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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 1

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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. Present entries to record the following transactions for the current fiscal year:

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(a)
(b)
...

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Question 2

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The interest rate specified in the bond indenture is called the

A) discount rate
B) contract rate
C) market rate
D) effective rate

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

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B

Question 3

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When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was

On January 1, 2015, Yeargan Company obtained an $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. Requirement: (1)

Selling the bonds at a premium has the effect of

A bond is usually divided into a number of individual bonds of $500 each.

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?

Balance sheet and income statement data indicate the following:

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

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

When the effective interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions for the current year:

The unamortized Discount on Bonds Payable account is a contra-liability account.

Sorenson Co., is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

When the effective-interest method is used, the amortization of the bond premium

When the maturities of a bond issue are spread over several dates, the bonds are called

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