Exam 12: Long-Term Liabilities: Bonds and Notes

Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year: May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. Dec. 31 Recorded accrued interest for two months.

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

When callable bonds are redeemed below carrying value

On the first day of the fiscal year, Hawthorne Company obtained an $88,000, 7-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 a

Match each description below to the appropriate term a-g). -Allows the issuer to redeem bonds before maturity date

The effective interest rate method of amortizing a bond discount or premium is the preferred method.

The Designer Company issued 10-year bonds on January 1. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective interest method to amortize bond discounts and premiums. On July 1, of the first year, Designer should record interest expense round to the nearest dollar) of

Two companies are financed as follows: Bonds payable, 9% issued at face X Co. $5,000,000 Y Co. $3,000,000 Common stock, $25 par 3,000,000 3,000,000 Income tax is estimated at 40% of income for both companies. Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each.

The interest rate specified in the bond indenture is called the

Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is

Match each description below to the appropriate term a-g). -If the contract rate is less than the effective rate

The adjusting entry to record the amortization of a discount on bonds payable is

The Levi Company issued $200,000 of 12% bonds on January 1 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, and mature in five years, on January 1. The total interest expense related to these bonds for the current year ending on December 31 is

Balance sheet and income statement data indicate the following: a) For each company, what is the number of times bond interest charges were earned round to one decimal place)? b) Which company gives potential creditors the most protection?