Intermediate Accounting II Assignment

Q1. Kobayashi Ltd. reports in the current liability section of its statement of financial position at
December 31, 2021 (its year-end), short-term obligations of ¥15,000,000, which includes the
current portion of 12% long-term debt in the amount of ¥10,000,000 (matures in March 2022).
Management has stated its intention to refinance the 12% debt so that no portion of it will mature
during 2022. The date of issuance of the financial statements is March 25, 2022.
Instructions
1. Is management’s intention enough to support long-term classification of the obligation in
this situation?
2. Assume that Kobayashi Ltd. issues ¥13,000,000 of 10-year debentures to the public in
January 2022 and that management expects to use the proceeds to liquidate the
¥10,000,000 debt maturing in March 2022. Furthermore, assume that the debt maturing in
March 2022 is paid from these proceeds prior to the authorization to issue the financial
statements. Will this have any impact on the statement of financial position classification
at December 31, 2021? Explain your answer.
3. Assume that Kobayashi Ltd. issues ordinary shares to the public in January and that
management expects to entirely liquidate the ¥10,000,000 debt maturing in March 2022
with the proceeds of this equity securities issue. In light of these events, should the
¥10,000,000 debt maturing in March 2022 be included in current liabilities at December
31, 2021?
4. Assume that Kobayashi Ltd., on February 15, 2022, entered into a financing agreement
with a commercial bank that permits Kobayashi to borrow at any time through 2023 up to
¥15,000,000 at the bank’s prime rate of interest. Borrowings under the financing
agreement mature 3 years after the date of the loan. The agreement is not cancelable
except for violation of a provision with which compliance is objectively determinable.
No violation of any provision exists at the date of issuance of the financial statements.
Assume further that the current portion of long-term debt does not mature until August
2022. In addition, management may refinance the ¥10,000,000 obligation under the terms
of the financial agreement with the bank, which is expected to be financially capable of

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 honoring the agreement. Given these facts, should the ¥10,000,000 be classified as
current on the statement of financial position at December 31, 2021?
Q.2. on March 1, 2023, Sealy Sundries sold its 5-year, £1,000 face value, 9% bonds dated March
1, 2023, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and
the first interest payment date is September 1, 2023. Sealy uses the effective-interest method of
amortization. The bonds can be called by Sealy at 101 at any time on or after March 1, 2024.
Instructions
a. 1. How would the selling price of the bond be determined?
2. Specify how all items related to the bonds would be presented in a statement of
financial position prepared immediately after the bond issue was sold.
b. What items related to the bond issue would be included in Sealy’s 2023 income
statement, and how would each be determined?
c. Would the amount of bond discount amortization using the effective-interest method of
amortization be lower in the second or third year of the life of the bond issue? Why?
d. Assuming that the bonds were called in and extinguished on March 1, 2024, how should
Sealy report the retirement of the bonds on the 2024 income statement?
Q3. On January 1, 2022, Roosevelt Company purchased 12% bonds having a maturity value of
$500,000 for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated
January 1, 2022, and mature January 1, 2027, with interest received December 31 of each year.
Roosevelt’s business model is to hold these bonds to collect contractual cash flows.
Instructions
1. Prepare the journal entry at the date of the bond purchase.
2. Prepare a bond amortization schedule.
3. Prepare the journal entry to record the interest received and the amortization for 2022.
4. Prepare the journal entry to record the interest received and the amortization for 2023.
Q4. The following information is available for Kinney plc at December 31, 2022, regarding its
investments.
Investments Cost Fair Value
3,000 ordinary shares of Petty Company £40,000 £46,000
1,000 preference shares of Dowe Inc 25,000 22,000
£65,000 £68,000

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Instructions
1. Prepare the adjusting entry (if any) for 2022, assuming the investments are classified as
trading.
2. Prepare the adjusting entry (if any) for 2022, assuming the investments are classified as
non-trading.
3. Discuss how the amounts reported in the financial statements are affected by the entries
in (1) and (2).
Q5. On December 31, 2022, Zurich SA provided you with the following information regarding
its trading investments.
December 31, 2022
Investments (Trading) Cost Fair Value Unrealized Gain
(Loss)
Stargate AG shares €20,000 €19,000 €(1,000)
Carolina Co. shares 10,000 9,000 (1,000)
Vectorman NV shares 20,000 20,600 600
Total of portfolio €50,000 €48,600 (1,400)
Previous fair value adjustment balance –0–
December 31, 2022
Fair value adjustment—Cr. €(1,400)
During 2023, Carolina shares were sold for €9,500. The fair value of the shares on December 31,
2023, was Stargate shares—€19,300; Vectorman shares—€20,500.
Instructions
1. Prepare the adjusting journal entry needed on December 31, 2022.
2. Prepare the journal entry to record the sale of the Carolina Co. shares during 2023.
3. Prepare the adjusting journal entry needed on December 31, 2023.