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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 71

True/False

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Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

A) True
B) False

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Question 72

Multiple Choice

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A corporation issues for cash $9,000,000 of 8%,25-year bonds,interest payable semiannually.The amount received for the bonds will be

A) present value of 50 semiannual interest payments of $360,000,plus present value of $9,000,000 to be repaid in 25 years
B) present value of 25 annual interest payments of $720,000
C) present value of 25 annual interest payments of $720,000,plus present value of $9,000,000 to be repaid in 25 years
D) present value of $9,000,000 to be repaid in 25 years,less present value of 50 semiannual interest payments of $360,000

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

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Question 73

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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.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:

Glover Corporation issued $2,000,000 of 7.5%,6-year bonds dated March 1,2011,with semiannual interest payments on September 1 and March 1. The bonds were issued on March 1,2011,at 97. Glover's year-end is December 31. a)Were the bonds issued at a premium,a discount,or at par? b)Was the market rate of interest higher,lower,or the same as the contract rate of interest? c)If the company uses the straight-line method of amortization,what is the amount of interest expense Glover Corporation will show for the year ended December 31,2011? d)What is the carrying value of the bonds on December 31,2011?

A corporation issues for cash $1,000,000 of 10%,20-year bonds,interest payable annually,at a time when the market rate of interest is 12%.The straight-line method is adopted for the amortization of bond discount or premium.Which of the following statements is true?

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $296,000.The entry to record the redemption would include a

If the market rate of interest is 8%,the price of 6% bonds paying interest semiannually with a face value of $250,000 will be

Given the following data,prepare an amortization schedule (use the straight line method) 1/1/10 - issued $800,000,9%,3 year bonds,interest paid annually on 12/31 to yield 8% Use the following format (round to nearest dollar,may have small rounding difference);

On the first day of the fiscal year,Hawthorne Company obtained a $ 88,000,seven-year,5% installment note from Sea Side Bank.The note requires annual payments of $15,208,with the first payment occurring on the last day of the fiscal year.The first payment consists of interest of $4,400 and principal repayment of $10,808.The journal entry Hawthorne would record to make the first annual payment due on the note would include:

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%.

The interest expense recorded on an interest payment date is increased

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds which sold for $104,000

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 carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

The issue price of zero-coupon bonds is the present value of their face amount.

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

Given the following data,determine the times interest earned ratio. Net income - $70,000 Bonds Payable (issued at face value),8% - $5,000,000 Preferred Stock ($50 par value,6%,10,000 shares issued & outstanding) Tax rate - 30%

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

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.

The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.