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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 71

True/False

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The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

A) True
B) False

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Question 72

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(a) Prepare the joumal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500,000 bonds which sold for $515,000

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(a) Cash 490,000
Discount on B...

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Question 73

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The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Present entries to record the selected transactions described below:

The Merchant Company issued 10-year bonds on January 1, 2011. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Merchant should record interest expense (round to the nearest dollar) of

A secured bond is called a debenture bond and is backed only by the general creditworthiness of the corporation.

If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

Use the following tables to calculate the present value of a $25,000 7%, 5 year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

Balance sheet and income statement data indicate the following:

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If the company uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to:

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.