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Exam 11: Liabilities: Bonds Payable

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Question 61

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

A) higher than the market rate of interest
B) lower than the market rate of interest
C) too low to attract investors
D) adjusted to a higher rate of interest

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

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Question 62

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The times interest earned ratio is computed as

A) Income before income taxes + Interest expense ÷ Interest expense
B) Income before income taxes - Interest expense ÷ Interest expense
C) Income before income taxes ÷ Interest expense
D) Income before income taxes + Interest expense ÷ Interest revenue

E) C) and D)
F) B) and D)

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Question 63

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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.(a)Issuance of the bonds.(b)First annual interest payment (record as separate entry from premium amortization).(c)Amortization of bond premium for the year, using the straight-line method of amortization.

Match each description below to the appropriate term (a-g). -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 $437,740. 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

Assume you win a $1,000,000 contest, and the prize will be paid in equal 10 equal installments over 10 years. The payments will be made on June 30 of each year beginning with June 30 this year. If the current rate of interest is 7 percent, what is the present value of your winnings? Use the information in the table to determine your answer.​ Present value of an annuity of $1 at compound interest:

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

On the first day of the fiscal year, a company issues an $800,000, 6%, 5-year bond that pays semiannual interest of $24,000 ($800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. What is the journal entry needed when the bonds are issued at face value?

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

A corporation issues for cash $9,000,000 of 8%, 30-year bonds, interest payable semiannually. The amount received for the bonds will be

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is

Given the following data, prepare the journal entry to record interest expense and any related amortization on December 31 of the first year using the effective interest rate method. Assume interest is paid annually on January 1. The bonds were issued on January 1 for $7,411,233.​ Bonds payable, maturing in 10 years = $8,000,000 Contract interest rate = 5% Market (effective) interest rate = 6% Round answers to nearest dollar.

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

Balance sheet and income statement data indicate the following: (a)For each company, what is the times interest earned ratio? (Round to one decimal place.)(b)Which company gives potential creditors more protection?

On February 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions.(a)Issuance of the bonds.(b)First semiannual interest payment (record as separate entry from premium amortization).(c)Amortization of bond discount for the year, using the straight-line method of amortization. (Round to the nearest dollar when necessary.)

The effective interest rate method of amortizing a bond discount or premium is the preferred method.

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98 1/2, what is the amount of gain or loss on redemption?

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.