Exam 15: Bonds and Long-Term Notes Payable

Derrick Corporation purchased two new delivery vans for $85,000 on December 31,2015.Derrick paid $10,000 and signed a $75,000,5-year,12% note for the balance.The note is to be paid off in five annual payments beginning December 31,2016.Assume the installments are to consist of equal amounts of principal plus accrued interest.Prepare the journal entries to record the purchase and the second installment on December 31,2017.

In recording a finance lease,the lessee debits Lease Liability and credits Lease Payable.

On December 31,2015,when the market rate was 12%,Chargers Corp issued $2,000,000,14%,5-year bonds.Interest is payable semiannually on June 30 and December 31.The bonds were issued for $2,147,214,and the corporation uses the effective interest method of amortizing bond premium or discount. Show how the bonds would be reported on the December 31,2015 balance sheet.

The effective interest rate method:

IFRS recommendations require that corporations use the effective interest method for amortization of bond discounts.

Notes payable usually represent a transaction with a single lender.

Which of the following conditions qualifies a lease as a finance lease?

Shorty Corporation issued $100,000,5%,10-year bonds,with interest payable semiannually.The market rate on the issue date was 6%.Calculate the issue price for the bond.

When a company sells its bonds on a date other than an interest payment date,the purchasers always pay the issuer a premium.

On December 31,2015,when the market rate was 12%,Global Corp issued $2,000,000,14%,5-year bonds.Interest is payable semiannually on June 30 and December 31.The bonds were issued for $2,147,214,and the corporation uses the effective interest method of amortizing bond premium or discount. Prepare the journal entries to record the issuance of the bonds and the first interest payment.

An annuity is a series of varying payments occurring at different time intervals throughout a bonds life.

On January 1,2015,when the market rate was 8%,Bucknor Corporation issued $800,000,10%,10-year bonds.Interest is payable semiannually on July 1 and January 1.The bonds were issued for $908,732.When the July 1,2015 interest payment is recorded,what amount should be recorded as interest expense,using the effective interest method?

Paul Corporation has $100,000 in bonds outstanding.The unamortized discount on these bonds is $4,500.If the corporation redeems these bonds at 97,what is the gain (loss)on retirement?

Don Corporation leases machinery from Demarcation Corporation for $1,200 per month for one year.Payments are made on the first day of each month beginning April 1,2015.The conditions of the lease require it to be treated as an operating lease.The entry to record the first lease payment by Don is:

On January 1,Gary Corporation signs a 6-year lease,which requires annual payments of $51,000 on December 31.The lease meets the requirements of a finance lease.Assuming an interest rate of 5%,calculate the value of the Lease Liability after the first payment.

The market value of a bond is equal to:

When the contract rate is above the market rate,a bond sells at a discount.

Explain the types and payment patterns of notes payable.

Most mortgage contracts grant the lender the right to be paid out of the _______________ from the sale of a borrower's specific assets identified in the contract.

To determine the discount on a bond the issuing value is deducted from the par value of the bonds.