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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 91

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On January 1, 2010 Orange Retail Co. issued a $300,000, 3 year, 6% installment note payable with payments of $100,000 principal and interest due on January 1st for each of the next 3 years. 1. Prepare the adjusting journal entry to accrue interest at the end of the 2nd year - 12/31/11. 2. Show the account(s) and amount (s) and where the account(s) will appear on a multi-step income statement prepared on December 31, 2011. 3. Show the account(s) and amount(s) and where the account(s) will appear on a classified balance sheet prepared on December 31, 2011.

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Question 92

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Numbers of times interest charges earned is computed as

A) Income before income taxes plus Interest Expense divided by Interest Expense
B) Income before income taxes less Interest Expense divided by Interest Expense
C) Income before income taxes divided by Interest Expense
D) Income before income taxes plus Interest Expense divided by Interest Revenue

E) None of the above
F) A) and D)

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Question 93

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One potential advantage of financing corporations through the use of bonds rather than common stock is

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

On January 1, 2014, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2023. Baker records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2014, is

The interest expense recorded on an interest payment date is increased

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.

When the maturities of a bond issue are spread over several dates, the bonds are called

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

The cash and securities comprising a sinking fund established to redeem bonds at maturity in 2015 should be classified on the balance sheet as

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

On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the payment of the first annual amount due on the note would include:

On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds, dated June 30, for $1,540,000. Present entries to record the following transactions:

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

A bond indenture is

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

Prepare an amortization schedule for the 1st 2 years (straight line method) using the following data: 1. On January 1, 2010 XYZ Co. issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and December 31st to yield 5%. Use the following format and round to the nearest dollar (may have small rounding error). The bonds were issued for $3,233,834. 2. Show how this bond would be reported on the balance sheet on 12/31/11.

Sinking Fund Investments would be classified on the balance sheet as

Bonds are sold at face value when the contract rate is equal to the market rate of interest.