Exam 22: Long-Term Bonds

The Crowley Corporation issued $600,000 face value of 10-year,8 percent bonds dated April 1,2013,and maturing on April 1,2023.Interest is payable semiannually on April 1 and October 1.The bonds were issued at a price of 103.Record the transactions to issue the bonds on April 1,2013,and to pay interest and amortize the bond discount on October 1,on page 9 of a general journal.Omit descriptions.

The board of directors of the Lawrence Corporation authorized the issuance of $500,000 face value of 10-year,12 percent bonds dated May 1,2016,and maturing on May 1,2026.Interest is payable semiannually on May 1 and November 1.Record the following bond transactions on page 5 of a general journal.Omit descriptions.

When bonds are issued at a premium,the annual interest expense reported will be greater than the annual cash interest payments.

When bonds are sold at a market price of 105,the cash received for the bonds is 105 percent of face value.

To systematically accumulate cash for the retirement of bonds at maturity,a corporation may set up a bond sinking fund investment.

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

Amortizing bond premiums over the period from the issue date to the maturity date reduces bond interest expense shown on the income statement.

Using borrowed funds to earn a profit greater than the interest that must be paid on the bonds is called trading on the equity,or ____________________.

On December 31,2013,a corporation issued $200,000 face value,12 percent bonds that mature 10 years from the date of issue.The issue price was 97.If the firm uses the straight-line method of amortization,interest expense for 2014 will be reported at

The entry to record the adjustment for accrued bond interest includes

The Bond Interest Expense account is usually listed under Operating Expenses on the income statement.

The board of directors of the Columbus Corporation authorized the issuance of $400,000 face value of 10-year,12 percent bonds dated April 1,2013,and maturing on April 1,2023.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 2015.Record the following transactions on page 8 of a general journal.Omit descriptions.

The board of directors of the Merced Corporation authorized the issuance of $200,000 face value of 10-year,12 percent bonds dated April 1,2013,and maturing on April 1,2023.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 2015.Record the following transactions on page 9 of a general journal.Omit descriptions.

If market interest rates are higher than the rate offered on the bonds being sold,they will be sold at

On September 1,2014,a corporation paid $612,000 to retire bonds with a face value of $600,000 and an unamortized bond discount of $20,000.Record the transaction on page 8 of a general journal.Omit the description.

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

Any significant gain or loss from the early retirement of bonds should be shown as an extraordinary gain or loss on the income statement.

Twee Corporation creates a bond sinking fund on July 1,2013,the first day of its fiscal year in preparation of payment of principal of $300,000 due in six years.Twee makes a $50,000 cash deposit into the account and invests it in an oil stock fund.During the year,$4,400 is earned on this investment.Fund administrative expenses for this fund amount to $50.Record the journal entry for the creation of this fund,the earnings on the investment,and for the required amount of investment into the sinking fund at the beginning of the second year.

Bond interest expense usually appears in the _____________________________ section of the income statement.

Retained Earnings Appropriated for Bond Retirement appears as a separate line item