Exam 15: Bonds and Long-Term Notes Payable

An advantage of bond financing is:

Installment notes payable that require payments of accrued interest to date plus equal amounts of principal:

Sami Corporation borrowed $300,000 from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.To the nearest dollar,the annual payment is:

A call option in a bond indenture gives the issuing corporation an option to call the bonds before they mature by paying the par value plus a call premium to the bondholders.

Explain the amortization of bond discount.

Bonds owned by investors whose names and addresses are recorded by the issuing corporation,and for which interest payments are made with cheques to the bondholders,are called:

A note which requires payments of accrued interest plus equal amounts of principal will have cash flows of equal amounts over the life of the note.

Explain what a bond is and discuss the different types of bonds.

On December 31,2015,Jenna Corp issued $1,000,000,8%,5-year bonds.Interest is payable semiannually on June 30 and December 31.The corporation uses the effective interest method of amortizing bond premium or discount.Using the present value tables,estimate the issue price of the bonds under the following three assumptions: (1)Market Rate is 8% (2)Market Rate is 6% (3)Market Rate is 10%

You graphed periodic interest expense and cash interest paid over the life of a bond.You noticed that the periodic interest expense line is increasing and greater than the cash interest paid line.Identify the statement below that is best described by the graph you drew.

Interest paid on bonds is not tax-deductible.

Fiona Inc issued $750,000,8%,10-year bonds on December 31,2014,for $656,541 cash.The current market rate is 10%.The corporation uses the effective interest amortization method.Interest is payable semiannually on June 30 and December 31. Prepare an amortization schedule for the first five payment periods using the format shown below:

Callable bonds:

On December 31,2015,Galaxy Ltd purchased two new trucks for $260,000.Galaxy paid $60,000 down and signed a $200,000,5-year,10% 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 an amortization table using the format below.

A(n)_______________ is a lease agreement transferring the risks and benefits associated with ownership to the lessee.

If a bond is issued at a premium,interest expense will increase over the term of the bond.

Michelle Corporation calls in $250,000 (par value)bonds with a carrying value of $247,950.Michelle is required to redeem the bonds at the par value.Prepare the journal entry to retire the bonds.

On March 31,2015,when the market rate was 5%,World Inc issued $750,000,5%,10-year bonds.The bonds were dated December 31,2014,and were issued at par plus accrued interest.Interest is payable semiannually on June 30 and December 31.Prepare the journal entries to record the issuance of the bonds and the first semiannual interest payment.

A bond sells at a discount when the:

If Cee Ltd borrows $50,000 by issuing a 6%,three-year note,the total interest to be paid will be $9,000.