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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 91

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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.

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Question 92

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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.

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Question 93

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If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

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:

Zero-coupon bonds do provide for interest payments.

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

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 $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

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.

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

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.

Prepare an amortization schedule for the 1st 2 years (straight line method) using the following data: 1. On January 1, 2010 XYZ Co. issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and December 31st to yield 5%. Use the following format and round to the nearest dollar (may have small rounding error). The bonds were issued for $3,233,834. 2. Show how this bond would be reported on the balance sheet on 12/31/11.

The present value of $30,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar)

An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31, 2014, for each of the next five years. After the final payment, the carrying amount on the note will be

An equal stream of periodic payments is called an annuity.

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

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

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

Match the following terms to the most appropriate answer:

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 $437,740. Journalize the entry to record the issuance of the bonds.