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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 51

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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) C) and D)

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Question 52

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

A) True
B) False

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Question 53

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If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98,the gain on redemption of bonds is $10,000.

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is to

Use the following tables to calculate the present value of a $25,000,7%,five-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

On January 1 of the current year,Barton Corporation issued 10% bonds with a face value of $200,000.The bonds are sold for $191,000.The bonds pay interest semiannually on June 30 and December 31,and the maturity date is December 31,five years from now.Barton records straight-line amortization of the bond discount.The bond interest expense for the year ended December 31 is

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.

When a portion of a bond issue is redeemed,a related proportion of the unamortized premium or discount must be written off.

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every six months.

On January 1,Elias Corporation issued 10% bonds with a face value of $50,000.The bonds are sold for $46,000.The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31,10 years from now.Elias records straight-line amortization of the bond discount.The bond interest expense for the year ended December 31 of the first year is

If bonds payable are not callable,the issuing corporation

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

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

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

Match each description below to the appropriate term (a-g) . ​ -If the contract rate is less than the effective rate

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,a company issues an $800,000,6%,five-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.

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

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

On January 1,Yeargan Company obtained a $125,000,seven-year 5% installment note from Farmers Bank.The note requires annual payments of $21,602,with the first payment occurring on the last day of the fiscal year.The first payment consists of $6,250 interest and principal repayment of $15,352.