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Exam 22: Long-Term Bonds

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Question 51

True/False

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Retained earnings may be appropriated for bond retirement by order of the board of directors, by the bond contract, or by vote of the shareholders.

A) True
B) False

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Question 52

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Retained earnings are often appropriated while the bonds are outstanding. Which of the following is a reason for the appropriation?

A) Corporation management wants to protect the bondholders.
B) The bond underwriters always require it.
C) Tax law requires it.
D) The buyers require it.

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

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Question 53

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A company issued 10-year, 5% bonds with a par value of $1,000,000. The company received $1,040,000 upon issuance. Using the straight-line method, the amount of interest expense for the first semi-annual interest period is:

If the market rate of interest on the day that bonds are issued is lower than the contract rate of interest, the bonds will sell at a discount.

Dweeb Industries decided to appropriate $40,000 of retained earnings during each of the last five years its $200,000, 8%, 10-year bonds that are outstanding. The bonds were issued October 1, 2019. Prepare the journal entry to record the initial appropriation on October 1, 2025, and at retirement of the bonds on October 1, 2029.

In the case of liquidation, bondholders and other creditors must be paid in full before stockholders can receive monetary distributions.

The difference between the face value and the selling price of a 10-year discounted bond issued two years after authorization, is amortized for

When bonds are issued at a premium, the bond premium

Warren Company issued $900,000 of 8%, 5-year bonds dated January 1, 2019, for $916,000. Interest is paid on January 1 and July 1. What is the total amount of interest expense for the bonds for 2019, using the straight-line method of amortization?

A company issued 5%, 10-year bonds with a par value of $500,000. The current market rate of interest is 5%. The journal entry to record each semiannual interest payment is:

Trog Industries 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 premium of $5,000 received on $100,000 of those bonds is recorded. Prepare the journal entries recorded by Trog Industries.

The entry to record the issuance of bonds at face value includes

A bond that trades at 105 ½ means that:

On September 30, 2019, Arana Corporation issued $2,500,000 of 10-year, 12% bonds at 97. What is the amount of discount or premium?

A corporation paid $104,000 to retire bonds with a face value of $100,000 and an unamortized premium balance of $3,000. The entry to record the early retirement of the bonds will include the recognition of a loss of

Morris Corporation has 10-year, 12% bonds Payable of $100,000 that were sold on January 2, 2019 at a discount of $12,000. Amortization on the discount is recorded at the end of each year. Determine the Balance Sheet presentation of these bonds at December 31, 2020. (Present only the section of the Balance Sheet in which the bonds appear.)

A company issued 10-year, 8% bonds with a par value of $1,000,000. The company received $980,000 upon issuance. Using the straight-line method, the amount of interest expense for the first semi-annual interest period is:

Investors will pay an amount greater than the face amount of a bond if the interest rate on bonds is greater than the market rate of interest.

Bonds on which a corporation has pledged property to guarantee payment to the bondholders are known as---------- bonds.

Using the following format, compare capital stock and bonds as means of financing. List characteristics and differences. Capital Stock Bonds