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Exam 10: Reporting and Interpreting Bond Securities

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Question 21

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Southridge Company prepared a bond issue dated January 1,2019.On January 1,2019,the company issued $100,000 of its par value bonds for $82,700.The bonds mature in thirty years and have a coupon rate of interest of 3% per year and the market rate at the date of issue is 4%.Interest is payable annually on December 31 which is also the year-end date for Southridge.Southridge does not use a discount or a premium account in its records.The effective interest method of amortization is used.Round the entry items to the nearest whole dollar amounts. A.Prepare the journal entry to record the sale of bonds on January 1,2019. B.Prepare the journal entry to record interest expense at December 31,2019.No adjusting journal entries have been made during the year. C.Show how the bonds would be reported on the balance sheet of Southridge Company at December 31,2019.

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Question 22

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Which of the following types of bonds has specific assets pledged to guarantee repayment?

A) Debenture bond.
B) Callable bond.
C) Secured bond.
D) Convertible bond.

E) A) and B)
F) A) and C)

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Question 23

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Issues of bonds in exchange for cash are reported as a cash flow from financing activities on the statement of cash flows.

When a company prepares a bond indenture,certain provisions of the bonds are included.Which of the following is not specified in the indenture?

On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method. -The 2020 interest expense is closest to:

On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization. - What is the net amount of the bond liability to be reported on the December 31,2020 balance sheet?

On October 1,2019,Jack Company issued a $5,000,6%,bond payable.The interest is payable annually each September 30 and the bond matures in five years.The annual accounting period for the company ends December 31. Complete the following entries at the date specified under three different assumptions as to the issue price.Use straight-line amortization.Assume no adjusting entries have been made during the year.

Which of the following statements is not correct?

A company retired $900,000 of bonds which have an unamortized discount of $30,000,by paying bondholders $920,000.What is the amount of the gain or loss on the retirement of the bonds?

The journal entry to record the sale of bonds at their par value results in which of the following?

An advantage of issuing a bond relative to stock is that most bond interest payments are tax deductible.

On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method. -The book value of the bonds as of December 31,2019 is closest to:

A company prepared the following journal entry: Which of the following statements correctly describes the effect of this journal entry on the financial statements?

The journal entry for the cash payment of interest on a bond issued at a discount will result in an increase in the book value of the bond liability.

The following information is available for Sell-for-Less for the years 2018 through 2020 (in millions): A.Compute the Sell-for-Less times interest earned ratio for 2020,2019,and 2018.Round your answers to two decimal places. B.Briefly interpret the times interest earned ratio for the three years.

Which of the following statements is correct?

On January 1,2019,Broker Corp.issued $3,000,000 par value 12%,10-year bonds which pay interest each December 31.If the market rate of interest was 14%,what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is 0.3220 and at 14% is 0.2697.The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161. )

During 2019,Patty's Pizza reported net income of $4,212 million,interest expense of $167 million and income tax expense of $1,372 million.During 2018,Patty's reported net income of $3,568 million,interest expense of $163 million and income tax expense of $1,424 million.The times interest earned ratios for 2019 and 2018,respectively,are closest to:

Straight-line amortization of a premium related to a bond issuance would result in which of the following?

Which of the following is not a reason that a company would want to issue bonds instead of stock?