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Exam 11: Liabilities: Bonds Payable

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Question 31

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On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

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Question 32

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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. The journal entry to record the amortization of the premium (by the straight-line method) for the year by Lisbon Co. includes a debit to

A) Interest Expense for $2,500
B) Premium on Bonds Payable for $2,500
C) Interest Expense for $5,000
D) Premium on Bonds Payable for $5,000

E) B) and C)
F) A) and B)

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Question 33

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

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.

Match each description below to the appropriate term (a-g). -On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5-year bond that pays semiannual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds. A)carrying amount B)face value C)callable bond D)indenture E)term bond F)convertible bond G)serial bond

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5-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.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period.

Bondholders are creditors of the issuing corporation.

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are

The journal entry a company records for the interest payment and amortization of bond discount is

Snickett Corp. issued $5,000,000, five-year bonds on the first day of its fiscal year. The bonds have a stated rate of 11% and an effective (market) rate of 9%. Interest payments are made semiannually. Compute the following: (a) The amount of cash proceeds from the sale of the bonds. Use the present value table and round to the nearest dollar.(b) The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.(c) The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.(d) The amount of the bond interest expense for the first year.​ Present value of an annuity of $1 at compound interest: Present value of a $1 at compound interest:

If $500,000 of 10-year bonds, with interest payable semiannually are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%.

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.

Match each description below to the appropriate term (a-g).​ -The face amount of each bond A)contract rate B)effective rate C)bond discount D)bond premium E)bond F)bond indenture G)principal

Match each description below to the appropriate term (a-g).​ -The contract between bond issuer and bond purchaser A)contract rate B)effective rate C)bond discount D)bond premium E)bond F)bond indenture G)principal

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30. Use the following table, if needed.​