the loan at the same interest rate but with the 6 payments beginning on the day the loan is signed?
(Various Time Value Situations) Answer each of these unrelated questions.(a) On January 1, 2003, Rather Corporation sold a building that cost $250,000 and that had accumulated depreciation of $100,000 on the date of sale. Rather received as consideration a $275,000 noninterest-bearing note due on
(Various Time Value Situations) Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns.(a) What is the amount of the payments that Tom Brokaw must make at the end of each of 8 years to accumulate a fund of $70,000 by the end of
(Analysis of Alternatives) Assume that Wal-Mart, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its discount-retail outlets to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a
(Evaluating Payment Alternatives) Terry O’Malley has just learned he has won a $900,000 prize in the lottery. The lottery has given him two options for receiving the payments: (1) If Terry takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately.
(Analysis of Alternatives) Sally Brown died, leaving to her husband Linus an insurance policy contract that provides that the beneficiary (Linus) can choose any one of the following four options.(a) $55,000 immediate cash.(b) $3,700 every 3 months payable at the end of each quarter for 5 years.(c)
(Time Value Concepts Applied to Solve Business Problems) Answer the following questions related to Mark Grace Inc.(a) Mark Grace Inc. has $572,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12
(Analysis of Alternatives) Homer Simpson Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering
(Analysis of Business Problems) Jean-Luc is a financial executive with Star ship Enterprises. Although Jean-Luc has not had any formal training in finance or accounting, he has a “good sense” for numbers and has helped the company grow from a very small company ($500,000 sales) to a large
(Analysis of Lease vs. Purchase) Jose Rijo Inc. owns and operates a number of hardware stores in the New England region. Recently the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and
(Pension Funding) You have been hired as a benefit consultant by Maugarite Alomar, the owner of Attic Angels. She wants to establish a retirement plan for herself and her three employees. Maugarite has provided the following information: The retirement plan is to be based upon annual salary for
(Pension Funding) James Qualls, newly appointed controller of KBS, is considering ways to reduce his company’s expenditures on annual pension costs. One way to do this is to switch KBS’s pension fund assets from First Security to NET Life. KBS is a very well-respected computer manufacturer
(Various Time Value of Money Situations) Using a financial calculator, provide a solution to each of the following questions.(a) What is the amount of the payments that Karla Zehms must make at the end of each of 8 years to accumulate a fund of $70,000 by the end of the eighth year, if the fund
(Various Time Value of Money Situations) Using a financial calculator, solve for the unknowns in each of the following situations.(a) Wayne Eski wishes to invest $150,000 today to ensure payments of $20,000 to his son at the end of each year for the next 15 years. At what interest rate must the
(Various Time Value of Money Situations) Using a financial calculator, provide a solution to each of the following situations.(a) On March 12, 2004, William Scott invests in a $180,000 insurance policy that earns 5.25% compounded annually. The annuity policy allows William to receive annual
(a) From what sources might a corporation obtain funds through long-term debt?(b) What is a bond indenture? What does it contain?(c) What is a mortgage?
Potlatch Corporation has issued various types of bonds such as term bonds, income bonds, and debentures. Differentiate between term bonds, mortgage bonds, collateral trust bonds, debenture bonds, income bonds, callable bonds, registered bonds, bearer or coupon bonds, convertible bonds,
Distinguish between the following interest rates for bonds payable:(a) Yield rate(b) Nominal rate(c) Stated rate(d) Market rate(e) Effective rate
Distinguish between the following values relative to bonds payable:(a) Maturity value(b) Face value(c) Market value(d) Par value
Under what conditions of bond issuance does a discount on bonds payable arise? Under what conditions of bond issuance does a premium on bonds payable arise?
How should discount on bonds payable be reported on the financial statements premium on bonds payable?
What are the two methods of amortizing discount and premium on bonds payable? Explain each.
Zopf Company sells its bonds at a premium and applies the effective-interest method in amortizing the premium. Will the annual interest expense increase or decrease over the life of the bonds? Explain.
Briggs and Stratton recently reported unamortized debt issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?
Will the amortization of Discount on Bonds Payable increase or decrease Bond Interest Expense? Explain.
What is the “call” feature of a bond issue? How does the call feature affect the amortization of bond premium or discount?
Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a transaction.
How are gains and losses from extinguishment of a debt classified in the income statement? What disclosures are required of such transactions?
What is done to record properly a transaction involving the issuance of a non-interest-bearing long-term note in exchange for property?
How is the present value of a non-interest-bearing note computed?
When is the stated interest rate of a debt instrument presumed to be fair?
What are the considerations in imputing an appropriate interest rate?
Differentiate between a fixed-rate mortgage and a variable-rate mortgage.
What disclosures are required relative to long-term debt and sinking fund requirements?
What is off-balance-sheet financing? Why might a company be interested in using off-balance-sheet financing?
What are some forms of off-balance-sheet financing?
Explain how a non-consolidated subsidiary can be a form of off-balance-sheet financing.
Where can authoritative iGAAP guidance related to liabilities are found?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for liabilities.
Hong Kong Trading Co. (which uses iGAAP) is in the midst of a multi-year operational restructuring. It reported the following information in its 2010 annual report (amounts in $, in millions): Restructuring provision balance at 1 January 2010, $135; provisions made in the period, $275; and unused
Briefly discuss how accounting convergence efforts addressing liabilities are related to the IASB/FASB conceptual framework project.
What are the types of situations that result in troubled debt?
What are the general rules for measuring gain or loss by both creditor and debtor in a troubled-debt restructuring involving a settlement?
(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?
What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in a troubled-debt restructuring involving a modification of terms?
What is meant by “accounting symmetry” between the entries recorded by the debtor and creditor in a troubled debt restructuring involving a modification of terms? In what ways is the accounting for troubled-debt restructurings non-symmetrical?
Under what circumstances a transaction would be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?
Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.
The Colson Company issued $300,000 of 10% bonds on January 1, 2011. The bonds are due January 1, 2016, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for(a) The January issuance,(b) The July 1 interest payment, and(c) The
Assume the bonds in BE14-2 were issued at 98. Prepare the journal entries for(a) January 1,(b) July 1, and(c) December 31. Assume The Colson Company records straight-line amortization semiannually.
Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for(a) January 1,(b) July 1, and(c) December 31. Assume The Colson Company records straight-line amortization semiannually.
Devers Corporation issued $400,000 of 6% bonds on May 1, 2011. The bonds were dated January 1, 2011, and mature January 1, 2013, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for(a) The May 1 issuance,(b)
On January 1, 2011, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for(a) The January 1 issuance,(b) The July 1 interest
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.
Teton Corporation issued $600,000 of 7% bonds on November 1, 2011, for $644,636. The bonds were dated November 1, 2011, and mature in 10 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Tetons’ December 31,
At December 31, 2011, Hyasaki Corporation has the following account balances:Bonds payable, due January 1, 2019 $2,000,000Discount on bonds payable 88,000Bond interest
Wasserman Corporation issued 10-year bonds on January 1, 2011. Costs associated with the bond issuance were $160,000. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the December 31, 2011, entry to record 2011 bond issue cost amortization.
On January 1, 2011, Henderson Corporation retired $500,000 of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corporation’s journal entry to record the reacquisition of the bonds.
Coldwell, Inc. issued a $100,000, 4-year, 10% notes at face value to Flint Hills Bank on January 1, 2011, and received $100,000 cash. The note requires annual interest payments each December 31. Prepare Coldwell’s journal entries to record(a) The issuance of the note and(b) The December 31
Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on January 1, 2011, and received cash of $47,664. The implicit interest rate is 12%. Prepare Samson’s journal entries for(a) The January 1 issuance and(b) The December 31 recognition of interest.
McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on January 1, 2011, 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
Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2011, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for
Access the glossary (Master Glossary) to answer the following.(a) What does the term “callable obligation” mean?(b) What is an imputed interest rate?(c) What is a long-term obligation?(d) What is the definition of “effective interest rate”?
What guidance does the Codification provide on the disclosure of long-term obligations?
Describe how a company would classify debt that includes covenants. What conditions must exist in order to depart from the normal rule?
A company proposes to include in its SEC registration statement a balance sheet showing its subordinate debt as a portion of stockholders’ equity. Will the SEC allow this? Why or why not?
(Bond Theory: Balance Sheet Presentations, Interest Rate, Premium) On January 1, 2011, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were not material in amount. Below
(Various Long-Term Liability Conceptual Issues) Schrempf Company has completed a number of transactions during 2010. In January the company purchased under contract a machine at a total price of $1,200,000, payable over 5 years with installments of $240,000 per year. The seller has considered the
(Bond Theory: Price, Presentation, and Retirement) On March 1, 2011, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2011, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2011. Sealy
(Bond Theory: Amortization and Gain or Loss Recognition)Part I. The appropriate method of amortizing a premium or discount on issuance of bonds is the effective interest method.(a) What is the effective-interest method of amortization and how is it different from and similar to the straight-line
(Off-Balance-Sheet Financing) Matt Ryan Corporation is interested in building its own soda can manufacturing plant adjacent to its existing plant in Partyville, Kansas. The objective would be to ensure a steady supply of cans at a stable price and to minimize transportation costs. However, the
(Bond Issue) Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and
The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso.Refer to P&G’s financial statements and the accompanying notes to answer the following questions.(a) What cash outflow obligations related to
Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.(a) Compute the debt to total assets ratio and the times interest earned ratio for these two companies.Comment on the quality of these two ratios
The following article appeared in the Wall Street Journal. Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over NEW YORK—Commonwealth Edison Co.’s slow-selling new 91/4% bonds were tossed onto the resale market at a reduced price with about $70 million
PepsiCo, Inc. based in Purchase, New York, is a leading company in the beverage industry. Assume that the following events occurred relating to PepsiCo’s long-term debt in a recent year.1. The company decided on February 1 to refinance $500 million in short-term 7.4% debt to make it long-term
Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to finance its successful operations with investments from its principal owner, Michelle Wie, and cash flows from operations. However, current expansion plans
(Classification of Liabilities) Presented below are various account balances.(a) Bank loans payable of a winery, due March 10, 2014. (The product requires aging for 5 years before sale.)(b) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.(c) Serial bonds
(Classification) The following items are found in the financial statements.(a) Discount on bonds payable(b) Interest expense (credit balance)(c) Unamortized bond issue costs(d) Gain on repurchase of debt(e) Mortgage payable (payable in equal amounts over next 3 years)(f) Debenture bonds payable
(Entries for Bond Transactions) Presented below are two independent situations.1. On January 1, 2010, Divac Company issued $300,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.2. On June 1, 2010, Verbitsky Company issued $200,000 of 12%,
(Entries for Bond Transactions—Straight-Line) Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2011, at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the straight-line method of amortization for bond premium or discount.Prepare the journal
(Entries for Bond Transactions—Effective-Interest) Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Prepare the journal entries to record the following.
(Amortization Schedules—Straight-Line) Spencer Company sells 10% bonds having a maturity value of $3,000,000 for $2,783,724. The bonds are dated January 1, 2010, and mature January 1, 2015. Interest is payable annually on January 1. Set up a schedule of interest expense and discount amortization
(Amortization Schedule—Effective-Interest) Assume the same information as E14-6. Set up a schedule of interest expense and discount amortization under the effective-interest method.
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