Exam 11: Liabilities: Bonds Payable

Balance sheet and income statement data indicate the following: Bonds payable, 6\% (this is year 4 of 20 years) \ 1,200,000 Income before income tax for year 340,000 Income tax for year 80,000 Interest payable 9,000 Interest receivable 26,000 Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

The present value of $60,000 to be received in one year, at 6% compounded annually, is _____ (rounded to nearest dollar). Use the following table, if needed. Present value of \ 1 at Compound Interest Periods 5\% 6\% 7\% 10\% 12\% 1 0.95238 0.94340 0.93458 0.90909 0.89286 2 0.90703 0.89000 0.87344 0.82645 0.79719 3 0.86384 0.83962 0.81630 0.75132 0.71178 4 0.82270 0.79209 0.76290 0.68301 0.63552 5 0.78353 0.74726 0.71299 0.62092 0.56743 6 0.74622 0.70496 0.66634 0.56447 0.50663 7 0.71068 0.66506 0.62275 0.51316 0.45235 8 0.67684 0.62741 0.58201 0.46651 0.40388 9 0.64461 0.59190 0.54393 0.42410 0.36061 10 0.61391 0.55840 0.50835 0.38554 0.32197

Using the following table, determine the present value of an annuity of $50,0000 to be received at the end of each of five years at 6 percent interest. Present value of an annuity of $1 at compound interest: Periods 10.\% 11.0\% 12.0\% 13.0\% 0.961 0.956 0.952 0.947 0.943 0.938 0.934 0.909 0.900 0.892 0.884 1 54 94 38 87 40 97 58 09 90 86 96 1.886 1.872 1.859 1.846 1.833 1.820 1.808 1.735 1.712 1.690 1.668 2 09 67 41 32 39 63 02 54 52 05 10 2.775 2.748 2.723 2.697 2.673 2.648 2.624 2.486 2.443 2.401 2.361 3 09 96 25 93 01 48 32 85 71 83 15 3.629 3.587 3.545 3.505 3.465 3.425 3.387 3.169 3.102 3.037 2.974 4 90 53 95 15 11 80 21 87 45 35 47 4.451 4.389 4.329 4.270 4.212 4.155 4.100 3.790 3.695 3.604 3.517 5 82 98 48 28 36 68 20 79 90 78 23 5.242 5.157 5.075 4.995 4.917 4.841 4.766 4.355 4.230 4.111 3.997 6 14 87 69 53 32 01 54 26 54 41 55 6.002 5.892 5.786 5.682 5.582 5.484 5.389 4.868 4.712 4.563 4.422 7 05 70 37 97 38 52 29 42 20 76 61 6.732 6.595 6.463 6.334 6.209 6.088 5.971 5.334 5.146 4.967 4.798 8 74 89 21 57 79 75 30 93 12 64 77 7.435 7.268 7.107 6.952 6.801 6.656 6.515 5.759 5.537 5.328 5.131 9 33 79 82 20 69 10 23 02 05 25 66 8.110 7.912 7.721 7.537 7.360 7.188 7.023 6.144 5.889 5.650 5.426 10 90 72 73 63 09 83 58 57 23 22 24

If bonds are sold for a discount, the carrying amount of the bonds is equal to the face value less the unamortized discount.

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. The bonds are called at the end of year 3 for 104. What is the entry to record the redemption? (Assume the interest payment has been recorded separately.)

Bonds that are subject to retirement prior to maturity at the option of the issuer are called

The Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. What is the entry to record the payment of interest on December 31 in the year the bonds were issued?

The interest rate specified in the bond indenture is called the

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

The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the balance sheet in the section entitled

The effective interest rate method of amortizing a bond discount or premium is the preferred method.

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization, the effective interest rate method should be used.

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98 1/2, what is the amount of gain or loss on redemption?