Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Other accrued liabilities interest (Note: This is an analytical assignment involving the interpretation of financial statement disclosures.) A review of the accounting records at Corless

Other accrued liabilities interest

(Note: This is an analytical assignment involving the interpretation of financial statement disclosures.)

A review of the accounting records at Corless Co. revealed the following information concerning the companys liabilities that were outstanding at December 31, 2017 and 2016, respectively:

Year-End Year-End

Interest Interest

Debt (Thousands) 2017 Rate 2016 Rate

Short-term debt:

Working capital loans . . . . . . . . . . $500 8% $380 7%

Current maturities of

long-term debt . . . . . . . . . . . . . . . 160 6% 160 6%

Long-term debt:

Debenture bonds due in 2034 . . . 800 9% 800 9%

Serial bonds due in equal

annual installments . . . . . . . . . . 480 6% 640 6%

Required:

a. Corless Co. has not yet made an adjustment to accrue the interest expense related to its working capital loans for the year ended December 31, 2017.Assume that the amount of interest to be accrued can be accurately estimated using an average-for-the year interest rate applied to the average liability balance.Use the horizontal model (or write the journal entry) to record the effect of the 2017 interest accrual for working capital loans.

b. Note that the dollar amount and interest rate of the current maturities of long-term debt have not changed from 2016 to 2017.Does this mean that the $160,000 amount owed at the end of 2016 still has not been paid as of December 31, 2017? (Hint: Explain your answer with reference to other information provided in the problem.)

c. Assume that the debenture bonds were originally issued at their face amount.However, the market rate of interest for bonds of similar risk has decreased significantly in recent years and is 7% at December 31, 2017.If the debenture bonds were both callable by Corless Co. and convertible by its bondholders, which event is more likely to occur?Explain your answer.

d. Assume the same facts as in part c. Would the market value of Corless Co.s debenture bonds be more than or less than the $800,000 reported amount?Is this good news or bad news to the management of Corless Co.?

e. When the Serial Bonds account decreased during the year, what other account was affected, and how was it affected?Use the horizontal model (or write the journal entry) to record the effect of this transaction.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Principles And Practice Of Auditing

Authors: George Puttick, Sandra Van Esch

8th Edition

0702156914, 978-0702156915

More Books

Students also viewed these Accounting questions

Question

Explain the factors influencing wage and salary administration.

Answered: 1 week ago

Question

Examine various types of executive compensation plans.

Answered: 1 week ago

Question

1. What is the meaning and definition of banks ?

Answered: 1 week ago