| Debt (Thousdands) |
2014 |
Year-End Interest Rate |
2013 |
Year-End Interest Rate |
| Short-Term Debt: |
|
|
|
|
| Working Capital Loans |
$250 |
8% |
$190 |
7% |
| Current maturities of long-term debt |
80 |
6% |
80 |
6% |
| Long Term Debt: |
|
|
|
|
| Debenture bonds due in 2031 |
400 |
9% |
400 |
9% |
| Serial bonds due in equal annual installments |
240 |
6% |
320 |
6% |
Questions:
A. Corless Co. has not yet made an adjustment to accrue the interest expense related to it working capital loans for the year ended December 31, 2014. 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 2014 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 2013 to 2014. Does this mean that the $80,000 amount owed at the end of 2013 still has not been paid as of December 31, 2014?
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 year and is 7% at December 31, 2014. If the debenture bonds were both callable by Corless Co. and convertible by its bondholders, which event is more likely to occur?
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 $400,000 reported amount? Is this good news or bad news to the management at Corless Co.?
E. When the Serial Bond account decreased during the year, what other account was affecated, and how was it affected? use the horitzontal model (or write the journal entry) to record the effect of this transaction.