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Exam 10: Accounting for Long-Term Liabilities

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Question 51

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On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106¾. The interest payments are made on June 30 and December 31. Lane elects a fiscal year ending September 30. What is the amount that would be recorded as interest expense in the December 31, 2013, journal entry?

A) $24,500.00
B) $22,925.00
C) $12,250.50
D) $11,462.50
E) $13,458.00

F) A) and B)
G) A) and E)

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Question 52

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How are bond issue prices determined?

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The issue price of bonds is found by com...

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Question 53

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___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Shin Company has a loan agreement that provides it with cash today. The company must repay this loan in four years with $25,000. Shin agrees to a 6% interest rate. The present value factor for four periods, 6%, is 0.7921. What is the amount of cash that Shin Company receives today?

When the bond contract rate of interest is above the market rate of interest for that bond, the bond sells at a _____________.

Unsecured bonds are also called ____________________ and are backed by the issuer's general credit standing.

On October 1, a $30,000, 6%, three-year installment note payable is issued by a company. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year on September 30. The issuer's journal entry to record the second annual interest payment would include:

A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate is 8%. The journal entry to record each semiannual interest payment is:

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in five years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables: $\begin{array}{|l|r|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756 \\\hline\end{array}$

A company issues bonds at par on April 1. These 9% bonds have a par value of $100,000 and pay interest annually. April 1,is four months after the most recent interest payment date. How much total cash interest is received on April 1 by the bond issuer?

Explain how a bond premium is amortized. Identify and describe the amortization methods available.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds at maturity.

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, 2013, at a selling price of $885,295, to yield the buyers a 12% return. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31. (1) Prepare an amortization table for the first two payment periods using the format shown below: (2) Prepare the journal entry to record the first semiannual interest payment.

A company issues bonds with a par value of $900,000 on their stated issue date. The bonds mature in 10 years and pays 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. What is the selling price of the bond?

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

On January 1, 2013, Silver issues $300,000 of 12%, 20-year bonds at a price of 96½. What is the total bond interest expense that will be recognized over the life of the bond?

Explain the amortization of a bond discount. Identify and describe the amortization methods available.

Describe the journal entries required to record the issuance of bonds and the payment of bond interest.

The interest rate specified in the bond indenture that is paid by the issuer of the bond is called the ___________________ of interest.