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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 31

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Franklin Corporation issues $50,000, 10%, five-year bonds on January 1 for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

A) $10,290
B) $2,710
C) $2,500
D) $2,290

E) A) and B)
F) B) and D)

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Question 32

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When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

A) True
B) False

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Question 33

Multiple Choice

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Match each description below to the appropriate term (a-g) . -The value of a bond stated on the bond certificate

The present value of $5,000 to be received in four years at a market rate of interest of 6% compounded annually is $3,636.30.

Present entries to record the selected transactions described below. (a)Issued $2,750,000 of 10-year, 8% bonds at 97. (b)Amortized bond discount for a full year, using the straight-line method. (c)At the end of the third year, called bonds at 98. The bonds were carried at $2,692,250 at the time of the redemption.

If the amount of a bond premium on an issued 11%, four-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

Match each description below to the appropriate term (a-g) . -Allows the bondholder to exchange bond for shares of stock

A bond is simply a form of an interest-bearing note.

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.

Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or discount.

An equal stream of periodic payments is called an annuity.

An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31, of the first year, for each of the next five years. After the final payment, the carrying amount on the note will be

Match each description below to the appropriate term (a-g) . -A measure of income earned by each share of common stock

If bonds are issued at a premium, the stated interest rate is

The interest expense recorded on an interest payment date is increased

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $316,000. The entry to record the redemption would include a

Gains and losses on the redemption of bonds are reported as Other income or Other expense on the income statement.

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 Lisbon 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