Exam 14: Long-Term Liabilities: Bonds and Notes

When callable bonds are redeemed below carrying value

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $315,000. The entry to record the redemption would include a

Sorenson Co., is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Present entries to record the following transactions for the current fiscal year:

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

Bondholders claims on the assets of the corporation rank ahead of stockholders.

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

A corporation issues for cash $10,000,000 of 8%, 30-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?

Ulmer Company is considering the following alternative financing plans: Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock. Required: Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.

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 98.5, what is the amount of gain or loss on redemption?

Match the following terms to the most appropriate answer:

When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in 2011 are classified on the balance sheet as current assets.

Which of the following is not an advantage of issuing bonds instead of common stock?

Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1, 2014 would include:

On January 1, 2014, $1,000,000, 5-year, 10% bonds, were issued for $980,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is