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## Record the issue of the bonds on January

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Accounting Assignment –
Problem 1 – Life Fitness Ltd. is authorized to issue \$6,000,000 of 5 percent, 10-year bonds. On January 2, 2017, the contract date, when the market interest rate is 6 percent, the company issues \$4,800,000 of the bonds and receives cash of \$4,442,941. Interest is paid on June 30 and December 31 each year. Life Fitness Ltd. amortizes bond discounts by the effective-interest method.
Required –
1. Prepare an amortization table for the first four semi-annual interest periods.
2. Record the issue of the bonds on January 2, the first semi-annual interest payment on June 30, and the second payment on December 31.
3. Show the balance sheet presentation of the bond on the date of issue and on December 31, 2018.
Problem 2 – On December 31, 2017, Sierra Corp. issues 4 percent, 10-year convertible bonds with a maturity value of \$4,500,000. The semi-annual interest dates are June 30 and December 31. The market interest rate is 5 percent, and the issue price of the bonds is 92.2054. Sierra Corp. amortizes bond premium and discount by the effective-interest method.
Required –
1. Prepare an effective-interest method amortization table for the first four semi-annual interest periods.
2. Journalize the following transactions:
a. Issuance of the bonds on December 31, 2017. Credit Convertible Bonds Payable.
b. Payment of interest on June 30, 2018.
c. Payment of interest on December 31, 2018.
d. Retirement of the bonds with a maturity value of \$200,000 on July 2, 2019.  Sierra Corp. purchases the bonds at 96.00 in the open market.
e. Conversion by the bondholders on July 2, 2019, of bonds with a maturity value of \$400,000 into 5,000 Sierra Corp. common shares.
3. Prepare the balance sheet presentation of the bonds payable that are outstanding at December 31, 2019.
Problem 3 – Moncton Manufacturing Ltd. had the following information available on bonds payable outstanding at December 31, 2016, its year end:

• \$7,500,000-Bonds Payable, 6 percent, interest paid on April 2 and October 2. The bonds had been sold on October 2, 2016, for \$7,330,686 when the market rate of interest was 7 percent. The bonds mature on April 2, 2019.

The following transactions took place after December 31, 2016:
2017
Jan. 2 Moncton Manufacturing Ltd. signed a lease to rent a building for expansion of its operations. The lease is for six years, with an option to renew, and calls for annual payments of \$37,500 per year payable on January 2. Moncton Manufacturing Ltd. gave a cheque for the first year upon signing the lease.
Jan. 2 Moncton Manufacturing Ltd. signed a lease for equipment. The lease is for 10 years with payments of \$22,500 per year payable on January 2 (the first year’s payment was made at the signing). At the end of the lease, the equipment will become the property of Moncton Manufacturing Ltd. The future payments on the lease have a present value (at 10 percent) of \$129,578. The equipment has a 10-year useful life and zero residual value.
Apr. 2 Paid the interest on the bonds payable and amortized the discount using the effective-interest method. Assume interest payable of \$112,500 had been accrued on December 31, 2016.
Oct. 2 Paid the interest on the bonds payable and amortized the discount using the effective-interest method.
Dec.31 Recorded any adjustments required at the end of the year for the bonds payable and the lease(s).
2018
Jan. 2 Made the annual payments on the leases.
Apr. 2 Paid the interest on the bonds payable and amortized the discount using the effective-interest method.
Oct. 2 Paid the interest on the bonds payable and amortized the discount using the effective-interest method.
Dec. 31 Recorded any adjustments required at the end of the year for the bonds payable and the lease(s).
Required –
1. For the bonds issued on October 2, 2016, prepare an amortization schedule for the life of the bonds. Round all amounts to the nearest whole dollar.
2. Record the general journal entries for the 2017 and 2018 transactions.
3. Show the liabilities section of the balance sheet on December 31, 2018.
Problem 4 – Big Seven Insurance Ltd. owns numerous investments in the shares of other companies. Assume Big Seven Insurance Ltd. completed the following investment transactions:
2017
Feb. 12 Purchased 30,000 (total issued and outstanding common shares, 120,000) common shares of Earl Mfg. Ltd. at a cost of \$2,550,000. Commissions on the purchase were \$15,000.
Jul. 2 Purchased 6,000 additional Earl Mfg. Ltd. common shares at a cost of \$88.00 per share. Commissions on the purchase were \$400.
Aug. 9 Received the annual cash dividend of \$2.00 per share on the Earl Mfg. Ltd. investment.
Oct. 16 Purchased 2,000 Excellence Ltd. common shares as a short-term investment, paying \$63.00 per share plus brokerage commission of \$500.
Nov. 30 Received the semi-annual cash dividend of \$2.50 per share on the Excellence Ltd. investment.
Dec. 31 Received the annual report from Earl Mfg. Ltd. Net income for the year was \$1,160,000. Of this amount, Big Seven Insurance Ltd.’s proportion is 30 percent.
Dec. 31 The current market value of the Excellence shares is \$140,000.
2018
Jan. 14 Sold 5,000 Earl Mfg. Ltd. shares for \$460,000, less commissions of \$800.
Required – Record the transactions in the general journal of Big Seven Insurance Ltd. The company’s year- end is December 31.
Problem 5 – Suppose Pickel Corp. completed the following transactions:
2017
Dec. 4 Sold product on account to a Mexican company for \$110,000. The exchange rate of the Mexican peso was \$0.078, and the customer agreed to pay in Canadian dollars.
Dec. 13 Purchased inventory on account from a US. company at a price of US\$240,000. The exchange rate of the US dollar was \$1.05, and payment will be in US dollars.
Dec. 20 Sold goods on account to an English firm for 180,000 British pounds, Payment will be in pounds, and the exchange rate of the pound was \$1.66.
Dec. 27 Collected from the Mexican company. The exchange rate of the Mexican peso was \$0.075.
Dec. 31 Adjusted the accounts for changes in foreign-currency exchange rates. Current rates: US dollar, \$1.07; British pound, \$1.65.
2018
Jan. 21 Paid the American company. The exchange rate of the US dollar was \$1.06.
Feb. 17 Collected from the English firm. The exchange rate of the British pound was \$1.69.
Required –
1. Record these transactions in Pickel Corp.’s general journal, and show how to report the transaction gain or loss on the income statement for the year ended December 31, 2017.
2. How will what you have learned in this problem help you structure international transactions?
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