Long-Term Liabilities

Problem 1

Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of J & J.:

1. a. On March 1, 2015 J & J issued $800,000 face value J & J. second mortgage, 8% bonds for $872,160, including accrued interest. Interest is payable semiannually on December 1 and August 1 with the bonds maturing 10 years from December 1, 2014. The bonds are callable at 102. The bonds are dated Dec. 1, 2014.

1. b. On June 1st, paid semiannual interest on J & J?s bonds. (Use the effective method of amortization of any premium or discount.)

1. c. On Dec.1st paid semiannual interest on J & J Co. bonds and purchased $400,000 face value bonds at the call price in accordance with the provisions of the bond indenture.

Problem 4

On January 1, 2015, Badd Co. (a wholly owned subsidary of J & J) sold $1,000,000 of its 10%

bonds for $885,296 to yield 12%. Interest is payable semiannually on January 1 and July 1. What

amount should Badd report as interest expense for the six months ended June 30, 2015?

Leases

Problem 1

On January 1, 2008, J & J, signed a 10-year noncancelable lease agreement to lease a storage building from Action Co., (a wholly owned subsidiary of J & J)?. Collectability of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.

(a) The agreement requires equal rental payments at the end of each year.

(b) The fair value of the building on January 1, 2008 is $3,000,000; however, the book value to Action is $2,500,000.

(c) The building has an estimated economic life of 10 years, with no residual value. J & J depreciates similar buildings on the straight-line method.

(d) At the termination of the lease, the title to the building will be transferred to the lessee.

(e) CPA's incremental borrowing rate is 11% per year. Action set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by J & J.

(f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

Required:

1. a. What is the amount of the minimum annual lease payment?
2. b. What is the amount of the total annual lease payment?
3. c. Give J & J?s initial entry for the lease in 2008.
4. d. Give Action?s initial entry for the lease in 2008.

Problem 4 (research)

Has FASB passed any pronouncements affecting leases? If so write a very short narrative describing its effects

Long-Term Liabilities Problem 1 Prepare the necessary journal entries to record the following transactions relating to the longterm issuance of bonds of J & J.: a. a. On March 1, 2015 J & J issued $800,000 face value J & J. second mortgage, 8% bonds for $872,160, including accrued interest. Interest is payable semiannually on December 1 and August 1 with the bonds maturing 10 years from December 1, 2014. The bonds are callable at 102. The bonds are dated Dec. 1, 2014. a. b. On June 1st, paid semiannual interest on J & J's bonds. (Use the effective method of amortization of any premium or discount.) a. c. On Dec.1st paid semiannual interest on J & J Co. bonds and purchased $400,000 face value bonds at the call price in accordance with the provisions of the bond indenture. Problem 4 On January 1, 2015, Badd Co. (a wholly owned subsidary of J & J) sold $1,000,000 of its 10% bonds for $885,296 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Badd report as interest expense for the six months ended June 30, 2015? Leases Problem 1 On January 1, 2008, J & J, signed a 10-year noncancelable lease agreement to lease a storage building from Action Co., (a wholly owned subsidiary of J & J)'. Collectability of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the end of each year. (b) The fair value of the building on January 1, 2008 is $3,000,000; however, the book value to Action is $2,500,000. (c) The building has an estimated economic life of 10 years, with no residual value. J & J depreciates similar buildings on the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) CPA's incremental borrowing rate is 11% per year. Action set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by J & J. (f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property. Required: a. a. What is the amount of the minimum annual lease payment? b. b. What is the amount of the total annual lease payment? c. c. Give J & J's initial entry for the lease in 2008. d. d. Give Action's initial entry for the lease in 2008. Problem 4 (research) Has FASB passed any pronouncements affecting leases? If so write a very short narrative describing its effects