PRACTICE PROBLEMS

Problem 1 - A company issues $100,000, 8%, 5-year bonds to yield 10% on 1/1/14. Interest is paid on June 30 and December 31. The proceeds from the bonds are $92,278.

Required: Prepare an amortization schedule covering the period 1/1/16 to 12/31/16.

Problem 2 - At 12/31/16 a company owed $800,000 to Citibank. Due to financial difficulties, the company also owed accrued interest of $10,000. Under a troubled debt restructuring, on 12/31/16, the company agreed to settle the debt for attract of land having a fair value of $700,000. The company originally paid $620,000 for the land.

Required:

1) What is the gain or loss on disposal of the asset?

2) What is the amount of gain on restructuring?

Problem 3 - On 1/1/16a company had bonds payable of $500,000. The unamortized discount at 1/1/16 was $60,000. On 1/1/16 the company retired all the bonds at 98.

Required:

1) What is the carrying value of the bonds at 1/1/16?

2) What is the amount of gain or loss on retirement?

Problem 4 - On December 31, 2016, Malzberg Company issues $4,000,000 of 8% bonds at 101.Eachbond was issued with one detachable stock warrant, each entitled the bondholder to purchase one share of $2 par common stock for $20. Immediately after issuance, the bonds were selling in the market at 98. The market price of the warrants was $40 each.

Required: How much of the proceeds was allocated to the warrants?

Problem 5 - Savage Company has $2,000,000 of 10% convertible bonds outstanding. Each $1,000 is convertible into 50 shares of $10 par value common stock. All of the bond holders exercised the conversion privilege when the market price of the stock was $21. The unamortized discount at the date of conversion was $30,000.

Required: What is the journal entry to record the conversion using the book value method?

Problem 6 - On January 1, 2017, Piper Co. issued ten-year bonds with a face value of $1 ,000,000 and a stated interest rate of  10 %, payable semi annually on July 1 and January  1 . The bonds were sold to yield 12%. Table values are:

Required:

1. Prepare the journal entry required on January 1, 2017 to issue the bonds.

2. Prepare the journal an amortization schedule for period covering 1/1/17 to 1/1/18.

3. Assuming on January 1, 2018, 100% of the bonds were retired at 103, prepare the journal entry to record the retirement.

Problem 7 - Sale-leaseback; capital lease

To raise operating funds) Signal Aviation sold an airplane on January 1, 2016, to a finance company for $810,000. Signal immediately l eased the plane back for a 10-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $840,000. Its cost and its book value were $640,000. Its useful life is expected to be 1 2 years. The lease requires Signal to make payments of $111,772 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 8%.Thc present value of an annuity due for 1 0 periods at 8% is 7.24689.

Required:

1. Prepare the appropriate entries for Signal on January 1, 2016, to record the sale-leaseback

2. Prepare the appropriate entries for Signal on December 31, 2016.

Problem 8 -  On January 1, 2016, Winn Heat Transfer leased office space under a four-year operating lease agreement. The arrangement specified four annual rent payments of $88,000 each, beginning January 1, 2016, the inception of the lease, and at each January 1 through 2019. Winn also paid a $104,000 advance payment at the inception of the lease in addition to the first $88,000 rent payment. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $188,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value.         

Required: Prepare the appropriate entries for Winn Heat Transfer from the inception of the lease through the end of 2016. Winn's fiscal year is the calendar year. Winn uses straight-line depreciation.

Problem 9 - Baruch Company provides the following information related to its investments in available-for-sale debt securities purchased at par on 1/1/15:

COST - $200

Fair Value 12/31/15 - $180

Fair Value 12/31/16 - $230

Baruch Company had net income for 2016 of $700 Assume the net income for 2015 was $1,000.

Required:

1. What is the amount of other comprehensive income for the year ended 12/31/15?

2. What is the amount of accumulated comprehensive income for the year ended 12/31 /15?

3. What is the amount of accumulated other comprehensive income for the year ended 12/31/16?

4. What is comprehensive income for 2016?

Problem 10 - The following information pertains to Eli Kramer Inc. portfolio of marketable investments for the year ended December 31, 2016:

Amortization of discount on Security Puggy for 2016 was $5,000. All declines in fair value arc considered to be temporary.  The net income for 2016 was $300,000.

REQUIRED: Items 13-20 describe amounts to be reported in Eli's 2016 financial statements .Ignore income taxes. For each item enter the numerical amount on the Examination Answer Sheet.

13. Carrying amount of Security Puggy 12-31-16.

14. Carrying amount of Security Slater 12-31 -16

15. Carrying amount of Security Eddie 12-31-16

16. Realized gain or (loss) on sale of Security Beasley.

17. Unrealized gain or (loss) to be reported in 2016 income statement.

18. Amount of other comprehensive income to be reported in the 2016 statement of comprehensive income.

19. Comprehensive income for 2016.

20. Accumulated other comprehensive income at 12/31/16

Problem 11 - Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2016, for $400 million.

At the date of purchase, the book value of Vancouver's net assets was $775 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $5 million for the inventory and by $20 million for the plant facilities.

The estimated useful life of the plant facilities is 16 years. All inventory acquired was sold during 2016.

Vancouver reported net income of $140 million for the year ended December 31, 2016. Vancouver paid a cash dividend of $30 million.

Required: Prepare all appropriate journal entries related to the investment during 2016.