Exam 14: Bonds and Long-Term Notes

Required: What will Morton Sales Co.report on these bonds in its December 31,2016,balance sheet?

The initial selling price of bonds represents the sum of all the future cash outflows required by the obligation.

On March 1,2016,Doll Co.issued 10-year convertible bonds at 106.During 2019,the bonds were converted into common stock when the market price of Doll's common stock was 500 percent above its par value.Doll prepares its financial statements according to International Financial Reporting Standards (IFRS).On March 1,2016,cash proceeds from the issuance of the convertible bonds should be reported as:

Nickel Inc.bought $100,000 of 3-year,6% bonds as an investment on December 31,2015 for $106,000.Nickel uses straight-line amortization.On May 1,2016,$10,000 of the bonds were redeemed at 110.As a result of the retirement,MSG will report:

What is the book value of the bonds as of December 31,2017?

Rick's Pawn Shop issued 11% bonds,dated January 1,with a face amount of $400,000 on January 1,2017.The bonds sold for $370,000.For bonds of similar risk and maturity the market yield was 12%.Interest is paid semiannually on June 30 and December 31.Rick's determines interest at the effective rate and elected the option to report these bonds at their fair value.On December 31,2017,the fair value of the bonds was $365,000,with $2,000 of the change due to a change in general interest rates.Rick's statement of comprehensive income will include:

On May 1,2016,Joe purchased $200,000 in zero-coupon bonds that mature on May 1,2036.The bonds pay no interest during the period of time they are outstanding.The interest rate for such borrowings is at 9%.Interest compounds annually. Required: Calculate the price Joe paid for the bonds.

The specific provisions of a bond issue are described in a document called a bond indenture.

Required: What total interest expense will Morton Sales Co.report over the 10-year life of these bonds?

When the interest payment dates are March 1 and September 1,and notes are issued on July 1,the amount of interest expense to be accrued at December 31 of the year of issue would:

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:

The times interest earned ratio indicates:

When bonds and other debt are issued,costs such as legal costs,printing costs,and underwriting fees are referred to as debt issuance costs (called transaction costs under IFRS).If Brown Imports prepares its financial statements using IFRS:

On February 1,2016,Nell purchased $600,000 in zero-coupon bonds that mature on February 1,2036.The bonds pay no interest during the period of time they are outstanding.The interest rate for such borrowings is at 12%. Required: Calculate the price Nell paid for the bonds.

When bonds include detachable warrants,what is the appropriate accounting for the cash proceeds from the bond issue?

To evaluate the risk and quality of an individual bond issue,savvy investors rely heavily on:

Interest expense is:

What is the effective annual rate of interest on the bonds?

Bond X and bond Y both are issued by the same company.Each of the bonds has a maturity value of $100,000 and each matures in 10 years.Bond X pays 8% interest while bond Y pays 9% interest.The current market rate of interest is 8%.Which of the following is correct?

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