CHAPTER 15

Non-Current Liabilities
ASSIGNMENT CLASSIFICATION TABLE

Brief
Learning Objectives Questions Exercises Do It! Exercises Problems

1. Describe the major 1, 2, 3, 4 1 1

characteristics of bonds.

2. Explain how to account for 5, 6, 7, 8 1, 2, 3, 4 2a, 2b 2, 3, 4, 5, 6 1, 2, 5, 6, 7,

bond transactions. 8, 9

3. Explain how to account for 9, 12, 13, 14 5, 8 3, 4 7, 11 3, 4

non-current liabilities.

4. Discuss how non-current 10, 11 6, 7 4 8, 9, 10 1, 2, 3

liabilities are reported and
analyzed.

*5. Apply the effective-interest 15, 16 9 12, 13 5, 6

method of amortizing bond
discount and bond premium.

*6. Apply the straight-line method 17, 18 10, 11 14, 15 7, 8, 9

of amortizing bond discount
and bond premium.

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter.

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-1
ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

Number Description Level Allotted (min.)

1 Prepare entries to record issuance of bonds, interest Moderate 20–30

accrual, and bond redemption.

2 Prepare entries to record issuance of bonds, interest Moderate 15–20

accrual, and bond redemption.

3 Prepare installment payments schedule and journal Moderate 20–30

entries for a mortgage note payable.

4 Analyze two different lease situations and prepare Moderate 20–30

journal entries.

*5 Prepare entries to record issuance of bonds, payment Moderate 30–40

of interest, and amortization of bond discount using
effective-interest method.

*6 Prepare journal entries to record issuance of bonds, Moderate 30–40

payment of interest, and effective-interest amortization,
and statement of financial position presentation.

*7 Prepare entries to record issuance of bonds, interest Simple 30–40

accrual, and straight-line amortization for two years.

*8 Prepare entries to record issuance of bonds, interest, and Simple 30–40

straight-line amortization of bond premium and discount.

*9 Prepare entries to record interest payments, straight-line Moderate 30–40

premium amortization, and redemption of bonds.

15-2 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 WEYGANDT ACCOUNTING PRINCIPLES IFRS, 1E
CHAPTER 15
NON-CURRENT LIABILITIES

Number LO BT Difficulty Time (min.)

BE1 2 AP Simple 4–6
BE2 2 AP Simple 3–5
BE3 2 AP Simple 4–6
BE4 2 AP Simple 3–5
BE5 3 AP Simple 6–8
BE6 4 AP Simple 3–5
BE7 4 AP Simple 6–8
BE8 3 AP Simple 2–3
*BE9 5 AP Simple 4–6
*BE10 6 AP Simple 4–6
*BE11 6 AP Simple 4–6
DI1 1 C Simple 2–3
DI2a 2 AP Simple 4–6
DI2b 2 AP Simple 3–5
DI3 3 AP Simple 4–6
DI4 3, 4 AP Simple 4–6
EX1 1 C Simple 4–6
EX2 2 AP Simple 4–6
EX3 2 AP Simple 4–6
EX4 2 AP Simple 5–7
EX5 2 AP Moderate 8–10
EX6 2 AP Simple 6–8
EX7 3 AP Simple 6–8
EX8 4 AP Simple 3–5
EX9 4 AN Simple 4–6
EX10 4 AN Simple 4–6
EX11 3 AP Simple 4–6

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-3
LONG-TERM LIABILITIES (Continued)

Number LO BT Difficulty Time (min.)

*EX12 5 AP Moderate 8–10
*EX13 5 AP Moderate 8–10
*EX14 6 AP Simple 6–8
*EX15 6 AP Simple 6–8
P1 2, 4 AP Moderate 20–30
P2 2, 4 AP Moderate 15–20
P3 3, 4 AP Moderate 20–30
P4 3 AP Moderate 20–30
*P5 2, 5 AP Moderate 30–40
*P6 2, 5 AP Moderate 30–40
*P7 2, 6 AP Simple 30–40
*P8 2, 6 AP Simple 30–40
*P9 2, 6 AP Moderate 30–40
CT1 2, 4 AN Simple 5–10
CT2 4 AP Simple 10–15
CT3 4 C Simple 10–15
CT4 1 AN Simple 10–15
CT5 2, 5 C Moderate 15–20
CT6 1 E Simple 10–15

15-4 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
1. Describe the major characteristics of Q15.1 Q15.4
bonds. Q15.2 DI15.1
Q15.3 E15.1

BLOOM’S TAXONOMY TABLE

2. Explain how to account for bond Q15.5 Q15.6 Q15.7 E15.2 P15.1
transactions. Q15.8 BE15.1 E15.3 P15.2
BE15.2 E15.4 P15.5
BE15.3 E15.5 P15.6
BE15.4 E15.6 P15.7
DI15.2a P15.8
DI15.2b P15.9
3. Explain how to account for non- Q15.19 BE15.8 DI15.4 P15.3
current liabilities. Q15.12 DI15.3 E15.7 P15.4
Q15.13
Q15.14
4. Discuss how non-current liabilities Q15.10 BE15.6 P15.2 E15.10
are reported and analyzed. Q15.11 BE15.7 P15.3 E15.11
DI15.4
E15.8
E15.9
E15.10
P15.1
*5. Apply the effective-interest method Q15.15 BE15.9 P15.5
of amortizing bond discount and Q15.16 E15.12 P15.6
bond premium. E15.13
*6. Apply the straight-line method of Q15.17 BE15.10 P15.7
amortizing bond discount and bond Q15.18 BE15.11 P15.8
premium. E15.14 P15.9
E15.15
Expand Your Critical Thinking Communication Comp. Analysis Financial Reporting Ethics Case
Real-World Focus
Decision Making
Across the
Organization
15-5
 ANSWERS TO QUESTIONS

 
  1. (a) Non-current liabilities are obligations that are expected to be paid after one year. Examples
include bonds, long-term notes, and lease obligations.
(b) Bonds are a form of interest-bearing notes payable used by corporations, universities, and
governmental agencies.

  2. (a) Secured bonds have specific assets of the issuer pledged as collateral. In contrast, unse-
cured bonds are issued against the general credit of the borrower. These bonds are called
debenture bonds.
(b) Convertible bonds may be converted into ordinary shares at the bondholders’ option. In contrast,
callable bonds are subject to call and retirement at a stated dollar amount prior to maturity at the
option of the issuer.

  3. (a) Face value is the amount of principal due at the maturity date. (Face value is also called par value.)
(b) The contractual interest rate is the rate used to determine the amount of cash interest the
borrower pays and the investor receives. This rate is also called the stated interest rate
because it is the rate stated on the bonds.
(c) A bond indenture is a legal document that sets forth the terms of the bond issue.
(d) A bond certificate is a legal document that indicates the name of the issuer, the face value of the
bonds, and such other data as the contractual interest rate and maturity date of the bonds.

  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 which must be paid at maturity.

  5. Less than. Investors are required to pay more than the face value; therefore, the market interest
rate is less than the contractual rate.

  6. R$48,000. R$800,000 X 6% = R$48,000.

  7. HK$9,000,000. The balance of the Bonds Payable account plus the unamortized bond discount
(or minus the unamortized bond premium) equals the face value of the bonds.

  8 Debits: Bonds Payable (for the carrying value of the bonds).
Credits: Cash (for 97% of the face value) and Gain on Bond Redemption (for the difference
between the cash paid and the bonds’ carrying value).

  9. No, Roy is not right. Each payment by Roy consists of: (1) interest on the unpaid balance of the
loan and (2) a reduction of loan principal. The interest decreases each period while the portion
applied to the loan principal increases each period.

  10. The nature and the amount of each non-current liability should be presented in the statement of
financial position or in schedules in the accompanying notes to the statements. The notes
should also indicate the interest rates, maturity dates, conversion privileges, and assets pledged
as collateral.

 11. (a) The major advantages are:

(1) Shareholder control is not affected—bondholders do not have voting rights, so current
shareholders retain full control of the company.

15-6 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 15 (Continued)

(2) Tax savings result—in some countries bond interest is deductible for tax purposes;
dividends on stock are not.
(3) Earnings per share may be higher—although bond interest expense will reduce net income,
earnings per share on ordinary shares will often be higher under bond financing because no
additional shares are issued.
(b) The major disadvantages in using bonds are that interest must be paid on a periodic basis
and the principal (face value) of the bonds must be paid at maturity.

 12. 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 rental payments. The lessor is the owner of
the property and the lessee is the renter or tenant.

 13. Jhutti would recognize a lease liability and a right-of-use asset in its records and on the statement of
financial position.

 14. In this lease agreement, the lessee records the present value of the lease payments as an asset
and a liability. Therefore, Benedict Company would debit Right-of-Use Asset for $186,300 and
credit Lease Liability for the same amount.

 *15. Ginny is probably indicating that since the borrower has the use of the bond proceeds over the
term of the bonds, the borrowing rate in each period should be the same. The effective-interest
method results in a varying amount of interest expense but a constant rate of interest on the
balance outstanding. Accordingly, it results in a better matching of expenses with revenues than
the straight-line method.

 *16. Decrease. Under the effective-interest method the interest charge per period is determined by
multiplying the carrying value of the bonds by the effective-interest rate. When bonds are issued
at a premium, the carrying value decreases over the life of the bonds. As a result, the interest
expense will also decrease over the life of the bonds because it is determined by multiplying the
decreasing carrying value of the bonds at the beginning of the period by the effective-interest rate.

 *17. The straight-line method results in the same amortized amount being assigned to Interest
Expense each interest period. This amount is determined by dividing the total bond discount or
premium by the number of interest periods the bonds will be outstanding.

 *18. £24,000. Interest expense is the interest to be paid in cash less the premium amortization for the
year. Cash to be paid equals 7% X £400,000 or £28,000. Total premium equals 5% of £400,000
or £20,000. Since this is to be amortized over 5 years (the life of the bonds) in equal amounts, the
amortization amount is £20,000 ÷ 5 = £4,000. Thus, £28,000 – £4,000 or £24,000 equals interest
expense for 2020.

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-7
 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 15.1

2020
(a) Jan.  1 Cash.................................................. 4,000,000
Bonds Payable
  (4,000 X £1,000).................... 4,000,000

(b) Dec. 31 Interest Expense..............................    320,000

Interest Payable
  (£4,000,000 X 8%).................. 320,000

2021
(c) Jan. 1 Interest Payable...............................    320,000
Cash.......................................... 320,000

BRIEF EXERCISE 15.2

(a) Jan.  1 Cash (€2,000,000 X .97)................... 1,940,000

Bonds Payable......................... 1,940,000

(b) Jan.  1 Cash (€2,000,000 X 1.04).................    2,080,000

Bonds Payable......................... 2,080,000

BRIEF EXERCISE 15.3

1. Jan.  1 Cash (1,000 X €1,000)...................... 1,000,000

Bonds Payable......................... 1,000,000

2. July  1 Cash (€900,000 X 1.02)....................    918,000

Bonds Payable......................... 918,000

3. Sept. 1 Cash (€400,000 X .98)......................    392,000

Bonds Payable......................... 392,000

15-8 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 15.4

Bonds Payable..........................................................    940,000

Loss on Bond Redemption
  (£1,010,000 – £940,000).........................................    70,000
Cash (£1,000,000 X 101%)................................ 1,010,000

BRIEF EXERCISE 15.5

(A) (B) (C) (D)

Annual Interest Reduction Principal
Interest Cash Expense of Principal Balance
Period Payment (D) X 10% (A) – (B) (D) – (C)
Issue Date £800,000
1 £130,196 £80,000 £50,196  749,804

Dec. 31, 2020 Cash...................................................... 800,000

Mortgage Payable........................... 800,000

Dec. 31, 2021 Interest Expense..................................  80,000

Mortgage Payable................................  50,196
Cash.................................................  130,196

BRIEF EXERCISE 15.6

Non-current liabilities
Bonds payable, due 2022....................................... CHF500,000
Notes payable, due 2025........................................ 80,000
Lease liability.......................................................... 72,000
Total non-current liabilities............................ CHF652,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-9
BRIEF EXERCISE 15.7
Issue Issue Bond
Shares
Income before interest and taxes €900,000 €900,000
Interest (€2,000,000 X 6%) 0 120,000
Income before income taxes  900,000  780,000
Income tax expense (30%) 270,000 234,000
Net income (a) €630,000  €546,000

Outstanding shares (b)  700,000  500,000

Earnings per share (a) ÷ (b)    €0.90    €1.09

Net income is higher if shares are used. However, earnings per share is
lower than earnings per share if bonds are used because of the additional
shares that are outstanding.

BRIEF EXERCISE 15.8

Right-of-Use Asset..................................................  700,000

Lease Liability..................................................   700,000

*BRIEF EXERCISE 15.9

(a) Interest Expense.....................................................  48,070

Bonds Payable.................................................   3,070
Cash..................................................................  45,000

(b) Interest expense is greater than interest paid because the bonds sold
at a discount which must be amortized over the life of the bonds. The
bonds sold at a discount because investors demanded a market interest
rate higher than the contractual interest rate.

(c) Interest expense increases each period because the bond carrying value
increases each period. As the market interest rate is applied to this bond
carrying amount, interest expense will increase.

15-10 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
*BRIEF EXERCISE 15.10

(a) Jan.  1 Cash (.96 X HK$5,000,000)............... 4,800,000

Bonds Payable.......................... 4,800,000

(b) Dec. 31 Interest Expense............................... 470,000

Bonds Payable
  (HK$200,000 ÷ 10).................. 20,000
Cash (HK$5,000,000 X 9%)........   450,000

*BRIEF EXERCISE 15.11

(a) Cash (1.02 X £4,000,000)................................... 4,080,000

Bonds Payable........................................... 4,080,000

(b) Interest Expense................................................   384,000

Bonds Payable
  (£80,000 ÷ 5).................................................... 16,000
Cash (£4,000,000 X 10%)...........................   400,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-11
 SOLUTIONS FOR DO IT! EXERCISES

DO IT! 15.1

1. False. Mortgage bonds and sinking fund bonds

are both examples of secured bonds.
2. False. Convertible bonds can be converted into ordinary shares at the
bondholder’s option; callable bonds can be retired by the issuer at a
set amount prior to maturity.
3. True.
4. True.
5. True.

DO IT! 15.2a

(a) Cash................................................................ 306,000,000

Bonds Payable........................................ 306,000,000
   (To record sale of bonds at a
premium)

(b) Non-current liabilities

Bonds payable ........................................
W306,000,000

DO IT! 15.2b

Loss on Bond Redemption.................................... 6,000

Bonds Payable........................................................ 390,000
Cash................................................................. 396,000
   (To record redemption of bonds at 99)

15-12 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
DO IT! 15.3

Cash......................................................................... 700,000
Mortgage Payable........................................... 700,000
   (To record mortgage loan)

Interest Expense..................................................... 42,000*

Mortgage Payable................................................... 30,074
Cash................................................................. 72,074
   (To record annual payment on
mortgage)

*Interest expense = R$700,000 X 6%

DO IT! 15.4

The debt to assets ratio = €1,100,000 ÷ €1,800,000 = 61%. This ratio means
that 61% of the total assets were provided by creditors. The higher the
percentage of debt to assets, the greater the risk that the company may be
unable to meet its maturing obligations.

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-13
 SOLUTIONS TO EXERCISES

EXERCISE 15.1

1. True.
2. True.
3. False. When seeking long-term financing, an advantage of issuing bonds
over issuing ordinary shares is that tax savings result.
4. True.
5. False. Unsecured bonds are also known as debenture bonds.
6. True.
7. True.
8. True.
9. True.

EXERCISE 15.2

2020
(a) Jan.  1 Cash........................................................ 500,000
Bonds Payable................................ 500,000

(b) Dec. 31 Interest Expense (£500,000 X 10%)......   50,000

Interest payable..............................   50,000

2021
(c) Jan. 1 Interest Payable.....................................   50,000
Cash................................................   50,000

EXERCISE 15.3

2020
(a) Jan.  1 Cash........................................................ 400,000
Bonds Payable................................ 400,000

(b) Dec. 31 Interest Expense (R$400,000 X 8%)......   32,000

Interest Payable..............................   32,000

15-14 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.3 (Continued)

2021
(c) Jan. 1 Interest Payable......................................   32,000
Cash.................................................   32,000

EXERCISE 15.4

(a) 1. Cash................................................................. 485,000

Bonds Payable.......................................... 485,000

2. Annual interest payments

  (€40,000* X 5)............................................... €200,000
Plus: Bond discount....................................... 15,000
Total cost of borrowing.................................. €215,000

*(€500,000 X .08)

OR

Principal at maturity........................................ €500,000

Annual interest payments
  (€40,000 X 5).................................................   200,000
Cash to be paid to bondholders.................... 700,000
Cash received from bondholders.................. (485,000)
Total cost of borrowing.................................. €215,000

(b) 1. Cash................................................................. 525,000

Bonds Payable.......................................... 525,000

2. Annual interest payments

  (€40,000 X 5)................................................. €200,000
Less: Bond Premium...................................... 25,000
Total cost of borrowing.................................. €175,000

OR

Principal at maturity........................................ €500,000

Annual interest payments
  (€40,000 X 5).................................................   200,000
Cash to be paid to bondholders.................... 700,000
Cash received from bondholders.................. (525,000)
Total cost of borrowing.................................. €175,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-15
EXERCISE 15.5

(a) Jan.  1 Interest Payable..................................... 1,120,000

Cash................................................ 1,120,000

(b) Jan.  1 Bonds Payable....................................... 6,000,000

Loss on Bond Redemption................... 180,000
Cash (HK$6,000,000 X 1.03)..........  6,180,000

(c) Dec. 31 Interest Expense....................................   700,000

Interest Payable
 (HK$10,000,000 X 7%)................   700,000

EXERCISE 15.6

1. June 30 Bonds Payable...................................... 117,500

Loss on Bond Redemption
  (£132,600 – £117,500)........................  15,100
Cash (£130,000 X 102%)............... 132,600

2. June 30 Bonds Payable...................................... 151,000

Gain on Bond Redemption
 (£151,000 – £147,000)................ 4,000
Cash (£150,000 X 98%)................. 147,000

EXERCISE 15.7

2020
Issuance of Note
Dec. 31 Cash............................................................... 240,000
Mortgage Payable................................. 240,000

2021
First Installment Payment
Dec. 31 Interest Expense
  (€240,000 X 6%)......................................... 14,400
Mortgage Payable.........................................   18,864
Cash.......................................................  33,264

15-16 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 15.7 (Continued)

2022
Second Installment Payment
Dec. 31 Interest Expense
  [(€240,000 – €18,864) X 6%]...................... 13,268
Mortgage Payable.........................................   19,996
Cash.......................................................  33,264

EXERCISE 15.8

Plan One Plan Two

Issue Shares Issue Bonds
Income before interest and taxes ¥800,000 ¥800,000
Interest (¥2,400,000 X 7%) — 168,000
Income before taxes  800,000  632,000
Income tax expense (30%) 240,000  189,600
Net income ¥560,000 ¥442,400
Outstanding shares  150,000   90,000
Earnings per share    ¥3.73    ¥4.92

EXERCISE 15.9

Non-current liabilities
Bonds payable, due 2022......................... HK$204,000
Lease liability.............................................. 59,500
Total non-current liabilities..................... HK$263,500

EXERCISE 15.10

(a) 1. Debt to assets ratio = NT$16,191.0 ÷ NT$30,224.9 = 54%

2. Times interest earned = (NT$4,551.0 + NT$1,936.0 + NT$473.2) ÷

NT$473.2 = 14.71 times

The debt to assets ratio indicates that NT$.54 of each dollar of assets
have been financed by creditors. The times interest earned of over 14
times indicates that Lin Ltd. income is large enough to make required
interest payments as they come due.
Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-17
EXERCISE 15.11

(a) Rent Expense.............................................................. 500

Cash............................................................... 500

(b) Jan.  1 Right-of-Use Asset.................................... 49,735

Lease Liability................................ 49,735

*EXERCISE 15.12

2020
(a) Jan. 1 Cash........................................................... 360,727
Bonds Payable.................................. 360,727

(b) Dec. 31 Interest Expense

  (€360,727 X 8%).....................................  28,858
Bonds Payable..................................   858
Interest Payable (€400,000 X 7%).....  28,000

2021
(c) Jan. 1 Interest Payable ....................................... 28,000
Cash...................................................  28,000

15-18 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

*EXERCISE 15.12 (Continued)

(b), (c)
(B)
Interest Expense
(A) to Be Recorded (C)
Annual Interest to (8% X Preceding Discount (D)
Interest Be Paid Bond Carrying Value) Amortization Bond
Periods (7% X €400,000) (D X .08) (B) – (A) Carrying Value

Issue date €360,727

1 €28,000  €28,858 €858  361,585
15-19
*EXERCISE 15.13

2020
(a) Jan.  1 Cash......................................................... 407,968
Bonds Payable................................. 407,968

(b) Dec. 31 Interest Expense

  (£407,968 X 6%).................................... 24,478
Bonds Payable........................................ 2,122
Interest Payable (£380,000 X 7%)...  26,600

2021
(c) Jan. 1 Interest Payable....................................... 26,600
Cash..................................................  26,600

15-20 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 *EXERCISE 15.13 (Continued)
Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

(b), (c)
(B)
Interest Expense
(A) to Be Recorded (C)
Annual Interest to (6.0% X Preceding Premium (D)
Interest Be Paid Bond Carrying Value) Amortization Bond
Periods (7% X £380,000) (D X .06) (A) – (B) Carrying Value

Issue date 407,968

1 26,600 24,478 2,122 405,846
15-21
*EXERCISE 15.14

2020
(a) Jan.  1 Cash (€600,000 X 103%).......................... 618,000
Bonds Payable................................. 618,000

(b) Dec. 31 Interest Expense......................................  53,100

Bonds Payable
  (€18,000 X 1/20)....................................     900
Interest Payable (€600,000 X 9%). .  54,000

2021
(c) Jan. 1 Interest Payable......................................  54,000
Cash.................................................  54,000

2040
(d) Jan.  1 Bonds Payable........................................ 600,000
Cash................................................. 600,000

*EXERCISE 15.15

(a) 2019
Dec. 31 Cash....................................................... 730,000
Bonds Payable............................... 730,000

(b) 2020
Dec. 31 Interest Expense...................................  95,000
Bonds Payable
  (£70,000 ÷ 10).............................   7,000
Cash (£800,000 X 11%)..................  88,000

(c) 2029
Dec. 31 Bonds Payable...................................... 800,000
Cash................................................ 800,000

15-22 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 SOLUTIONS TO PROBLEMS

PROBLEM 15.1

(a) 2020
May  1 Cash..................................................... 600,000
Bonds Payable............................. 600,000

(b) Dec. 31 Interest Expense................................. 36,000

Interest Payable
 (CHF600,000 X 9% X 8/12)....... 36,000

(c) Non-current Liabilities

Bonds Payable, due 2025............................. CHF600,000

Current Liabilities
Interest Payable............................................. CHF36,000

(d) 2021
May  1 Interest Payable................................... 36,000
Interest Expense
  (CHF600,000 X 9% X 4/12)............... 18,000
Cash.............................................. 54,000
(e) Dec. 31 Interest Expense................................. 36,000
Interest Payable
  (CHF600,000 X 9% X 8/12)....... 36,000

(f) 2022
Jan.  1 Interest Payable................................... 36,000
Cash.............................................. 36,000
Bonds Payable.................................... 600,000
Loss on Bond Redemption................. 12,000
Cash (CHF600,000 X 1.02)........... 612,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-23
 PROBLEM 15.2

(a) 2020
Jan.  1 Cash (£6,000,000 X .98).....................   5,880,000
Bonds Payable...........................   5,880,000

(b) Non-current Liabilities

Bonds payable, due 2035............................ €5,888,000

(c) 2022
Jan.  1 Bonds Payable................................... 5,896,000**
Loss on Bond Redemption............... 224,000*
Cash (£6,000,000 X 1.02)............ 6,120,000

*(£6,120,000 – £5,896,000)

15-24 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 PROBLEM 15.3

(a) Annual Cash Interest Reduction of Principal

Interest Period Payment Expense Principal Balance
Issue Date R$400,000
1 R$59,612 R$32,000 R$27,612   372,388
2   59,612   29,791   29,821   342,567
3   59,612   27,405   32,207   310,360
4  59,612   24,829   34,783   275,577

(b) 2019
Dec. 31 Cash........................................................ 400,000
Mortgage Payable.......................... 400,000

2020
Dec. 31 Interest Expense....................................  32,000
Mortgage Payable..................................  27,612
Cash................................................  59,612

(c) 12/31/20
Current Liabilities
Current portion of mortgage payable R$29,821

Non-Current Liabilities
Mortgage payable, due 2029   R$342,567

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-25
 PROBLEM 15.4

(a) A lessee recognizes a lease liability and a right-of-use asset for all
leases with a term greater than one year.

Right-of-Use Asset..................................................... 13,000

Lease Liability..................................................... 13,000

(b) Right-of-Use Asset..................................................... 26,000

Lease Liability..................................................... 26,000

15-26 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 *PROBLEM 15.5

2020
(a) Jan. 1 Cash.................................................. 1,667,518
Bonds Payable.......................... 1,667,518

(b) LOCK INDUSTRIES LTD.

Bond Discount Amortization
Effective-Interest Method—Annual Interest Payments
5% Bonds Issued at 6%

(A) (B) (C) (D)

Interest Discount Bond
Annual Interest Expense Amor- Carrying
Interest to Be to Be tization Value
Periods Paid Recorded (B) – (A)
Issue date £1,667,518
1 £90,000 £100,051 £10,051  1,677,569
2  90,000 100,654  10,654  1,688,223
3  90,000 101,293  11,293  1,699,516

2020
(c) Dec. 31 Interest Expense
  (£1,667,518 X 6%)................................... 100,051
Interest Payable
  (£1,800,000 X 5%)........................... 90,000
Bonds Payable...................................  10,051

2021
(d) Jan. 1 Interest Payable......................................... 90,000
Cash.................................................... 90,000

(e) Dec. 31 Interest Expense

  [(£1,667,518 + £10,051) X 6%]............... 100,654
Interest Payable................................. 90,000
Bonds Payable..........................  10,654

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-27
 *PROBLEM 15.6

2020
(a) (1) Jan. 1 Cash............................................. 2,147,202
Bonds Payable.................... 2,147,202

(2) Dec. 31 Interest Expense

  (€2,147,202 X 6%)....................  128,832
Bonds Payable............................    11,168
Interest Payable
  (€2,000,000 X 7%)............. 140,000

2021
(3) Jan. 1 Interest Payable..........................   140,000
Cash.....................................   140,000

(4) Dec. 31 Interest Expense......................... 128,162

  [(€2,147,202 – €11,168) X 6%]
Bonds Payable............................    11,838
Interest Payable..................   140,000

(b) Bonds payable...................................................... 2,124,196*

*(€2,147,202 – €11,168 – €11,838)

(c) (1) Total bond interest expense—2021, €128,162.

(2) The effective-interest method will result in more interest expense

reported than the straight-line method in 2021 when the bonds are
sold at a premium. Straight-line interest expense for 2021 is
€125,280 [€140,000 – (€147,202 ÷ 10)].

15-28 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 *PROBLEM 15.7

(a) 2020
Jan.  1 Cash (€3,000,000 X 1.04)................... 3,120,000
Bonds Payable........................... 3,120,000

(b) See page 15-30.

(c) 2020
Dec. 31 Interest Expense...............................   288,000
Bonds Payable (€120,000 ÷ 10)........     12,000
Interest Payable.........................   300,000

2021
Jan.  1 Interest Payable.................................   300,000
Cash............................................   300,000

Dec. 31 Interest Expense...............................   288,000

Bonds Payable..................................     12,000
Interest Payable.........................   300,000

(d) Non-current Liabilities

Bonds payable, due 2030........................... €3,096,000
Current Liabilities
Interest payable........................................... € 300,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-29
15-30

*PROBLEM 15.7 (Continued)

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

(b)
(A) (B) (C) (D)
Annual Interest to Interest Expense Premium Bond
Interest Be Paid to Be Recorded Amortization Carrying Value
Periods (10% X €3,000,000) (A) – (C) (€120,000 ÷ 10)
Issue date €3,120,000
1 €300,000 €288,000 €12,000  3,108,000
2  300,000  288,000 12,000  3,096,000
3  300,000  288,000  12,000  3,084,000
4  300,000  288,000  12,000  3,072,000
 *PROBLEM 15.8

(a) 2020
Jan.  1 Cash (Rs3,500,000 X 104%)............. 3,640,000
Bonds Payable.......................... 3,640,000

Dec. 31 Interest Expense..............................   266,000

Bonds Payable
  (Rs140,000 ÷ 10)............................     14,000
Interest Payable
  (Rs3,500,000 X 8%)............... 280,000

(b) 2020
Jan.  1 Cash (Rs3,500,000 X 98%)............... 3,430,000
Bonds Payable.......................... 3,430,000

Dec. 31 Interest Expense..............................   287,000

Bonds
  Payable (Rs70,000 ÷ 10).......     7,000
Interest Payable
  (Rs3,500,000 X 8%)............... 280,000

(c) Premium

Non-current Liabilities
Bonds payable, due 2030.......................... Rs3,626,000
Current Liabilities
Interest Payable......................................... 280,000

Discount

Non-current Liabilities
Bonds payable, due 2030.......................... Rs3,437,000
Current Liabilities
Interest Payable......................................... 280,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-31
 *PROBLEM 15.9

(a) 2021
Jan.  1 Interest Payable...............................   210,000**
Cash..........................................   210,000

(b) Dec. 31 Interest Expense..............................   190,000**

Bonds Payable (€200,000 ÷ 10)....... 20,000
Interest Payable........................   210,000

(c) 2022
Jan 1 Bonds Payable................................. 1,272,000**
*(€3,180,000 X .40 = €1,272,000
Gain on Bond Redemption
  (€1,272,000 – €1,212,000)..... 60,000
Cash (€1,200,000 X 101%)....... 1,212,000

(d) Dec. 31 Interest Expense..............................   114,000**

Bonds Payable.................................    12,000**
Interest Payable
  (€1,800,000 X 7%).................. 126,000

**€200,000 – €20,000 – €72,000 = €108,000; €108,000/ 9 = €12,000 (or €20,000 X .

60).

15-32 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
 ACR15.1

(a) 1. Interest Payable............................................... 2,500

Cash.......................................................... 2,500

2. Inventory.......................................................... 241,100
Accounts Payable.................................... 241,100

3. Cash.................................................................. 481,500
Sales Revenue......................................... 450,000
Sales Taxes Payable................................ 31,500

Cost of Goods Sold......................................... 250,000

Inventory................................................... 250,000

4. Account Payable.............................................. 230,000

Cash.......................................................... 230,000

5. Interest Expense.............................................. 2,500

Cash.......................................................... 2,500

6. Insurance Expense.......................................... 5,600

Prepaid Insurance.................................... 5,600

7. Prepaid Insurance........................................... 12,000

Cash.......................................................... 12,000

8. Sales Taxes Payable....................................... 24,000

Cash.......................................................... 24,000

9. Other Operating Expenses............................. 91,000

Cash.......................................................... 91,000

10. Interest Expense.............................................. 2,500

Cash.......................................................... 2,500

Bonds Payable................................................. 50,000

Cash.......................................................... 47,000
Gain on Bond Redemption...................... 3,000

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-33
15-34 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ACR15.1 (Continued)

11. Cash (£90,000 X 104%).................................... 93,600

Bonds Payable......................................... 93,600

Adjusting Entries
1. Insurance Expense (£12,000 X 5/12).............. 5,000
Prepaid Insurance.................................... 5,000

2. Depreciation Expense (£43,000 – £3,000) ÷ 5.... 8,000

Accumulated Depreciation–Equipment. 8,000

3. Income Tax Expense....................................... 26,520

Income Taxes Payable............................. 26,520

(b) JAMES LTD.

Adjusted Trial Balance
12/31/2020

Account Debit Credit

Cash............................................................. £194,100
Inventory...................................................... 16,850
Prepaid Insurance....................................... 7,000
Equipment................................................... 43,000
Accumulated Depreciation–Equipment.... £ 8,000
Accounts Payable....................................... 24,850
Sales Taxes Payable................................... 7,500
Income Taxes Payable................................ 26,520
Bonds Payable............................................ 93,600
Share Capital–Ordinary.............................. 20,000
Retained Earnings....................................... 18,600
Sales Revenue............................................. 450,000
Cost of Goods Sold..................................... 250,000
Depreciation Expense................................. 8,000
Insurance Expense..................................... 10,600
Other Operating Expenses......................... 91,000
Interest Expense......................................... 5,000
Gain on Bond Redemption......................... 3,000
Income Tax Expense................................... 26,520  
£652,070 £652,070

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-35
ACR15.1 (Continued)

(a) and (b) Optional T accounts

Cash Interest Payable

Bal. 30,500    2,500 2,500  Bal. 2,500
481,500    230,000  Bal. 0
93,600    2,500
  12,000 Sales Taxes Payable
  24,000 24,000   31,500
  91,000  Bal. 7,500
  2,500
  47,000
Bal. 194,100  Income Taxes Payable
26,520 

Inventory
Bal. 25,750    250,000 Bonds Payable
241,100 
50,000  Bal. 50,000
Bal. 16,850    93,600
 Bal. 93,600
Prepaid Insurance
Bal. 5,600    5,600 Share Capital–Ordinary
12,000    5,000  Bal. 20,000 
Bal. 7,000 

Equipment Retained Earnings

Bal. 43,000   Bal. 18,600 

Accumulated Depreciation – Sales Revenue

Equipment 450,000
8,000 

Accounts Payable
230,000  Bal. 13,750
  241,100
 Bal. 24,850

15-36 Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ACR15.1 (Continued)

(a) and (b) (Continued)

Cost of Goods Sold Interest Expense
250,000  2,500 
2,500 
Bal. 5,000 

Depreciation Expense
8,000  Gain on Bond Redemption
3,000

Insurance Expense
5,600  Income Tax Expense
5,000  26,520 
Bal. 10,600 

Other Operating Expenses

91,000 

Copyright © 2015 John Wiley & Sons, Inc.    Weygandt Financial, IFRS, 3/e, Solution’s Manual (For Instructor Use Only) 10-37
ACR15.1 (Continued)
(c) JAMES LTD.
Income Statement
For the Year Ending 12/31/20

Sales revenue.............................................. £450,000

Cost of goods sold...................................... 250,000
Gross profit................................................. 200,000
Operating expenses
Insurance expense.............................. £10,600
Depreciation expense......................... 8,000
Other operating expenses.................. 91,000
Total operating expenses........................... 109,600
Income from operations............................. 90,400
Other income and expense
Gain on bond redemption................... 3,000
Interest expense.................................. 5,000
Income before taxes................................... 88,400
Income tax expense............................ 26,520
Net income................................................... £ 61,880

JAMES LTD.
Retained Earnings Statement
For the Year Ending 12/31/20

Retained earnings, 1/1/20........................................... £18,600

Add: Net income....................................................... 61,880
Retained earnings, 12/31/20 £80,480
JAMES LTD.
Statement of Financial Position
12/31/2020

Assets

Property, Plant, and Equipment

Equipment............................................ £43,000
Less: Accumulated depreciation....... 8,000 £ 35,000
Current Assets
Prepaid insurance............................... 7,000
Inventory.............................................. 16,850
Cash...................................................... 194,100
 Total current assets....................... 217,950
Total assets................................................. £252,950
ACR15.1 (Continued)
Equity and Liabilities

Equity
Share capital–ordinary........................ £20,000
Retained earnings............................... 80,480
Total equity..................................... £100,480

Non-current liabilities
Bonds payable..................................... 93,600

Current liabilities
Accounts payable............................... £24,850
Income taxes payable......................... 26,520
Sales taxes payable............................ 7,500
Total current liabilities.................. 58,870
Total liabilities................................ 152,470
Total equity and liabilities.......................... £252,950

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-39
 ACR15.2

(a) Eastland Westside

AG AG
Plant and Equipment CHF255,300 CHF257,300
Accumulated Depreciation (2.) (188,375) ( (189,850)
Inventory 463,900 515,200
Accounts Receivable   304,700 302,500
Allowance for Doubtful Accounts (1.)  (13,600) (18,000)
Cash   63,300 48,400
Total Assets CHF885,225 CHF915,550

Equity CHF367,025* CHF402,050**

Non-current Liabilities 78,000 66,000
Current Liabilities (3.)   440,200  447,500
Total Equity and Liabilities CHF885,225 CHF915,550

**CHF442,750 – CHF75,725 (CHF188,375 – CHF112,650) change in

accumulated depreciation.

**CHF420,050 – CHF18,000 allowance for doubtful accounts.

(b) Based on a review of the companies and revision of financial state-

ments for purposes of comparability, it can be seen that Westside is in
a better financial position. However, this claim to the better position is
a tenuous one. The amounts within each category in the statement of
financial position of each company are very similar.

In terms of short-term liquidity, Westside is in a little stronger financial

position. Total current assets for Eastland are CHF818,300 versus
CHF848,100 for Westside. Comparing these to the current liabilities,
Westside has a current ratio of 1.90 (CHF 848,100 ÷ CHF447,500)
versus 1.86 (CHF818,300 ÷ CHF440,200) for Eastland.
 CT 15.1 FINANCIAL REPORTING PROBLEM

(a) At December 31, 2016, TSMC’s non-current liabilities was NT$178,165

million. There was a NT$44,490 million decrease (NT$178,165 –
NT$222,655) in non-current liabilities during the year.
(b) The components of non-current liabilities for December 31, 2016 are:

Bonds payable NT$ 153,093.6 million

Long-term bank loans 21.8
Deferred income tax liabilities 141.2
Net defined benefit liability 8,551.4
Guarantee deposits 14,670.4
Others 1,686.5

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-41
 CT 15.2 COMPARATIVE ANALYSIS PROBLEM

(a) Nestlé Delfi Limited

1. Debt to CHF65,920 US$141,039
= 50% = 41.2%
assets CHF131,901 US$342,331

2. Times interest CHF8,883 + CHF4,413 + US$26,153 +

earned CHF758 = 18.5 times US$13,082 + US$4,088 = 10.6 times
CHF758 US$4,088

(b) The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations.
Nestlé’s debt to assets ratio was 21% higher than Delfi’s. The times
interest earned ratio provides an indication of a company’s ability to
meet interest payments. Delfi’s times interest earned is good but
Nestlé’s is 75% higher. However, neither company should have
difficulty meeting its interest payments.
 CT 15.3 REAL-WORLD FOCUS

(a) In 1924, the Fitch Publishing Company introduced the now familiar
“AAA” to “D” ratings scale to meet the growing demand for independent
analysis of financial securities.

(b) The terms “investment grade” and “speculative grade” have established
themselves over time as shorthand to describe the categories ‘AAA’ to
‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade).

(c) Moody’s and Standard and Poor’s are two other major credit rating
agencies.

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-43
 CT 15.4 DECISION-MAKING ACROSS THE ORGANIZATION

*(a) Face value of bonds........................................... £2,400,000

Proceeds from sale of bonds
  (£2,400,000 X .95)............................................ 2,280,000
Discount on bonds payable............................... £  120,000

Bond discount amortization per year:

  £120,000 ÷ 5 = £24,000

Face value of bonds........................................... £2,400,000

Amount of original discount.............................. £120,000
Less: Amortization through January 1, 2020
(2-year)..................................................... 48,000 72,000
Carrying value of bonds, January 1, 2020........ £2,328,000

(b) 1. Bonds Payable.............................................. 2,328,000

Gain on Bond Redemption...................   328,000*
Cash........................................................ 2,000,000
  (To record redemption of 8%
   bonds)

*£2,328,000 – £2,000,000

2. Cash............................................................. 2,000,000
Bonds Payable.................................... 2,000,000
  (To record sale of 10-year, 11%
   bonds at par)
CT 15.4 (Continued)

(c) Dear President Fleming:

The early redemption of the 8%, 5-year bonds results in recognizing a

gain of £328,000 that increases current year net income by the after-
tax effect of the gain. The amount of the liabilities on the statement of
financial position will be lowered by the issuance of the new bonds
and retirement of the 5-year bonds.

1. The cash flow of the company as it relates to bonds payable will

be adversely affected as follows:

Annual interest payments on the new issue

  (£2,000,000 X .11)...................................................... £220,000
Annual interest payments on the 5-year bonds
  (£2,400,000 X .08)......................................................  (192,000)
Additional cash outflows per year.............................. £ 28,000

2. The amount of interest expense shown on the income statement

will be higher as a result of the decision to issue new bonds:

Annual interest expense on new bonds......... £220,000

Annual interest expense on 8% bonds:
Interest payment....................................... £192,000
Discount amortization......................................   24,000  216,000
Additional interest expense per year.............. £ 4,000

These comparisons hold for only the 3-year remaining life of the 8%,
5-year bonds. The company must acknowledge either redemption of
the 8% bonds at maturity, January 1, 2023, or refinancing of that issue
at that time and consider what interest rates will be in 2023 in
evaluating a redemption and issuance in 2020.

Sincerely,

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-45
 CT 15.5 COMMUNICATION ACTIVITY

To: Ron Seiser

From: I. M. Student

Subject: Bond Financing

(1) The advantages of bond financing over equity stock financing include:

1. Shareholder control is not affected.

2. Tax savings result.

3. Earnings per share of ordinary shares may be higher.

(2) The types of bonds that may be issued are:

1. Secured or unsecured bonds. Secured bonds have specific assets

of the issuer pledged as collateral. Unsecured bonds are issued
against the general credit of the borrower.

2. Convertible bonds, which can be converted by the bondholder into

ordinary shares.

3. Callable bonds, which are subject to early retirement by the issuer

at a stated amount.

(3) Governmental laws grant corporations the power to issue bonds after
formal approval by the board of directors and shareholders. The terms
of the bond issue are set forth in a legal document called a bond
indenture. After the bond indenture is prepared, bond certificates are
printed.
 CT 15.6 ETHICS CASE

(a) The stakeholders in the Wesley case are:

 Dylan Horn, president, founder, and majority shareholder.

 Mary Sommers, minority shareholder.
 Other minority shareholders.
 Existing creditors (debt holders).
 Future bondholders.
 Employees, suppliers, and customers.

(b) The ethical issues:

The desires of the majority shareholder (Dylan Horn) versus the

desires of the minority shareholders (Mary Sommers and others).

Doing what is right for the company and others versus doing what is best
for oneself.

Questions:

Is what Dylan wants to do legal? Is it unethical? Is Dylan’s action brash

and irresponsible? Who may benefit/suffer if Dylan arranges a high-
risk bond issue? Who may benefit/suffer if Mary Sommers gains control
of Wesley?

(c) The rationale provided by the student will be more important than the
specific position because this is a borderline case with no right answer.

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-47
 GAAP EXERCISES

GAAP 15.1

The similarities between GAAP and IFRS include: (1) the basic definition of
a liability, (2) both classify liabilities as current or non-current on the face
of the statement of financial position, and (3) both use the same basic
calculation for bond valuation, and the accounting for bonds is essentially
the same.

Differences between GAAP and IFRS include: (1) GAAP allows straight line
amortization of bond discounts and premiums, but IFRS requires the
effective-interest method in all cases, (2) IFRS does not isolate unamortized
bond discount or premium in a separate account, (3) IFRS splits the
proceeds from convertible bonds into debt and equity components, and
(4) IFRS uses the term provisions to refer to liabilities of uncertain timing or
amount.

GAAP 15.2
(a) Jan. 1 Cash ($2,000,000 X .97)......................... 1,940,000
Discount on Bonds Payable................. 60,000
Bonds Payable............................... 2,000,000
(b) Jan. 1 Cash ($2,000,000 X 1.04)....................... 2,080,000
Bonds Payable............................... 2,000,000
Premium on Bonds Payable......... 80,000

GAAP 15.3

(a) Cash (£4,000,000 X .99)........................................... 3,960,000

Discount on Bonds Payable................................... 40,000
Bonds Payable.............................................. 4,000,000

(b) Cash (£4,000,000 X .99)........................................... 3,960,000

Bonds Payable.............................................. 3,800,000
Share Premium—Conversion Equity.......... 160,000
GAAP 15.4

(a) Total long-term liabilities at September 24, 2016, $114,431 ($193,437 −

$79,006) million. Apple’s total long-term liabilities increased by $24,051
($114,431 − $90,380*) million over the prior year.

*($170,990 − $80,610)

(b) Long-term debt at September 24, 2016 was $75,427 million.

(c) The components of long-term liabilities are:

(in millions)
Deferred revenue non-current................................ $2,930
Long-term debt........................................................ 75,427
Other non-current liabilities.................................... 36,074
  Total long-term liabilities...................................... $114,431

Copyright © 2018 WILEY Weygandt, Accounting Principles, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 15-49