Exam 14: Bonds and Long-Term Notes

Auerbach Inc. issued 4% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. The effective interest rate established by the market was 6%. -Auerbach issued the bonds:

On September 1, 2018, Red Co., issued $48 million of its 10% bonds at face value. The bonds are dated June 1, 2018, and mature on May 30, 2028. Interest is payable semiannually on June 1 and December 1. At the time of issuance, Red would receive cash proceeds that would include accrued interest of:

Shaq Corporation 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 effective annual rate of interest on the bonds?

The December 31, 2017, balance sheet of Ming Inc. included 12% bonds with a face amount of $100 million. The bonds were issued in 2005 and had a remaining discount of $3,400,000 at December 31, 2017. On January 1, 2018, Ming called the bonds at a price of 102. Required: Prepare the journal entry by Ming to record the retirement of the bonds on January 1, 2018.

On February 1, 2018, Lagune & Sons issued 9% bonds dated February 1, 2018, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Lagune'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 effective interest method. 3. Prepare the necessary journal entry on December 31, 2018. 4. Prepare the necessary journal entry on January 31, 2019.

The unamortized balance of discount on bonds payable is reported in the balance sheet as:

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. -Stock warrant

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 Holly Springs' purchase 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) payment of the note at maturity.

On January 1, 2018, for $18 million, Marker Company issued 10% bonds, dated January 1, 2018, with a face amount of $20 million. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method. 2. Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.

At January 1, 2018, TD owed First Bank $300,000, under an 11% note with three years remaining to maturity. Due to financial difficulties, TD was unable to pay the previous year's interest. First Bank agreed to settle TD's debt in exchange for land having a fair value of $225,000. TD purchased the land in 2014 for $162,000. Required: Prepare the journal entry(s) to record the restructuring of the debt by TD.

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. -Face amount times stated rate

Bonds payable should be reported as a long-term liability in the balance sheet of the issuing corporation at the:

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

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 book value of the bonds as of December 31, 2019?

Which of the following indicates the margin of safety provided to creditors?

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: How much interest will Morton Sales Co. pay on these bonds in 2018?

On July 1, 2018, Flay Foods issued $100 million of its 8%, bonds for $92 million. The bonds were priced to yield 10%. The bonds are dated July 1, 2018. Interest is payable semiannually on December 31 and June 30. Flay records interest at the effective rate. Flay records interest at the effective rate. Required: 1. Prepare the journal entry to record interest on December 31, 2018 (the first interest payment). 2. Prepare the journal entry to record interest on June 30, 2019 (the second interest payment).

On January 1, 2018, for $18 million, Cenotaph Company purchased 10% bonds, dated January 1, 2018, with a face amount of $20 million. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method. 2. Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.

Discount-Mart 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 would be the total interest cost of the bonds over their full term?

Cramer Company sold five-year, 8% bonds on October 1, 2018. The face amount of the bonds was $100,000, while the issue price was $102,000. Interest is payable on April 1 of each year. The fiscal year of Cramer Company ends on December 31. How much interest expense will Cramer Company report in its December 31, 2018, income statement (assume straight-line amortization)?