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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 41

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

A) True
B) False

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Question 42

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Only callable bonds can be purchased by the issuing corporation before maturity.

A) True
B) False

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Question 43

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If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

When the effective interest rate 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.

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

Using the following table, what is the present value of $40,000 to be received in 5 years, if the market rate is 7% compounded annually?

The present value of $60,000 to be received in one year, at 6% compounded annually, is rounded to nearest dollar)

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. Prepare entries to record the following transactions for the current fiscal year. a) Issuance of the bonds. b) Second semiannual interest payment. c) Amortization of bond premium for the first year, using the straight-line method of amortization.

The present value of an annuity is the sum of the present values of each cash flow.

Bonds that are subject to retirement prior to maturity at the option of the issuer are called

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization, the effective interest rate method should be used.

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium 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 market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

To determine the six-month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond.

On January 1, Year 1, Zero Company obtained a $52,000, 4-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 2 carrying amount in the amortization table for this installment note will be equal to

The entry to record the amortization of a premium on bonds payable on an interest payment date would

On January 1, Marshall Co. issued a $360,000, 3-year, 6% installment note payable with payments of $120,000 principal and interest due on January 1 for each of the next 3 years. 1. Prepare the adjusting journal entry to accrue interest at December 31, Year 2. 2. Show the accounts) and amounts) and where they will appear on a classified balance sheet prepared on December 31, Year 2.

On January 1, Yeargan Company obtained a $125,000, 7-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) Journalize the following entries: a. Issued the installment notes for cash on January 1. b. Paid the first annual payment on the note.