Question 1

When bonds are retired prior to their maturity date:

Accepted Answer

A)  GAAP has been violated. 
B)  The issuing company probably will report an ordinary gain or loss. 
C)  The issuing company probably will report a gain. 
D)  The issuing company will report a non-operating gain or loss. 
A)  GAAP has been violated. 
B)  The issuing company probably will report an ordinary gain or loss. 
C)  The issuing company probably will report a gain. 
D)  The issuing company will report a non-operating gain or loss. B

Question 2

When bonds are sold at a discount and the straight-line interest method is used, at each interest payment date, the interest expense:

Accepted Answer

A)  Increases. 
B)  Decreases. 
C)  Remains the same. 
D)  Is equal to the change in book value. 
A)  Increases. 
B)  Decreases. 
C)  Remains the same. 
D)  Is equal to the change in book value. C

Question 3

When bonds are sold at their face amount (no discount, no premium) and the effective interest method is used, at each interest payment date, the interest expense:

Accepted Answer

A)  Increases. 
B)  Decreases. 
C)  Remains the same. 
D)  Is equal to the change in book value. 
A)  Increases. 
B)  Decreases. 
C)  Remains the same. 
D)  Is equal to the change in book value. C

Question 4

When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is:

Accepted Answer

A)  Less than the effective interest. 
B)  Equal to the effective interest. 
C)  Greater than the effective interest. 
D)  More than if the bonds had been sold at a discount. 
A)  Less than the effective interest. 
B)  Equal to the effective interest. 
C)  Greater than the effective interest. 
D)  More than if the bonds had been sold at a discount.

Question 5

On January 1, 2018, Ozark Minerals issued $20 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Ozark's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99. Ozark applies International Financial Reporting Standards (IFRS). Upon issuance, Ozark should:

Accepted Answer

A)  Credit bonds payable $19,800,000. 
B)  Credit premium on bonds payable $200,000. 
C)  Credit equity $200,000. 
D)  Credit bonds payable $20,200,000. 
A)  Credit bonds payable $19,800,000. 
B)  Credit premium on bonds payable $200,000. 
C)  Credit equity $200,000. 
D)  Credit bonds payable $20,200,000.

Question 6

Distinguish between:
(a) Convertible and callable bonds.
(b) Serial and term bonds.

Accepted Answer

(a) Convertible bonds may be exchanged f

Question 7

On January 1, 2018, Ouachita Airlines issued $400,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Ouachita Airlines records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $335,000 as determined by their fair value in the over-the-counter market. None of the change in fair value was due to a change in the general (risk-free) rate of interest.
Required:
1. Determine the price of the bonds at January 1, 2018, and prepare the journal entry to record their issuance. Show calculations.
2. Prepare the journal entry to record interest on June 30, 2018 (the first interest payment). Show calculations.
3. Prepare the journal entry to record interest on December 31, 2018 (the second interest payment). Show calculations.
4. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet. Show calculations.

Accepted Answer

Requirement 1
Interest $ 16,000 x 17.159

Question 8

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term.
-Book value method

Accepted Answer

A) No gain or loss recorded when convertible bond option is exercised. 
B) Requires(s) no cash outflow before maturity. 
C) Often traded separately from associated bonds. 
D) A practical expediency when not misleading. 
E) Additional consideration is recorded as an expense. 
A) No gain or loss recorded when convertible bond option is exercised. 
B) Requires(s) no cash outflow before maturity. 
C) Often traded separately from associated bonds. 
D) A practical expediency when not misleading. 
E) Additional consideration is recorded as an expense.

Question 9

During the year, Hamlet Inc. paid $20,000 to have bond certificates printed and engraved, paid $100,000 in legal fees, paid $10,000 to a CPA for registration information, and paid $200,000 to an underwriter as a commission. What is the amount of bond issue costs?

Accepted Answer

A)  $330,000. 
B)  $300,000. 
C)  $120,000. 
D)  $20,000. 
A)  $330,000. 
B)  $300,000. 
C)  $120,000. 
D)  $20,000.

Question 10

How should bond issue costs be accounted for on the books of the issuing corporation?

Accepted Answer

Costs incurred in connection with the is

Question 11

The interest expense on an installment note decreases with each periodic payment.

Accepted Answer

A) True 
 B)False

Question 12

Interest expense is:

Accepted Answer

A)  The effective interest rate times the amount of the debt outstanding during the interest period. 
B)  The stated interest rate times the amount of the debt outstanding during the interest period. 
C)  The effective interest rate times the face amount of the debt. 
D)  The stated interest rate times the face amount of the debt. 
A)  The effective interest rate times the amount of the debt outstanding during the interest period. 
B)  The stated interest rate times the amount of the debt outstanding during the interest period. 
C)  The effective interest rate times the face amount of the debt. 
D)  The stated interest rate times the face amount of the debt.

Question 13

The interest rate that is printed on the bond certificate is referred to as any of the following except:

Accepted Answer

A)  Stated rate. 
B)  Contract rate. 
C)  Nominal rate. 
D)  Effective rate. 
A)  Stated rate. 
B)  Contract rate. 
C)  Nominal rate. 
D)  Effective rate.

Question 14

Harrell's Barrels issued $100 million of 6% convertible bonds at 101. Each $1,000 bond is convertible into 45 shares of Harrell's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 98. 
-Harrell applies International Financial Reporting Standards. Recording the issuance of the bonds would cause an increase in Harrell's:

Accepted Answer

A)  shareholders' equity of $1,000,000. 
B)  shareholders' equity of $3,000,000. 
C)  assets of $98,000,000. 
D)  liabilities of $101,000,000. 
A)  shareholders' equity of $1,000,000. 
B)  shareholders' equity of $3,000,000. 
C)  assets of $98,000,000. 
D)  liabilities of $101,000,000.

Question 15

On January 1, 2018, Field Company purchased 12% bonds, dated January 1, 2018, with a face amount of $20 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond purchase by Field on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.
4. Prepare the journal entry to record interest on December 31, 2018, using the straight-line method.

Accepted Answer

The answer of On January 1, 2018, Field Company purchased...

Question 16

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.   
-What is the stated annual rate of interest on the bonds?

Accepted Answer

A)  3%. 
B)  4%. 
C)  6%. 
D)  8%. 
A)  3%. 
B)  4%. 
C)  6%. 
D)  8%.

Question 17

Listed below are 4 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. 
-Fair value option

Accepted Answer

A)  Gain or loss reported in the statement of comprehensive income. 
B)  Protects the debt issuer if rates fall. 
C)  The amount by which the reacquisition price of debt exceeds book value. 
D)  Right of an investor to purchase a specific number shares at a fixed price. 
A)  Gain or loss reported in the statement of comprehensive income. 
B)  Protects the debt issuer if rates fall. 
C)  The amount by which the reacquisition price of debt exceeds book value. 
D)  Right of an investor to purchase a specific number shares at a fixed price.

Question 18

On March 1, 2018, Doll Co. issued 10-year convertible bonds at 106. During 2021, the bonds were converted into common stock when the market price of Doll's common stock was 500 percent above its par value. On March 1, 2018, cash proceeds from the issuance of the convertible bonds should be reported as:

Accepted Answer

A)  A liability for the entire proceeds. 
B)  Paid-in capital for the entire proceeds. 
C)  Paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. 
D)  A liability for the face amount of the bonds and paid-in capital for the premium over the par value. 
A)  A liability for the entire proceeds. 
B)  Paid-in capital for the entire proceeds. 
C)  Paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. 
D)  A liability for the face amount of the bonds and paid-in capital for the premium over the par value.

Question 19

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.   
-What is the effective annual rate of interest on the bonds?

Accepted Answer

A)  3%. 
B)  4%. 
C)  6%. 
D)  8%. 
A)  3%. 
B)  4%. 
C)  6%. 
D)  8%.

Question 20

Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest, specified at 2%, was payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions for which 6% was a reasonable rate of interest.
Required:
(1.) Prepare the journal entry on January 1, 2018, for Coldwater Corporation's sale of the lathe.
(2.) Prepare an amortization schedule for the three-year term of the note.
(3.) Prepare the journal entries to record (a) interest for each of the three years and (b) receipt of payment of the note at maturity.

Accepted Answer

1. Interest $6,000^¥ x 2.67301 ^*⁼$ 16,038 Pr

When bonds are retired prior to their maturity date:

When bonds are sold at a discount and the straight-line interest method is used, at each interest payment date, the interest expense:

When bonds are sold at their face amount (no discount, no premium) and the effective interest method is used, at each interest payment date, the interest expense:

When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is:

Distinguish between: (a) Convertible and callable bonds. (b) Serial and term bonds.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Book value method

During the year, Hamlet Inc. paid $20,000 to have bond certificates printed and engraved, paid $100,000 in legal fees, paid $10,000 to a CPA for registration information, and paid $200,000 to an underwriter as a commission. What is the amount of bond issue costs?

How should bond issue costs be accounted for on the books of the issuing corporation?

The interest expense on an installment note decreases with each periodic payment.

Interest expense is:

The interest rate that is printed on the bond certificate is referred to as any of the following except:

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. -What is the stated annual rate of interest on the bonds?

Listed below are 4 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Fair value option

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. -What is the effective annual rate of interest on the bonds?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Exam 14: Bonds and Long-Term Notes

When bonds are retired prior to their maturity date:

When bonds are sold at a discount and the straight-line interest method is used, at each interest payment date, the interest expense:

When bonds are sold at their face amount (no discount, no premium) and the effective interest method is used, at each interest payment date, the interest expense:

When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is:

Distinguish between: (a) Convertible and callable bonds. (b) Serial and term bonds.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Book value method

During the year, Hamlet Inc. paid $20,000 to have bond certificates printed and engraved, paid $100,000 in legal fees, paid $10,000 to a CPA for registration information, and paid $200,000 to an underwriter as a commission. What is the amount of bond issue costs?

How should bond issue costs be accounted for on the books of the issuing corporation?

The interest expense on an installment note decreases with each periodic payment.

Interest expense is:

The interest rate that is printed on the bond certificate is referred to as any of the following except:

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. -What is the stated annual rate of interest on the bonds?

Listed below are 4 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Fair value option

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. -What is the effective annual rate of interest on the bonds?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters