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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 61

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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 62

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When there are material differences between the results of using the straight-line method and using the effective interest method of amortization, the effective interest method should be used.

A) True
B) False

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Question 63

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At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in 2011 are classified on the balance sheet as current assets.

On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000, seven-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include:

The entry to record the amortization of a premium on bonds payable on an interest payment date includes:

The issue price of zero-coupon bonds is the present value of their face amount.

The interest rate specified in the bond indenture is called the

The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the at the end of each interest period.

Using the following table, what is the present value of $5,000 to be received 5 years, if the market rate is 10% compounded annually?

Selling the bonds at a premium has the effect of

On the first day of the current fiscal year, $1,000,000 of 10-year, 7% bonds, with interest payable semiannually, were sold for $1,050,000. Present entries to record the following transactions for the current fiscal year:

The present value of an annuity is the sum of the present values of each cash flow.

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

Present entries to record the selected transactions described below:

Given the following data, determine the times interest earned ratio. Net income - $70,000 Bonds Payable (issued at face value), 8% - $5,000,000 Preferred Stock ($50 par value, 6%, 10,000 shares issued & outstanding) Tax rate - 30%

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places) ?

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is

Bonds with a face amount $1,000,000, are sold at 106. The entry to record the issuance is

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

Only callable bonds can be purchased by the issuing corporation before maturity.