" E14-9(Purchase of Equipment with NonInterest-Bearing Debt)

To meet customer demand for its product, Armada Inc. decided to purchase equipment from Southern Ontario Industries on January 2, 2014, and expand its pro- duction capacity. Armada issued an $800,000, five-year, noninterest-bearing note to Southern Ontario Industries for the new equipment when the prevailing market interest rate for obligations of this nature was 12%. The company will pay off the note in five $160,000 installments that are due at the end of each year over the life of the note. Armada uses the effective interest method for amortization of any premium or discount.

Instructions

(Round to the nearest dollar in all calculations.) (a) Prepare the journal entry(ies) at the date of purchase.

(b) Prepare the journal entry(ies) at the end of the first year to record the payment and interest.

(c) Prepare the journal entry(ies) at the end of the second year to record the payment and interest."

"14-18(Entries for Retirement and Issuance of BondsStraight-Line)

On June 30, 2007, Auburn Limited issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2014. Because of lower interest rates and a significant change in the companys credit rating, it was decided to call the entire issue on June 30, 2014, and to issue new bonds. New 10% bonds were sold in the amount of $1 million at 102; they mature in 20 years. The company follows ASPE and uses straight-line amortization. The interest payment dates are December 31 and June 30 of each year.

Instructions

(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2014.

(b) Prepare the entry required on December 31, 2014, to record the payment of the first six months of interest and the amortization of the bond premium.

E14-19(Entries for Retirement and Issuance of BondsEffective Interest) Refer to E14-18 and Auburn Limited. Instructions Repeat the instructions of E14-18 assuming that Auburn Limited follows IFRS and uses the effective interest method. Provide an effective-interest table for the bonds from the inception of the bond to the date of the redemption. (Hint: You need to first calculate the effective interest rate on the 2007 and 2014 bonds. Round the semi-annual interest per- centage to three decimal places.)"

"E14-16(Entries and Questions for Bond Transactions)

On June 30, 2014, Mosca Limited issued $4 million of 20- year, 13% bonds for $4,300,920, which provides a yield of 12%. The company uses the effective interest method to amortize any bond premium or discount. The bonds pay semi-annual interest on June 30 and December 31.

Instructions (a) Prepare the journal entries to record the following transactions: 1. The issuance of the bonds on June 30, 2014 2. The payment of interest and the amortization of the premium on December 31, 2014 3. The payment of interest and the amortization of the premium on June 30, 2015 4. The payment of interest and the amortization of the premium on December 31, 2015" "(b) Show the proper statement of financial position presentation for the liability for bonds payable on the December 31, 2014 statement of financial position. (c) Answer the following questions. 1. What amount of interest expense is reported for 2014? 2. Will the bond interest expense that is reported in 2014 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used? 3. What is the total cost of borrowing over the life of the bond? 4. Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?"