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Exam 22: Long-Term Bonds

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Question 21

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Using borrowed funds to earn a profit higher than the interest charged for borrowing is called

A) secured borrowing.
B) amortizing.
C) investing.
D) leveraging.

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

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Question 22

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On September 1, 2019, a corporation paid $620,000 to retire bonds with a face value of $600,000 and an unamortized bond premium of $10,000. Record the transaction on page 8 of a general journal. Omit the description.

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Question 23

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The issuing corporation amortizes the bond discount from the date of issue to the maturity date, which will----------- the bond interest expense shown on the income statement.

Galoot Corporation pays and records the semiannual interest on its $500,000, 10-year, 6% bonds outstanding on July 1, 2019. On the same date, amortization of the discount of $10,000 received on $200,000 of those bonds is recorded. Prepare the journal entries recorded by Galoot Corporation.

Bonds are often issued as a means of raising capital to pay off short-term debt.

Ten-year bonds with a face value of $600,000 were issued at 96 on January 1, 2019. The carrying value of the bond on December 31, 2020, after two years of interest payments and straight-line amortization is:

Given the following information about a company's financing and net earnings, show in partial income statement format, why it might be advantageous to a stockholder for a company to issue bonds rather than stock to raise additional capital. Include an analysis of return on equity investmen

The board of directors of the Merced Corporation authorized the issuance of $200,000 face value of 10-year, 12 percent bonds dated April 1, 2019, and maturing on April 1, 2029. Interest is payable semiannually on April 1 and October 1. Each bond has a face value of $1,000. Because the funds to be raised were not immediately needed, no bonds were issued until 2021. Record the following transactions on page 9 of a general journal. Omit descriptions. 2021 Apr. 1 Issued $40,000 of bonds at 96 Oct. 1 Paid the semiannual bond interest 1 Recorded the amortization of the discount on the bonds sold on April 1 using the straight-line method 1 Issued $30,000 of bonds at face value Dec. 31 Recorded the adjusting entry to accrue the bond interest and to amortize the discount 31 Closed the Bond Interest Expense account into the Income Summary account

When bonds are issued at a price below face value, the Discount on Bonds Payable account is------------for the difference between the issue price and the face value.

If the market rate of interest is higher than the contract rate of interest offered on the bonds being sold, they will be sold at

Amortizing a bond premium over the period from the issue date to the maturity date reduces the amount of bond interest expense shown on the income statement.

A company issues 9%, 20-year bonds with a face value of $400,000. The current market rate of interest is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:

The Crowley Corporation issued $600,000 face value of 10-year, 8 percent bonds dated April 1, 2019, and maturing on April 1, 2029. Interest is payable semiannually on April 1 and October 1. The bonds were issued at 103. Record the transactions to issue the bonds on April 1, 2019, and to pay interest and amortize the bond discount on October 1, on page 9 of a general journal. Omit descriptions.

If a corporation plans to issue $4,000,000 of 5% bonds at a time when the market rate of interest for similar bonds is 6%, the bonds will sell at:

To calculate the gain or loss on the retirement of bonds, the carrying value of the bonds is subtracted from the repurchase price.

Coupon bonds are often referred to as------------ bonds.

Any gain or loss recognized from the early retirement of bonds should be reported on the income statement for the period in which the bonds were retired.

A corporation paid $103,000 to retire bonds with a face value of $100,000 and an unamortized discount balance of $2,500. The entry to record the early retirement of the bonds will include the recognition of a loss of

Match the following definitions with the proper terms.

If bonds with a face value of $100,000 and a carrying value of $103,000 are retired early by paying cash of $101,000, a---------- will be reported on the income statement for the period.