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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 61

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Using the following table, what is the present value of $15,000 to be received in 10 years, if the market rate is 5% compounded annually?

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$15,000 × ...

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Question 62

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The balance in Discount on Bonds Payable

A) should be reported on the balance sheet as an asset because it has a debit balance
B) should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results obtained by that method materially differ from the results that would be obtained by the effective interest rate method
C) would be added to the related bonds payable to determine the carrying amount of the bonds
D) would be subtracted from the related bonds payable on the balance sheet

E) A) and C)
F) All of the above

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Question 63

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Match each description below to the appropriate term (a-g) . ​ -The face amount of each bond

On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 andDecember 31 to yield 6%. Use the following format and round figures to nearest dollar.The bonds were issued for $1,851,234.? (a) Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method.Date Cash Paid Interest Expense Amortization Bond Carrying Value? (b) Show how this bond would be reported on the balance sheet at December 31, Year 2.

The adjusting entry to record the amortization of a discount on bonds payable is

On the first day of the fiscal year, Hawthorne Company obtained an $88,000, seven-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include a

Bonds that are subject to retirement prior to maturity at the option of the issuer are called

On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 2 carrying amount in the amortization table for this installment note will be equal to

If bonds are issued at a discount, it means that the

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

Glover Corporation issued $2,000,000 of 7.5%, six-year bonds dated March 1, with semiannual interest payments on September 1 and March 1. The bonds were issued on March 1 at 97. Glover's year-end is December 31. If required, round answers to the nearest whole amount.​ (a) Were the bonds issued at a premium, at a discount, or at par? (b) Was the market rate of interest higher, lower, or the same as the contract rate of interest? (c) If the company uses the straight-line method of amortization, what is the amount of interest expense Glover Corporation will show for the year ended December 31? (d) What is the carrying value of the bonds on December 31?

On the first day of the fiscal year, a company issues a $1,000,000, 7%, five-year bond that pays semiannual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the first interest payment and the amortization of the related bond discount using the straight-line method. Round answers to the nearest dollar.

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

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.

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Designer Company issued 10-year bonds on January 1. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Designer should record an interest expense (round to the nearest dollar) of

On January 1, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the payment of the first annual amount due on the note would include a

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is

Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a