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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 91

Multiple Choice

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When callable bonds are redeemed below carrying value

A) Gain on Redemption of Bonds is credited
B) Loss on Redemption of Bonds is debited
C) Retained Earnings is credited
D) Retained Earnings is debited

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

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Question 92

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The face value of bonds is quoted as a percentage of the bonds' market value.

A) True
B) False

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Question 93

Multiple Choice

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Sinking Fund Income is reported in the income statement as

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

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

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

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

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

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

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.

On January 1, 2014, the Horton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $192,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2018. Horton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2014, is

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

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. If the company uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to:

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments consisting of principal and interest of $15,179, beginning on December 31, 2011. The December 31, 2011 carrying amount in the amortization table for this installment note will be equal to:

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $315,000. The entry to record the redemption would include a

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

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

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

The Merchant Company issued 10-year bonds on January 1, 2011. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Merchant should record interest expense (round to the nearest dollar) of