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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 41

True/False

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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.

A) True
B) False

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Question 42

Multiple Choice

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The interest expense recorded on an interest payment date is increased

A) only if the market rate of interest is less than the stated rate of interest on that date
B) by the amortization of premium on bonds payable
C) by the amortization of discount on bonds payable
D) only if the bonds were sold at face value

E) A) and B)
F) B) and D)

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Question 43

True/False

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The amortization of a premium on bonds payable decreases bond interest expense.

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $292,000.The entry to record the redemption would include a

On January 1,Year 1,Kennard Co.issued $2,000,000,5%,10-year bonds,with interest payable on June 30 andDecember 31 to yield 6%.Use the following format and round figures to nearest dollar.The bonds were issued for $1,851,234.​ (a)Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method.Date Cash Paid Interest Expense Amortization Bond Carrying Value​ (b)Show how this bond would be reported on the balance sheet at December 31,Year 2.

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

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.

The adjusting entry to record the amortization of a discount on bonds payable is

When callable bonds are redeemed below carrying value,

On the first day of the fiscal year,a company issues a $500,000,8%,10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2),receiving cash of $530,000.Journalize the entry to record the issuance of the bonds.

Present entries to record the selected transactions described below.

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

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

Given the following data,determine the times interest earned ratio.​Net income,$70,000Bonds payable,issued at face value,8%,$5,000,000Preferred stock,$50 par value,6%,10,000 shares issued and outstandingTax rate is 30%

(a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.

On the first day of the fiscal year,a company issues a $1,000,000,7%,five-year bond that pays semiannual interest of $35,000 ($1,000,000 × 7% × 1/2),receiving cash of $884,171.Journalize the first interest payment and the amortization of the related bond discount using the straight-line method.Round answers to the nearest dollar.

One potential advantage of financing corporations through the use of bonds rather than common stock is

On January 1,$2,000,000,five-year,10% bonds,were issued for $1,960,000.Interest is paid semiannually on January 1 and July 1.If the issuing corporation uses the straight-line method to amortize the discount on bonds payable,the semiannual amortization amount is

There is a loss on redemption of bonds when bonds are redeemed above carrying value.

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