Exam 12: Long-Term Liabilities: Bonds and Notes

On January 1, 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 a

When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are

Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 $500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will

Sorenson Co., is considering the following alternative plans for financing the company: Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

Match each description below to the appropriate term a-g). -The entire principal of the bond is paid back on maturity date

Numbers of times interest charges are earned is computed as

Discount on Bonds Payable is a contra liability account.

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

The higher the number of times interest charges are earned ratio, the better the creditors' protection.

Match each description below to the appropriate term a-g). -Allows the bond holder to exchange bond for shares of stock

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

The number of times interest charges are earned ratio is calculated by dividing Bonds Payable by Interest Expense.

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: Year 1 July 1 Issued the bonds for cash at their face amount. Dec. 31 Paid the interest on the bonds. Year 5 Dec. 31 Called the bond issue at 97, the rate provided in the bond indenture. Omit entry for payment of interest.)

The prices of bonds are quoted as a percentage of the bonds' market value.

A corporation issues for cash $9,000,000 of 8%, 30-year bonds, interest payable semiannually. The amount received for the bonds will be

Match each description below to the appropriate term a-g). -The value of a bond stated on the bond certificate