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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 61

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On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

A) $26,000
B) $27,635
C) $21,642
D) $28,402

E) All of the above
F) A) and B)

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Question 62

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 D)
F) B) and C)

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Question 63

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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

Bonds with a face amount $1,000,000, are sold at 108. The entry to record the issuance is

The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is

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

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

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

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 amoritization of the bond premium (by straight-line method) for the year by Orange Inc. includes a credit to:

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

When the market rate of interest was 11%, Valley Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Sinking Fund Income is reported in the income statement as

The interest rate specified in the bond indenture is called the

Bondholders are creditors of the issuing corporation.

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year:

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?

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