Dunn-Whitaker Construction has agreed to construct a plant in a new industrial p
ID: 2481954 • Letter: D
Question
Dunn-Whitaker Construction has agreed to construct a plant in a new industrial park. To finance the construction, the county government issued $4,000,000 of 10-year, 5.25% revenue bonds for $4,110,000 on December 31, 2013. Dunn-Whitaker will pay the interest and principal on the bonds. When the bonds are repaid, Dunn-Whitaker will receive title to the plant. In the interim, Dunn-Whitaker will pay property taxes as if it owned the plant. This financing arrangement is attractive to Dunn-Whitaker Construction, as state and local government bonds are exempt from federal income taxation and thus carry a lower interest rate. The bonds are attractive to investors, as both Dunn-Whitaker and the county are issuers. The bonds pay interest semiannually on June 30 and December 31.
Required: Prepare an amortization table through December 31, 2015, for these revenue bonds assuming straight-line amortization. If an amount box does not require an entry, enter zero ("0").
THINK ABOUT IT: Should Dunn-Whitaker record the plant as an asset after it is constructed? Consider the definition of an asset and whether the plant is an asset to Dunn-Whitaker.
Should Dunn-Whitaker record the liability for these revenue bonds? Consider the definition of a liability.
Period Cash Payment Interest Expense Amortization on Premium Premium on Bonds Payable Balance Carrying Value of Bond At issue 30-Jun-14 31-Dec-14 30-Jun-15 31-Dec-15Explanation / Answer
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As per defination of assets, an assets will be recognised if expenditure will result in economic benefits whic drive over the life of this assets. and secondly when the amount of assets can be measue realiably.thirdly the amount of expenditure is material.
The Plant shell be deemed to be an assets for Dunn because dunn is not only paying the property tax but also they have to pay the interest liablity and principal on maturity. Also the plant title will be transferred to them when the bond liality will be paid out.
Yes, Dunn should recorde the liability of these bonds since they are issued againest the counstruction of the plant by the government on behaf of Dunn. .
Period Cash Payment Interest Expense Amortization on Premium Premium on Bonds Payable Balance Carrying Value of Bond At issue 0 0 0 110000 4000000 30-Jun-14 105000 105000 0 0 0 31-Dec-14 105000 94000 11000 99000 4000000 30-Jun-15 105000 105000 0 0 0 31-Dec-15 105000 94000 11000 88000 4000000Related Questions
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