Exam 14: Long-Term Liabilities: Bonds and Notes

Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year:

The balance in Discount on Bonds Payable

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.

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

The Reagan Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 92. The journal entry to record the issuance will show a

There is a loss on redemption of bonds when bonds are redeemed above carrying value.

If bonds are issued at a premium, the stated interest rate is

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the first interest payment and the amortization of the related bond discount using the straight-line method. Round answer to the nearest dollar.

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Sinking Fund Income is reported in the income statement as

The Victor Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

Calculate the total amount of interest expense over the life of the bonds for the following independent situations. a) $100,000 face value, 10%, 10-year bonds issued at 101. b) $240,000 face value, 5%, 5-year bonds issued at 100. c) $300,000 face value, 9%, 6-year bonds issued at 98.

A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

The effective interest method produces a constant dollar amount of interest expense to be reported each interest period.

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places)?