Exam 2: Accounting Judgements

RX issued $1,000,000,10% bonds payable (interest payable annually),which mature at the end of five years from issue date.The effective rate of interest at issuance was 8%.The sale price of the bonds was: $_________________.

KR issued bonds payable with a face amount of $200,000 and a maturity date ten years from date of issuance.If the bonds were issued at a premium,this indicated that:

The management of PT authorized an issue of $120,000 bonds payable,6% (annual interest rate),dated January 1,2000.The bonds mature on December 31,2015 (5 years).Interest is payable each June 30 and December 31.The bonds were sold on May 1,2010,at an effective (yield)rate of 8%. (a)The bonds were sold at a _____________ premium; ___________ discount (check one). (b)Give the entry for PT to record the sale of the bonds on May 1,2010.Show computations for the issue price.

The carrying value of a bond from the issuing corporation's standpoint will always move closer to its face value,regardless of whether the bond is issued at a premium or a discount.

JV issued $10,000,10% bonds payable (interest payable annually),which mature at the end of six years from issue date.The effective rate of interest at issue date was 12%.The sale price of the bonds was: $_________________.

It is often necessary to compute the book value of a bond issue several years into its term.Rather than compute an amortization schedule for the entire term,it is possible to directly compute the net bond liability at any interest date under either the interest method or straight-line method.Assume that $100,000 of 8% bonds were issued to yield 10% on January 1,2010,the bond date.The bonds pay interest each December 31 and are scheduled to mature in ten years.Answer the following questions without producing an amortization schedule. (a)What is the book value of the bonds on January 1,2016 if the firm uses the straight-line method. (b)What is the book value of the bonds on January 1,2016 if the firm uses the interest (effective interest)method.

Borrowing costs can only be capitalized on non-financial assets.

GHI Inc.issued $5,000,000 worth of bonds on January 1^st,2018.The bonds mature on December 31^st,2017 and carry a coupon rate of 4% payable semi-annually on June 30^th and December 31^st of each year.A market interest rate of 6% was effective throughout 2018. Required: 1)Were the bonds issued at a premium or a discount? 2)Prepare all journal entries required during 2018. 3)Assume that on January 1^st 2019,GHI Inc.decided to retire ALL of the bonds for $5,500,000 in cash.Prepare the required journal entry.

In-substance defeasance is sometimes used as a method of bond retirement.Choose the correct statement about this practice.

A firm has two bonds outstanding today,each with: (1)$1,000 face value,(2)a term of 5 years at issuance,(3)3 years remaining to maturity,and (4)10% yield rate at issuance.Bond A is a zero coupon bond; bond B pays 10% annually and just paid interest yesterday.The yield rate today on both bonds is 12%.Which bond has experienced the greatest percentage change in value since issuance?

The cost of any equity financing is included when calculating the cost of generalized borrowings.

ER issued for $2,060,000,two thousand of its 9%,$1,000 callable bonds.The bonds are dated January 1,2019,and mature many years from now.Interest is payable semi-annually on January 1 and July 1.The bonds can be called by the issuer at $102 on any interest payment date after December 31,2023.The unamortized bond premium was $28,000 at December 31,2021,and the market price of the bonds was $99 on this date.In its December 31,2021,balance sheet,at what amount should GC report the carrying value of the bonds?

On April 1,2020,the DEF sold a $2,000,000 bond issue dated January 1,2020,to yield 9% per annum to maturity.The bonds were to be outstanding for twenty years from January 1,2020,and the stated rate of interest was 8%.Interest is paid each January 1. (a)Give the entry to record the purchase of one-fourth of these bonds as a long-term investment by NOP.Assume effective interest amortization and contra/adjunct accounts. (b)Give the December 31,2020,adjusting and closing entries for NOP.

AB sold its 10-year bond at a discount.In reporting the bonds and the related discount on a balance sheet shortly thereafter,the discount should be:

A $1,000,6%,10-year bond purchased as a long-term investment at an effective rate at 7%,will pay the investor $70 cash interest each year.

A company wishes to finance a long-term construction project and in doing so,capitalize the related interest expense.The company requires $2 million in financing. The company currently has the following debt and equity items on its December 31^st,2019 Balance Sheet: There are 10,000 common shares outstanding which pay an annual dividend of $5 per share.The company can borrow a maximum of $5 million on its unsecured line of credit. The company's bank has indicated its willingness to extend an additional credit facility in the amount of $1.5 million at an annual rate of 5% as of March 31^st,Year 6.These amounts remained outstanding throughout Year 6.

The rate of interest used to discount the future cash payments on a debt to the cash equivalent borrowed is least likely to be described by which of the following terms: