Reference no: EM133073491

Problem I - Witch Doctor Cosmetics Co. purchased machinery on December 31, 2018, paying $50,000 down and agreeing to pay the balance in four equal installments of $40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price.

Required - Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates.

a. December 31, 2018.

b. December 31, 2019.

c. December 31, 2020.

d. December 31, 2021.

e. December 31, 2022.

Problem II - Rubick Ltd. issued its 9%, 25-year mortgage bonds in the principal amount of ¥30,000,000 on January 2, 2005, at a discount of ¥2,722,992 (effective rate of 10%). The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 104% of the principal amount, but it did not provide for any sinking fund.

On December 18, 2019, the company issued its 11%, 20-year debenture bonds in the principal amount of ¥40,000,000 at 102, and the proceeds were used to redeem the 9%, 25-year mortgage bonds on January 2, 2020. The indenture securing the new issue did not provide for any sinking fund or for retirement before maturity. The unamortized discount at retirement was ¥1,842,888.

Required -

a. Prepare journal entries to record the issuance of the 11% bonds and the retirement of the 9% bonds.

b. Indicate the income statement treatment of the gain or loss from retirement and the note disclosure required.

Problem III - Anub'arak plc owes Rylai Ltd. a 10-year, 10% note in the amount of £330,000 plus £33,000 of accrued interest. The note is due today, December 31, 2019. Because Anub'arak is in financial trouble, Rylai agrees to forgive the accrued interest, £30,000 of the principal and to extend the maturity date to December 31, 2022. Interest at 10% of revised principal will continue to be due on 12/31 each year. Given Anub'arak's financial difficulties, the market rate for its loans is 12%.

Required -

a. Prepare the amortization schedule for the years 2019 through 2022.

b. Prepare all the necessary journal entries on the books of Anub'arak for the years 2019, 2020, and 2021.

Problem IV - Presented below are three independent situations.

Required -

a. On January 1, 2019, Timbersaw Co. issued 9% bonds with a face value of $700,000 for $656,992 to yield 10%. The bonds are dated January 1, 2019, and pay interest annually. What amount is reported for interest expense in 2019 related to these bonds?

b. Mirana Building Co. has a number of long-term bonds outstanding at December 31, 2019. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Indicate how this information should be reported in the financial statements at December 31, 2019.

c. In the long-term debt structure of Vengeful Inc., the following three bonds were reported: mortgage bonds payable $10,000,000; collateral trust bonds $5,000,000; bonds maturing in installments, secured by plant equipment $4,000,000. Determine the total amount, if any, of debenture?