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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 61

Multiple Choice

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

A) Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000
B) Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000
C) Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000
D) Cash 1,080,000 Bonds Payable 1,080,000

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

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Question 62

Multiple Choice

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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

A) $4,000
B) $896
C) $17,926
D) $1,793

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

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Question 63

Multiple Choice

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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

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

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:

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

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

The interest rate specified in the bond indenture is called the

Sinking Fund Income is reported in the income statement as

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

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 corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

Bondholders are creditors of the issuing corporation.

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

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

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

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?

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

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