Question 1

Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

Accepted Answer

A) True 
 B)False

Question 2

Gene Poole Co. issued $10,000 of bonds on January 1, 2018. The bonds pay interest semiannually. This is a partial bond amortization schedule for the bonds.   What is the book value of the bonds on December 31, 2019?

Accepted Answer

A)  $9,116. 
B)  $9,117. 
C)  $9,407. 
D)  $9,416. 
A)  $9,116. 
B)  $9,117. 
C)  $9,407. 
D)  $9,416.

Question 3

On January 1, 2018, Club Company purchased 10% 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 12%. 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 Club 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, Club Company purchased...

Question 4

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.
-Promises made to bondholders

Accepted Answer

A) No specific assets pledged 
B) Legal, accounting, printing 
C) Protection against falling rates 
D) Bond price 
E) Backed by a lien
F)May become stock
G)Interest expense
H)Checks are mailed directly
I)Name of owner not registered
J)Premium
K)Discount
L)Periodic cash payments
M)Straight-line method
N)Liquidation payments after other claims satisfied
O)Bond indenture 
A) No specific assets pledged 
B) Legal, accounting, printing 
C) Protection against falling rates 
D) Bond price 
E) Backed by a lien
F)May become stock
G)Interest expense
H)Checks are mailed directly
I)Name of owner not registered
J)Premium
K)Discount
L)Periodic cash payments
M)Straight-line method
N)Liquidation payments after other claims satisfied
O)Bond indenture

Question 5

In a ten-year installment note, the portion of the periodic installment payment in the third year that represents interest is:

Accepted Answer

A)  the same as in the fourth year. 
B)  the same as in the first year. 
C)  less than in the fourth year. 
D)  more than in the fourth year. 
A)  the same as in the fourth year. 
B)  the same as in the first year. 
C)  less than in the fourth year. 
D)  more than in the fourth year.

Question 6

Bonds are issued on June 1, 2018 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2018, is for a period of:

Accepted Answer

A)  Three months. 
B)  Four months. 
C)  Six months. 
D)  Seven months. 
A)  Three months. 
B)  Four months. 
C)  Six months. 
D)  Seven months.

Question 7

Determine the price of a $500,000 bond issue under each of the following independent assumptions:

Accepted Answer

The answer of Determine the price of a $500,000 bond...

Question 8

On January 1, 2018, Ozark Minerals issued $10 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. Upon issuance, Ozark should:

Accepted Answer

A)  Debit discount on bonds payable $100,000. 
B)  Credit premium on bonds payable $100,000. 
C)  Credit equity $100,000. 
D)  Credit bonds payable $10,100,000. 
A)  Debit discount on bonds payable $100,000. 
B)  Credit premium on bonds payable $100,000. 
C)  Credit equity $100,000. 
D)  Credit bonds payable $10,100,000.

Question 9

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Accepted Answer

A)  Six months. 
B)  Four months. 
C)  10 months. 
D)  12 months. 
A)  Six months. 
B)  Four months. 
C)  10 months. 
D)  12 months.

Question 10

Green Industries purchased a machine from Cyan Corporation on October 1, 2018. In payment for the $144,000 purchase, Green issued a one-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Monthly installment payments are closest to:

Accepted Answer

A)  $12,000. 
B)  $12,445. 
C)  $12,668. 
D)  $12,794. 
A)  $12,000. 
B)  $12,445. 
C)  $12,668. 
D)  $12,794.

Question 11

On January 1, 2018, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. 
-Legion should report bond interest expense for the six months ended June 30, 2018, in the amount of:

Accepted Answer

A)  $8,850. 
B)  $10,000. 
C)  $10,620. 
D)  $12,000. 
A)  $8,850. 
B)  $10,000. 
C)  $10,620. 
D)  $12,000.

Question 12

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

Accepted Answer

A) True 
 B)False

Question 13

On February 1, 2018, Sanford & Son issued 10% bonds dated February 1, 2018, with a face amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Sanford & Son's fiscal year is the calendar year.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018, using the straight-line method
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.

Accepted Answer

The answer of On February 1, 2018, Sanford & Son...

Question 14

On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $6 million for cash. The bonds mature in 10 years and were issued at a price of $3,050,100.

-Required: What was the annual effective interest rate in the market when the bonds were issued?

Accepted Answer

7%
PV/FV = $3,050,10

Question 15

For the issuer of 20-year bonds, the amount of amortization using the effective interest method would decrease each year if the bonds are sold at a:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 16

Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond book value, respectively?

Accepted Answer

A)  Understated, understated. 
B)  Understated, overstated. 
C)  Overstated, understated. 
D)  Overstated, overstated. 
A)  Understated, understated. 
B)  Understated, overstated. 
C)  Overstated, understated. 
D)  Overstated, overstated.

Question 17

On January 1, 2018, Cool Universe issued 10% 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 12%. 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 issuance by Cool 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, Cool Universe issued...

Question 18

An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond?

Accepted Answer

A)  $828. 
B)  $893. 
C)  $1,000. 
D)  $1,686. 
A)  $828. 
B)  $893. 
C)  $1,000. 
D)  $1,686.

Question 19

On January 1, 2018, Rare Bird Ltd. 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 Rare Bird on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.

Accepted Answer

The answer of On January 1, 2018, Rare Bird Ltd....

Question 20

On February 1, 2017, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2018, at 102. Unamortized bond premium on that date was $92,800. How much gain or loss should be recognized on this bond retirement?

Accepted Answer

A)  $0 gain. 
B)  $111,800 gain. 
C)  $72,800 gain. 
D)  $96,000 gain. 
A)  $0 gain. 
B)  $111,800 gain. 
C)  $72,800 gain. 
D)  $96,000 gain.

Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

Gene Poole Co. issued $10,000 of bonds on January 1, 2018. The bonds pay interest semiannually. This is a partial bond amortization schedule for the bonds. What is the book value of the bonds on December 31, 2019?

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Promises made to bondholders

In a ten-year installment note, the portion of the periodic installment payment in the third year that represents interest is:

Bonds are issued on June 1, 2018 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2018, is for a period of:

Determine the price of a $500,000 bond issue under each of the following independent assumptions:

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $6 million for cash. The bonds mature in 10 years and were issued at a price of $3,050,100. -Required: What was the annual effective interest rate in the market when the bonds were issued?

For the issuer of 20-year bonds, the amount of amortization using the effective interest method would decrease each year if the bonds are sold at a:

Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond book value, respectively?

An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond?

On February 1, 2017, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2018, at 102. Unamortized bond premium on that date was $92,800. How much gain or loss should be recognized on this bond retirement?

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

Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

Gene Poole Co. issued $10,000 of bonds on January 1, 2018. The bonds pay interest semiannually. This is a partial bond amortization schedule for the bonds. What is the book value of the bonds on December 31, 2019?

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Promises made to bondholders

In a ten-year installment note, the portion of the periodic installment payment in the third year that represents interest is:

Bonds are issued on June 1, 2018 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2018, is for a period of:

Determine the price of a $500,000 bond issue under each of the following independent assumptions:

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $6 million for cash. The bonds mature in 10 years and were issued at a price of $3,050,100. -Required: What was the annual effective interest rate in the market when the bonds were issued?

For the issuer of 20-year bonds, the amount of amortization using the effective interest method would decrease each year if the bonds are sold at a:

Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond book value, respectively?

An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond?

On February 1, 2017, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2018, at 102. Unamortized bond premium on that date was $92,800. How much gain or loss should be recognized on this bond retirement?

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