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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 31

True/False

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If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the gain on redemption of bonds is $10,000.

A) True
B) False

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Question 32

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Bonds with a face amount $1,000,000, are sold at 96. The entry to record the issuance is

A)

B)

C)

D)

E) A) and D)
F) A) and C)

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Question 33

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A bond is simply a form of an interest bearing note.

Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.

Debtors are interested in the times-interest-earned ratio because they want to

Bonds of major corporations are traded on bond exchanges.

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Bonds payable would be listed at their carrying value on the balance sheet.

Using the following table, what is the present value of $25,000 to be received 5 years, if the market rate is 7% compounded annually?

Dennis Corp. issued $2,500,000 of 20-year, 9% callable bonds on July 1, 2007, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from the sale is

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

If bonds are issued at a premium, the stated interest rate is

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

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

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 journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is

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:

The balance in Premium on Bonds Payable

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue. The amounts set aside are kept separate from other assets in a special fund called a(n)