Information taken from a Sears, Roebuck and Company annual report follows.
December 31
Long-...
Information taken from a Sears, Roebuck and Company annual report follows.
December 31
Long-Term Debt ($ in millions) Year 2 Year 1
7% debentures, $300 million face value, due Year 11, effective rate $14.6%
$ 188.6 $ 182.7
Zero coupon bonds, $500 million face value, due Year 8, effective rate 12.0%
267.9 239.2
Participating mortgages, $850 million face value, due Year 5, effective rate 8.7%, collateralized by Sears Tower and related properties
834.5 833.9
Various other long-term debt 12,444.2 16,329.2
Total long-term debt $13,735.2 $17,585.0
Required:
1. How much interest expense did the company record during Year 2 on the 7% debentures? How much of the original issue discount was amortized during Year 2?
2. How much interest expense did the company record during Year 2 on the zero coupon bonds?
3. Suppose that interest payments on the participating mortgages are made on December 31 of each year. What journal entry did the company make in Year 2 to recognize interest expense on this debt?
4. How much cash interest did the company pay out during Year 2 on the 7% debentures and the zero coupon bonds?
Answers: 2
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