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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 51

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The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

A) True
B) False

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Question 52

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

A) True
B) False

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Question 53

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Selling the bonds at a premium has the effect of

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

If the amount of a bond premium on an issued 11%,4-year,$100,000 bond is $12,928,the annual interest expense is $5,500.

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:

Use the following tables to calculate the present value of a $25,000 7%,5 year bond that pays $1,750 ($25,000 ´ 7%)interest annually,if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

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

On January 1,2014,$1,000,000,5-year,10% bonds,were issued for $980,000.Interest is paid semiannually on January 1 and July 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable,the semiannual amortization amount is

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

The Marx Company issued $100,000 of 12% bonds on April 1,2010 at face value.The bonds pay interest semiannually on January 1 and July 1.The bonds are dated January 1,2010,and mature on January 1,2014.The total interest expense related to these bonds for the year ended December 31,2010 is

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.

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.

Brubeck Co.issued $10,000,000 of 30-year,8% bonds on May 1 of the current year,with interest payable on May 1 and November 1.The fiscal year of the company is the calendar year.Journalize the entries to record the following selected transactions for the current year:

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue.The amounts set aside are kept separate from other assets in a special fund called a(n)

When the market rate of interest on bonds is higher than the contract rate,the bonds will sell at

Zero-coupon bonds do not provide for interest payments.

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

Jenson 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 interest rate specified in the bond indenture is called the