Exam 15: Long-Term Liabilities

Karen Kline works for Permier Press a fairly large book publishing firm. Her best friend and rival Mona works for Copper Books a smaller publisher. Both companies issue $100000 in bonds on July 1. Permier's bonds were issued at a discount while Copper's were issued at a premium. Mona sent Karen a fax the next day. She told Karen that it was obvious who the better publisher was-the market had shown its preference! She reminded Karen again of her recent increase in salary as further proof of the superiority of Copper Books. Required: Draft a short note for Karen to send to Mona. Explain how such a result could occur.

Which one of the following amounts increases each period when accounting for long-term notes payable?

When the effective-interest method of bond premium amortization is used the

Bonds that may be exchanged for common stock at the option of the bondholders are called

On January 1 2017 Meeks Corporation issued $5000000 10-year 4% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1 2017 is a. Cash 5,000,000 Bonds Payable 5,000,000 b. Cash 5,100,000 Bonds Payable 5,100,000 c. Premium on Bonds Payable 100,000 Cash 5,000,000 Bonds Payable 5,100,000 d. Cash 5,100,000 Bonds Payable 5,000,000 Premium on Bonds Payable 100,000

Harris Company borrowed $800000 from Liber Bank on January 1 2016 in order to expand its mining capabilities. The five-year note required annual payments of $208349 and carried an annual interest rate of 8.5%. What is the amount of expense Harris must recognize on its 2017 income statement?

The current carrying value of Lane's $800000 face value bonds is $797000. If the bonds are retired at 103 what would be the amount Lane would pay its bondholders?

On January 1 2017 Gunne Corporation issued $800000 8% 10-year bonds at face value. Interest is payable annually on January 1. Gunne Corporation has a calendar year end. Instructions Prepare all entries related to the bond issue for 2017 and January 1 2018.

The contractual interest rate is always stated as a(n)

Presented below are three independent situations: (a) Ball Corporation purchased $380000 of its bonds on June 30 2017 at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $371500. The bonds pay annual interest and the interest payment due on June 30 2017 has been made and recorded. (b) Horton Inc. purchased $400000 of its bonds at 96 on June 30 2017 and immediately retired them. The carrying value of the bonds on the retirement date was $395000. The bonds pay annual interest and the interest payment due on June 30 2017 has been made and recorded. (c) Valley Company has $80000 10% 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on December 31 of each year. The bonds are convertible into 40 shares of Valley $4 par value common stock for each $1000 par value bond. On December 31 2017 after the bond interest has been paid $30000 par value of bonds were converted. The market value of Valley's common stock was $38 per share on December 31 2017. Instructions For each of the independent situations prepare the journal entry to record the retirement or conversion of the bonds.

If bonds sell at a premium the interest expense recognized each year will be greater than the contractual interest rate.

Unsecured bonds that are issued against the general credit of the borrower are called ________________ bonds.

Bonds that are secured by real estate are termed

Each of the following may be shown on a supporting schedule instead of on the balance sheet except the

A $1000 face value bond with a quoted price of 98 is selling for

On January 1 Sage Corporation issues $1000000 5-year 12% bonds at 95 with interest payable on January 1. The carrying value of the bonds at the end of the second interest period is:

Bonds will always fall into which one of the following pairs of categories?

Thirty $1000 bonds with a carrying value of $39600 are converted into 4000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is a. Bonds Payable 39,600 Common Stock 20,000 Paid-in Capital in Excess of Par 19,600 b. Bonds Payable 30,000 Premium on Bonds Payable 9,600 Common Stock 30,000 Paid-in Capital in Excess of Par 9,600 c. Bonds Payable 30,000 Premium on Bonds Payable 9,600 Common Stock 20,000 Paid-in Capital in Excess of Par 19,000 d. Bonds Payable 39,600 Common Stock 36,000 Paid-in Capital in Excess of Par 3,600

Gains and losses are not recognized when convertible bonds are converted into common stock.