Exam 15: Bonds and Long-Term Notes Payable

Over the life of a bond,the maturity value and carrying value converge

A bond's par value is the same as market value.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Tablet Ltd has $300,000,10% bonds outstanding,which have matured.Prepare the journal entry to retire the bonds.

On October 1,2015,when the market rate was 5%,Galaxy Corp issued $500,000,5%,10-year bonds.The bonds were dated June 30,2015,and were issued at par plus accrued interest.Interest is payable semiannually on December 31 and June 30.Calculate the total cash received by Galaxy Corp on October 1,2015.

Which of the following statements is true?

On January 1,2015,a $60,000,6%,6-year installment note payable is issued by the Terry Corporation.The note requires that $10,000 of principal plus accrued interest be paid at the end of each year (December 31).The journal entry to record the second annual payment would include:

Most mortgage contracts grant the lender the right to foreclose on the property used as security for the note if the borrower fails to pay in accordance with the terms of the debt agreement.

Secured bonds:

Emilia Inc issued $200,000,6%,10-year bonds,with interest payable semiannually.The market rate on the issue date was 5.5%.Emilia received $206,948 in proceeds.Which statement best describes Emilia' responsibility to the bondholders?

SuperBowl Inc retired $200,000 (par value)bonds with a carrying value of $203,492.The market value of the bonds was $202,500.The corporation recognized a loss on retirement of $2,500.

When graphing the amount of interest paid over time and the amount of interest expensed over time,the lines are parallel if the effective interest amortization method is used.

Prof Inc borrowed $200,000 from the bank and signed a 6-year note at 8%.The present value of an annuity factor for 6 years at 8% is 4.6229.To the nearest dollar,the annual payment is:

On January 1,2015,Sand Castle Corporation issued $500,000,8% bonds,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation purchased the entire issue on the open market at 98 and retired the issue.Prepare the journal entry to record the retirement.

Owners of coupon bonds are not required to pay income tax on the interest received.

Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called:

Bondholders can exchange convertible bonds for a fixed number of the issuing corporation's preferred shares.

On October 1,2015,when the market rate was 6%,Gotya Corp.issued $1,000,000,6%,10-year bonds.The bonds were dated July 1,2015,and were issued at par plus accrued interest.As a result of this transaction,what amount of bond interest expense should appear on the corporation's calendar 2015 income statement?

For bonds issued at a premium,the effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over the bond's life.

The Discount on Bonds Payable account is: