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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 21

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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 Lisbon 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

A) Interest Payable for $30,000
B) Interest Expense for $32,500
C) Cash for $70,000
D) Premium on Bonds Payable for $5,500

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

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Question 22

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The Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

A) debit to Cash of $2,000,000
B) credit to Discount on Bonds Payable for $80,000
C) credit to Bonds Payable for $1,920,000
D) debit to Cash for $1,920,000

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

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Question 23

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The Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a

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 present value of the periodic bond interest payments is the value today of the amount of interest to be received at the end of each interest period.

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?

A bond indenture is

If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.

On January 1, Luther Co. issued a $1,000,000, 5 year, 8% installment note payable with payments of $200,000 principal plus interest due on January 1 of each year for the next 5 years. 1. Prepare the adjusting journal entry at December 31 to accrue interest for the year. 2. Show the accounts) and amounts) and where it will appear on a multi-step income statement prepared on December 31. 3. Show the accounts) and amounts) and where they will appear on a classified balance sheet prepared on December 31.

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

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

Bonds with a face amount $1,000,000 are sold at 98. The entry to record the issuance is

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

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

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

Match each description below to the appropriate term a-g) . -The principal of the bond issue is paid back in installments

Balance sheet and income statement data indicate the following: Bonds payable, 6% due in 15 years) Preferred 8% stock, $100 par no change during the year) $1,200,000 200,000 Common stock, $50 par No change during the year) 1,000,000 Income before income tax for year 320,000 Income tax for year 80,000 Common dividends paid 60,000 Preferred dividends paid 16,000 Based on the data presented above, what is the number of times bond interest charges were earned round to two decimal places) ?

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

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.