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Exam 11: Liabilities: Bonds Payable

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Question 21

Multiple Choice

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

A) debit to Cash of $2,000,000
B) credit to Discount on Bonds Payable for $80,000
C) credit to Bonds Payable for $1,920,000
D) debit to Cash for $1,920,000

E) None of the above
F) B) and D)

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Question 22

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The higher the times interest earned ratio, the better the creditors' protection.

A) True
B) False

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Question 23

Multiple Choice

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A bond indenture is

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: Year 1 July 1 Issued the bonds for cash at their face amount.Dec. 31 Paid the interest on the bonds.Year 5 Dec. 31 Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

The interest expense recorded on an interest payment date is increased

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Using the table, calculate the present value of an annuity of $50,0000 to be received at the end of each of five years at 6 percent interest? Present value of an annuity of $1 at compound interest:

The interest rate specified in the bond indenture is called the

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

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

The 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 interest expense (round to the nearest dollar) of

The amortization of a premium on bonds payable decreases bond interest expense.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

Selling the bonds at a premium has the effect of

Bondholder claims on the assets of the corporation rank ahead of stockholders.

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.