Case Study: ACC 304 Bond Simulation
NAME
Xinxin Xu
ACC 304 Bond Simulation
Research Project #2 (Due Tuesday, March 11)
25 Points
Using this template, complete all the blanks shown.
1. Situation: On January 1, 2013, Loyola Enterprises issued 9% bonds with a face value of $400,000 when the market rate was 6%. The bonds are due in 10 years, and interest is payable June 30 and December 31. Note: Nothing is required by the student for this section (use this information in Section 3).
2. Concepts: During 2013, Loyola had several transactions that affected some or all of the following balance sheet accounts:
a. Bond discounts
b. Bond premium
c. Bond payable
d. Common stock
e. Additional paid-in capital
f. Retained earnings
For each of the following situations, determine whether …show more content…
Communication: Suppose Loyola Enterprises selected the straight-line method of amortizing the above premium. Develop a professionally written memorandum to the finance manager of Loyola that explains the benefit of using the effective interest method when compared to the straight-line approach.
To: Finance Manager, Loyola Enterprises
From: ACC 304 Super Accountant Wannabe
Re: Accounting for Bonds
Start your memorandum on the next …show more content…
This means that when a bond's book value decreases, the amount of interest expense will decrease. Therefore, the effective interest rate method is more logical than the straight-line method of amortizing bond premium.
7. Research: In an earlier section titled “Concepts” the following scenario was provided “Loyola redeemed a 10% bond issue via an open market purchase when the market rate of interest had increased to 14%”. Research FAS 4 and FAS 145 (not the codification) regarding guidance on how the material gains or losses associated with the early redemption of debt should be classified. Cut and paste a relevant paragraph or two from each standard that addresses this issue.
FAS 4
This Statement specifies that gains and losses in the current year from extinguishments of debt, other than to meet sinking fund requirements, shall be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. The standard also provides that a description of the extinguishment transaction, the income tax effect, and the per share amount of the aggregate gain or loss net of the tax effect be disclosed in the financial
Xinxin Xu
ACC 304 Bond Simulation
Research Project #2 (Due Tuesday, March 11)
25 Points
Using this template, complete all the blanks shown.
1. Situation: On January 1, 2013, Loyola Enterprises issued 9% bonds with a face value of $400,000 when the market rate was 6%. The bonds are due in 10 years, and interest is payable June 30 and December 31. Note: Nothing is required by the student for this section (use this information in Section 3).
2. Concepts: During 2013, Loyola had several transactions that affected some or all of the following balance sheet accounts:
a. Bond discounts
b. Bond premium
c. Bond payable
d. Common stock
e. Additional paid-in capital
f. Retained earnings
For each of the following situations, determine whether …show more content…
Communication: Suppose Loyola Enterprises selected the straight-line method of amortizing the above premium. Develop a professionally written memorandum to the finance manager of Loyola that explains the benefit of using the effective interest method when compared to the straight-line approach.
To: Finance Manager, Loyola Enterprises
From: ACC 304 Super Accountant Wannabe
Re: Accounting for Bonds
Start your memorandum on the next …show more content…
This means that when a bond's book value decreases, the amount of interest expense will decrease. Therefore, the effective interest rate method is more logical than the straight-line method of amortizing bond premium.
7. Research: In an earlier section titled “Concepts” the following scenario was provided “Loyola redeemed a 10% bond issue via an open market purchase when the market rate of interest had increased to 14%”. Research FAS 4 and FAS 145 (not the codification) regarding guidance on how the material gains or losses associated with the early redemption of debt should be classified. Cut and paste a relevant paragraph or two from each standard that addresses this issue.
FAS 4
This Statement specifies that gains and losses in the current year from extinguishments of debt, other than to meet sinking fund requirements, shall be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. The standard also provides that a description of the extinguishment transaction, the income tax effect, and the per share amount of the aggregate gain or loss net of the tax effect be disclosed in the financial