Day 13 - LT Liabilities/Troubled Debt

Question 1

How are non-interest bearing Notes Payable reported on the BS

Answer 1

Reported at PV of Future Cash Flows

MCQ-00469

Question 2

ABC issued a note payable for $10k to XYZ for services rendered. The note is due in nine months and bears interest at 3%. What amount should ABC report as note payable?

Answer 2

$10k

Normal interest is imputed when no rate is given or an unusually low rate is given. Exceptions exist if under one year

MCQ-00451

Question 3

Steps to record imputing interest:

“When the note contains NO Interest Rate or an Unusually Low Interest Rate”

Answer 3

1. Record payable @ Face Value
2. Record item received @ the PV of the note payable
3. Record difference between FV and PV as a discount and amortize

MCQ-08594

Question 4

ABC issued a financial instrument that unconditionally requires ABC to settle the obligation by issuing Common Stock with a value of $500k. How should ABC report this?

Answer 4

As a Liability on the BS

Financial instruments that are shares and mandatory redeemable = liabilities

MCQ-15848

Question 5

When assets are transferred in a troubled debt restructuring, the asset is:

Answer 5

Adjusted to Fair Value and an ordinary gain or loss is recorded

MCQ-00528

Question 6

Equation: Net Carrying Amount for a note payable

Answer 6

Principal
PLUS: Accrued Interest
= Net Carrying Amount

MCQ-00534

Question 7

What is the difference between an Ordinary Annuity and an Annuity Due?

Answer 7

An ordinary annuity involves payments due at the end of each period

An Annuity due involves payments at the beginning of each period

Question 8

What is true regarding a 10 year bond issued at 96 and fully redeemed at 102 3 years later?

Answer 8

Report loss of income from Continued Operations

Note: bond was issued at a discount, but redeemed at a price above par = loss

The issuer is paying 102 to remove a liability that is worth 96 - 100

MCQ-01505

Question 9

A bond is issued at a premium and redeemed at a discount to par. How is the extinguishment of debt before maturity booked?

Answer 9

As a gain in income from continued operations

The Issuer is paying less than par to remove a liability

MCQ-01506

Question 10

What is true about a discount bond redeemed at a premium to par under US GAAP?

Answer 10

Bond issuance costs not fully amortized will increase the size of the loss booked

MCQ-01514