Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest at year end if the fiscal year of the company ends on December 31. \[\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 6 \% \text { Cash } \\ \text { Interest } \end{array} & \begin{array} { c } 7 \% \text { Effective } \\ \text { Interest } \end{array} & \begin{array} { c } \text { Discount } \\ \text { Amortization } \end{array} & \begin{array} { c } \text { Carrying } \\ \text { Value } \end{array} \\ \hline \$ 42,000 & \$ 47,340 & \$ 5340 & \$ 681,630 \\ \hline \end{array}\]

A) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Premium on Bonds Payable } & & 5340 \\ \hline & \text { Interest Payable } & & 42,000 \\ \hline \end{array}\] B) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Premium on Bonds Payable } & & 5340 \\ \hline & \text { Cash } & & 42,000 \\ \hline \end{array}\] C) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Discount on Bonds Payable } & & 5340 \\ \hline & \text { Interest Payable } & & 42,000 \\ \hline \end{array}\] D) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Discount on Bonds Payable } & & 5340 \\ \hline & \text { Cash } & & 42,000 \\ \hline \end{array}\] A) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Premium on Bonds Payable } & & 5340 \\ \hline & \text { Interest Payable } & & 42,000 \\ \hline \end{array}\] B) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Premium on Bonds Payable } & & 5340 \\ \hline & \text { Cash } & & 42,000 \\ \hline \end{array}\] C) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Discount on Bonds Payable } & & 5340 \\ \hline & \text { Interest Payable } & & 42,000 \\ \hline \end{array}\] D) Journal Entry \[\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\ \hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\ \hline & \text { Discount on Bonds Payable } & & 5340 \\ \hline & \text { Cash } & & 42,000 \\ \hline \end{array}\]

Exam 14: Financing Liabilities

Samuel's, Inc. sold $15,000 of 6% bonds to an individual on April 1 at par value. The bonds pay interest on June 30 and December 31 each year. What are the proper entries for the sale of the bonds and the June 30 payment of the interest for these bonds? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

(Multiple Choice)

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Question 101

Under U.S. GAAP, debtors in technical default may continue to classify their debt as long-term if the creditor grants a waiver before the balance sheet date.

(True/False)

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Question 102

Gordon Corporation issued $500,000 par value, 6%, 5-year bonds on January 1, 2019. The bonds mature on December 31, 2023 and pay semi-annual interest. The market rate on the date of issue is 8%. Assuming that Gordon uses the straight-line method, what amount of discount amortization is recorded on June 30, 2019?

(Multiple Choice)

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Question 103

Neil Corporation issued 5,000 $1,000 bonds at 103. Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Neil's common stock for $50. Immediately after the issue, the bonds without the warrants were selling for $1,007. The stock warrants had no readily determinable value. How much will be credited to Bonds Payable?

(Multiple Choice)

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Question 104

If a long-term note does not have a stated rate of interest, the note is discounted at the market rate of interest.

(True/False)

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Question 105

Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest at year end if the fiscal year of the company ends on December 31. 6\% Cash Interest 7\% Effective Interest Discount Amortization Carrying Value \ 42,000 \ 47,340 \ 5340 \ 681,630

(Multiple Choice)

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Question 106

If a $6,000 bond is issued with a conversion feature that allows the bond to be convertible into 20 shares of common stock, what is the implied exercise price of the shares?

(Multiple Choice)

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Question 107

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $260,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the amount of cash interest paid at the end of 2018?

(Multiple Choice)

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Question 108

The straight-line method of amortization can be used when the results are not significantly different from the effective interest method.

(True/False)

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Question 109

IFRS determines the debt component from issuing convertible bonds as the present value of the bond's future cash flows discounted at the market interest rate at the time of issuance.

(True/False)

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Question 110

Arco, Inc. issued $450,000 of 4%, 10-year convertible bonds at par on July 1, 2018. Each bond has a par value of $1,500. The bonds include the option for bondholders to convert each bond into 50 $1 par value shares of common stock beginning two years after the date of issue. The market price of the stock at the time of issue is $35 per share and the beneficial conversion option is valued at $75,000. On July 2, 2020, when the market price of the stock is $45 and the balance in the Discount account is $66,000, all of the bondholders convert the bonds. What is the proper entry to record the conversion of the bonds?

(Multiple Choice)

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Question 111

When bonds issued under GAAP with a beneficial conversion option are converted, the Additional Paid-In Capital-- Beneficial Conversion Feature ________.

(Multiple Choice)

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Question 112

Under what circumstances would an early extinguishment of a bond issue result in a gain or a loss?

(Essay)

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Question 113

The selling price of a bond is the ________.

(Multiple Choice)

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Question 114

Lincoln, Inc. issued $500,000 of 5%, 5-year bonds dated January 1, 2018 on July 1, 2018 when the market required 6% interest for bonds of similar risk. The bonds pay interest on December 31 each year. The bonds sold at $493,251 including accrued interest.. Required: Prepare the journal entries for the sale of the bonds and the December 31 payment for the interest for these bonds.

(Essay)

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Question 115

Martin, Inc. is preparing its financial statements for December 31, 2018. Martin has a $2,200,000 short-term note that is due in June, 2019. Martin has an existing long-term line of credit of $1,000,000, which will be used to remove part of the short-term debt. Due to the existing long-term line of credit, the company will report how much short-term liability?

(Multiple Choice)

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Question 116

The straight-line method of amortization is theoretically superior to the effective interest method as it allocates the discount equally over the life of the bond.

(True/False)

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Question 117

Parrish Industries has bonds outstanding (originally sold for $4,340,000) in the face amount of $4,600,000 with a current bond discount of $200,000. The bonds were selling at 104 on the market at its year end. If Parrish elects the fair value option for these bonds, at what value should it report these bonds on its balance sheet at year end?

(Multiple Choice)

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Question 118

In U.S. GAAP, bond issue costs are considered ________.

(Multiple Choice)

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Question 119

To compute the selling price of the bond, calculate the present value of par value using the present value of $1 ________.

(Multiple Choice)

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Question 120

Showing 101 - 120 of 181

Under U.S. GAAP, debtors in technical default may continue to classify their debt as long-term if the creditor grants a waiver before the balance sheet date.

If a long-term note does not have a stated rate of interest, the note is discounted at the market rate of interest.

If a $6,000 bond is issued with a conversion feature that allows the bond to be convertible into 20 shares of common stock, what is the implied exercise price of the shares?

The straight-line method of amortization can be used when the results are not significantly different from the effective interest method.

IFRS determines the debt component from issuing convertible bonds as the present value of the bond's future cash flows discounted at the market interest rate at the time of issuance.

When bonds issued under GAAP with a beneficial conversion option are converted, the Additional Paid-In Capital-- Beneficial Conversion Feature ________.

Under what circumstances would an early extinguishment of a bond issue result in a gain or a loss?

The selling price of a bond is the ________.

The straight-line method of amortization is theoretically superior to the effective interest method as it allocates the discount equally over the life of the bond.

In U.S. GAAP, bond issue costs are considered ________.

To compute the selling price of the bond, calculate the present value of par value using the present value of $1 ________.

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