Ch15 solutions non-current liabilities PDF

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CHAPTER 15Non-Current LiabilitiesLearning Objectives1. Describe the characteristics of bonds.2. Calculate the price of a bond.3. Account for bond transactions.4. Account for the retirement of bonds.5. Account for instalment notes payable.6. Account for leases.7. Explain and illustrate the methods fo...

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

CHAPTER 15 Non-Current Liabilities Learning Objectives 1. 2. 3. 4. 5. 6. 7.

Describe the characteristics of bonds. Calculate the price of a bond. Account for bond transactions. Account for the retirement of bonds. Account for instalment notes payable. Account for leases. Explain and illustrate the methods for the presentation and analysis of non-current liabilities.

Solutions Manual 15.1 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item

LO

BT Item LO BT Item LO BT Item Questions 1. 1 C 5. 2 K 9. 4 AP 13. 2. 1 C 6. 2 C 10. 4 C 14. 3. 1 K 7. 3 K 11. 5 C 15. 4. 2 K 8. 3 C 12. 5 AP 16. Brief Exercises 1. 1 C 6. 3 AP 11. 3 AP 16. 2. 2 AP 7. 3 AP 12. 3 AP 17. 3. 2 AP 8. 3 AP 13. 4 AP 18. 4. 3 AP 9. 3 AP 14. 4 AP 19. 5. 3 AP 10. 3 AP 15. 5 AP 20. Exercises 1. 1,2 K 6. 3 AP 11. 3 AP 16. 2. 2,3 AP 7. 3 AP 12. 3 AP 17. 3. 2 AP 8. 3 AP 13. 4 AP 18. 4. 2,3 AP 9. 3 AP 14. 3,4 AP 19. 5. 3 AP 10. 3 AP 15. 5 AP 20. Problems 1. 1,2,3,7 AP 4. 1,2,3 AP 7. 2,3,4,7 AP 10. 2. 2,3,7 AP 5. 2,3,4 AP 8. 3,4,7 AP 11. 3. 1,2,3 AP 6. 2,3,4 AP 9. 5,7 AP 12.

LO BT Item LO BT 5 6 6 6

AP C C K

17. 18. 19. 20.

7 7 7 7

K K K C

5 5 5 6 6

AP 21. AP 22. AP 23. AP AP

6 7 7

AP AP AN

5 5 5 5 6

AP 21. AP 22. AP AP AP

7 7

AN AP

5 5 6

AP 13. AP 14. AP

7 7

AP AN

Solutions Manual 15.2 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Legend: The following abbreviations will appear throughout the solutions manual file. LO BT

Difficulty:

Time: AACSB

CPA CM

Learning objective Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to complete in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Technology Tech. Diversity Diversity Reflective Thinking Reflec. Thinking CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation

Solutions Manual 15.3 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CLASSIFICATION TABLE Learning Objectives

Questions

Brief Exercises Exercises

1. Describe the characteristics of bonds. 2. Calculate the price of a bond. 3. Account for bond transactions.

1, 2, 3

1

1

1, 3, 4

1, 3, 4

4, 5, 6

2, 3

1,2, 3, 4

7, 8

4, 5, 6, 7, 8, 9, 10, 11, 12

1, 2, 3, 4, 5, 6, 7 1, 2, 3, 4, 5, 6, 7, 8

4. Account for the retirement of bonds. 5. Account for instalment notes payable.

9, 10

13, 14

2, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14 13, 14

1, 2, 3, 4, 5, 6, 7 1, 2, 3, 4, 5, 6, 7, 8

5, 6, 7, 8

5, 6, 7, 8

11, 12, 13

15, 16, 17, 18

15, 16, 17, 18, 19

9, 10, 11

9, 10, 11

6. Account for leases.

14, 15, 16

20

12

12

21, 22

1, 2, 7, 8, 9, 13, 14

1, 2, 7, 8, 9, 13, 14

7. Explain and illustrate the methods for the presentation and analysis of non-current liabilities.

19, 20, 21 17, 18, 19, 22, 23 20

Problems Set A

Problems Set B

Solutions Manual 15.4 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

Description

Difficulty Level

Time Allotted (min.)

Simple

20-30

1A

Prepare entries to record issuance of bonds at par and interest accrual, and show balance sheet presentation.

2A

Fill in missing amounts in amortization schedule, record bond transactions, and show balance sheet presentation.

Complex

20-30

3A

Describe the features of a bond, calculate the price of a bond, and record bond transactions.

Moderate

25-30

4A

Describe the features of a bond, calculate the price of a bond, and record bond transactions.

Moderate

20-30

5A

Calculate effective rate using Excel or a financial calculator and record bond transactions.

Complex

30-40

6A

Record bond transactions.

Moderate

30-35

7A

Record bond transactions including bond redemption; show balance sheet presentation.

Moderate

30-35

8A

Prepare entries to record issuance of bonds, balance sheet presentation, and bond redemption.

Simple

15.20

9A

Prepare instalment payment schedule, record note transactions, and show balance sheet presentation.

Moderate

25-30

10A

Record note transactions.

Moderate

25-30

11A

Prepare instalment payment schedule and record note transactions. Show balance sheet presentation.

Moderate

25-30

12A

Analyze lease situations. Discuss financial statement presentation.

Moderate

20-25

13A

Calculate and analyze solvency ratios.

Simple

15.20

14A

Prepare liabilities section of balance sheet and analyze leverage.

Moderate

25-35

1B

Prepare entries to record issuance of bonds at par and interest accrual, and show balance sheet presentation.

Simple

20-30

2B

Fill in missing amounts in amortization schedule, record bond transactions, and show balance sheet presentation.

Complex

20-30

3B

Describe the features of a bond, calculate the price of a bond, and record bond transactions.

Moderate

25-30

Solutions Manual 15.5 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number

Description

Difficulty Level

Time Allotted (min.)

Moderate

20-30

Complex

30-40

4B

Describe the features of a bond, calculate the price of a bond, and record bond transactions.

5B

Calculate effective rate using Excel or a financial calculator and record bond transactions.

6B

Record bond transactions.

Moderate

30-35

7B

Record bond transactions including bond redemption; show balance sheet presentation.

Moderate

30-35

8B

Prepare entries to record issuance of bonds, balance sheet presentation, and bond redemption.

Simple

15.20

9B

Prepare instalment payment schedule, record note transactions, and show balance sheet presentation.

Moderate

25-30

10B

Record note transactions.

Moderate

25-30

11B

Prepare instalment payment schedule and record note transactions. Show balance sheet presentation.

Moderate

25-30

12B

Analyze lease situations. Discuss financial statement presentation.

Moderate

20-25

13B

Calculate and analyze solvency ratios.

Simple

15.20

14B

Prepare liabilities section of balance sheet and analyze leverage.

Moderate

25-35

Solutions Manual 15.6 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-ofChapter Material. Learning Objectives

Knowledge Q15.3 E15.1

Comprehension Q15.1 Q15.2 BE15.1

Application P15.1B P15.1A P15.3B P15.3A P15.4B P15.4A

2. Calculate the price of a bond.

Q15.4 Q15.5 E15.1

Q15.6

BE15.2 BE15.3 E15.2 E15.3 E15.4 E15.6 E15.7 E15.8 P15.1A P15.2A P15.3A

P15.4A P15.5A P15.6A P15.7A P15.1B P15.2B P15.3B P15.4B P15.5B P15.6B P15.7B

3. Account for bond transactions.

Q15.7

Q15.8

BE15.4 BE15.5 BE15.6 BE15.7 BE15.8 BE15.9 BE15.10 BE15.11 BE15.12 E15.2 E15.4 E15.5 E15.6 E15.7 E15.8 E15.9 E15.10 E15.11

E15.12 E15.14 P15.1A P15.2A P15.3A P15.4A P15.5A P15.6A P15.7A P15.8A P15.1B P15.2B P15.3B P15.4B P15.5B P15.6B P15.7B P15.8B

Q15.10

Q15.9 BE15.13 BE15.14 E15.13 E15.14 P15.5A

P15.6A P15.7A P15.8A P15.5B P15.6B P15.7B P15.8B

1. Describe the characteristics of bonds.

4. Account for the retirement of bonds.

Analysis

Synthesis

Solutions Manual 15.7 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Evaluation

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Learning Objectives

Knowledge

Comprehension

5. Account for instalment notes payable.

Q15.10 Q15.11

6. Account for leases.

Q15.14 Q15.15 Q15.16

7. Explain and illustrate the methods for the presentation and analysis of non-current liabilities. Broadening Your Perspective

Q15.17 Q15.18 Q15.19

Q15.20

BYP15.5

Accounting Principles, Eighth Canadian Edition

Application Q15.11 Q15.12 Q15.13 BE15.15 BE15.16 BE15.17 BE15.18 E15.15 E15.16 E15.17 E15.18 E15.19 BE15.19 BE15.20 BE15.21

P15.6A P15.7A P15.8A P15.9A P15.10A P15.11A P15.6B P15.7B P15.8B P15.9B P15.10B P15.11B E15.20 P15.12A P15.12B

BE15.22 BE15.23 E15.21 E15.22 P15.1A P15.2A P15.7A P15.8A

P15.9A P15.14A P15.1B P15.2B P15.7B P15.8B P15.9B P15.14B

BYP15.1 BYP15.4

Analysis

Synthesis

P15.13A P15.13B

BYP15.2 BYP15.3 BYP15.6

Solutions Manual 15.8 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Evaluation

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

ANSWERS TO QUESTIONS 01.

Current liabilities are obligations that are expected to be settled within one year from the balance sheet date, or the company’s normal cycle, whichever is longer. Examples include accounts payable and interest payable. Non-current liabilities are obligations that are expected to be settled later than one year from the balance sheet date. Examples include non-current mortgage payable and bonds payable.

LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

02. (a) (b)

Secured bonds have specific assets pledged as collateral by the bond issuer while unsecured bonds do not. Convertible bonds have a conversion feature allowing the bondholder to exchange the bond, usually to common shares while callable bonds (also known as redeemable bonds) are bonds that the issuing company can redeem (buy back) at a stated dollar amount, prior to maturity.

LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

3. (a) (b)

(c)

Face value of a bond: the amount of principal that the issuer must pay at the bond’s maturity date. (also known as the maturity value or par value). Contractual interest rate: the rate that determines the amount of interest the borrower pays and the investor receives (also known as the coupon interest rate or stated interest rate). Bond certificate: a legal document indicating the name of the issuer, the face value of the bond, and other data such as the contractual interest rate and maturity date of the bond.

LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

4. The two major obligations incurred by a company when bonds are issued are the interest payments due on a periodic basis and the principal repayment at maturity. Both these cash flows are used to determine the market price of a bond. LO 2 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 15.9 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 5. The issue price at par is determined before the bond is made available for sale. By the time the company is ready to issue the bond and bondholders are ready to invest in the bond, the market rate of interest may have changed and be different than the contractual rate of interest offered in the bond. Changes in interest rates will cause the price of the bond at issue to be higher or lower than the face value, to meet the market’s needs. LO 2 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

6.

Investors paid $2,000 ($102,000 – $100,000) more than the face value. The market interest rate must have been lower than the contractual interest rate. These bonds are said to have been sold at a premium.

LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

7.

When bonds are issued at a discount, the proceeds from the issuance of the bonds are lower than the face value of the bonds. The difference in these two amounts represents additional interest expense to the business over the term of the bonds. When using the effective-interest method, the carrying value of the bonds is multiplied by the periodic market rate of interest to determine the interest expense. The difference between the interest expense and the cash paid to the bondholders is the amount of the discount amortized for the period.

LO 3 BT: K Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

8.

Interest expense is calculated by multiplying the carrying amount of the bond by the periodic market rate. Because the bond has been issued at a premium, the annual interest expense will decrease over the life of the bond since the carrying amount of the bond decreases with each payment, due to the amortization of the bond premium.

LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

9.

When bonds sold at a premium are redeemed at 97 immediately following the payment of interest, the Bonds Payable account will be debited for the carrying amount of the bond. On the credit side, cash will be credited for 97% of the face value of the bond and a Gain on Bond Redemption will be credited for the difference between the cash paid and the bonds’ carrying amount.

LO 4 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 15.10 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 10.

When a bond reaches maturity, any premium or discount will have been fully amortized, so the carrying value of the bond will be equal to its face value. This will result in no gain or loss when the principal is repaid at maturity. When bonds are retired prior to maturity however, the amount paid will rarely equal the amortized cost of the bonds, which will cause a gain or loss to occur.

LO 4 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

11.

For notes payable with fixed principal payments, each payment will reduce the principal by the same amount, and interest is added to that amount. Since the periodic interest will drop as the loan principal is repaid, the periodic payment will get smaller each time a payment is made. For notes payable with blended principal and interest payments, the periodic payments are the same each period. Since the periodic interest will drop as the loan principal is repaid, the amount of the principal repayment each period will increase.

LO 5 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

12.

To calculate the annual fixed principal payment, the principal amount of the note of $15,000 must be divided by 3. The annual principal repayment is therefore $5,000.

LO 5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

13.

I disagree. Each payment made by Bob consists of (1) interest on the unpaid balance of the loan and (2) a reduction of loan principal. The interest portion of the payment decreases each period (as the principal owing is reduced) while the portion applied to the loan principal increases each period. The mortgage will be repaid in 20 years.

LO 5 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 15.11 Chapter 15 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

QUESTIONS (Continued) 14.

A lease agreement is a contract in which the lessor gives the lessee the right to use an asset for a specified period, in return for one or more periodic payme...