Exam 14: Long-Term Liabilities: Bonds and Notes

The prices of bonds are quoted as a percentage of the bonds' market value.

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

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

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

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

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

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

The entry to record the amortization of a premium on bonds payable on an interest payment date includes:

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue. The amounts set aside are kept separate from other assets in a special fund called a(n)

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds which sold for $104,000

On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000, seven-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include:

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

If bonds payable are not callable, the issuing corporation

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31, 2014, for each of the next five years. After the final payment, the carrying amount on the note will be

Using the following table, what is the present value of $25,000 to be received 5 years, if the market rate is 7% compounded annually?

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

On the first day of the fiscal year, a company issues a $800,000, 6%, 5 year bond that pays semi-annual interest of $24,000 ($800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.