Exam 12: Debt Financing

On January 1,2013,Ruben Products issued ten-year convertible bonds of $1,800,000 at 105.Interest is payable semiannually on June 30 and December 31 at a rate of 12 percent.On June 30,2015,the company retired bonds of $150,000 at 102 plus accrued interest.Straight-line amortization is recorded at the end of the calendar year.

The most conceptually appropriate method of valuing a liability under the historical cost basis is to

Bridge Corporation had two issues of securities outstanding-- common stock and a 5 percent convertible bond issue in the face amount of $10,000,000.Interest payment dates of the bond issue are June 30 and December 31.The conversion clause in the bond indenture entitles the bondholders to receive 40 shares of $20 par value common stock in exchange for each $1,000 bond.On June 30,2014,the holders of $1,800,000 face value bonds exercised the conversion privilege.The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35.The total unamortized bond discount at the date of conversion was $500,000.What amount should Bridge credit to the account "Paid-In Capital in Excess of Par" as a result of this conversion assuming Bridge does not want to recognize any gain (or loss)on the conversion?

Bonds that were authorized on January 1,2014,and that pay interest on January 1 and July 1 of each year were issued on October 1,2014.If the issuer's accounting year ends on December 31,how many months would any discount or premium be amortized in 2014?

When bonds are sold between interest dates,any accrued interest is credited to

For a liability to exist,

On December 31,2014,Value Corporation's current liabilities total $50,000 and long-term liabilities total $150,000.Working capital at December 31,2014,is equal to $80,000.If Value Corporation's debt-to-equity ratio is .32 to 1,total long-term assets must equal

A $50,000 bond with a carrying value of $52,000 was called at 103 and retired.In recording the retirement,the issuing company should record

On December 31,2014,Omar Corporation's current liabilities total $60,000 and long-term liabilities total $160,000.Working capital at December 31,2014,is equal to $90,000.If Omar Corporation's debt-to-equity ratio is .40 to 1,total long-term assets must equal

Bonds usually sell at a discount when

Which of the following is true of a premium on bonds payable?

When bonds are retired prior to maturity with proceeds from a new bond issue,gain or loss from the early extinguishment of debt,if material,should be

When the interest payment dates of a bond are May 1 and November 1,and the bond is issued on June 1,the amount of interest expense at December 31 of the year of issuance would be for

On June 30,2014,Island Inc.had outstanding 10 percent,$1,000,000 face amount,15-year bonds maturing on June 30,2019.Interest is paid on June 30 and December 31,and bond discount and bond issue costs are amortized on these dates.The unamortized balances on June 30,2014,of bond discount and bond issue costs were $55,000 and $20,000,respectively.Island reacquired all of these bonds at 96 on June 30,2014,and retired them.Ignoring income taxes,how much gain or loss should Island record on the bond retirement?

Moreland Corporation issued $200,000 of 10-year bonds on January 1.The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent.If the market rate of interest at the time the bonds are sold is 12 percent,what will be the issuance price of the bonds?

In an effort to increase sales,Moore Company began a sales promotion campaign on June 30,2014.Part of this promotion included placing a special coupon in each package of candy bars sold.Customers were able to redeem ten coupons for a baseball.Each premium costs Moore $1.50.Moore estimated that 70 percent of the coupons issued will be redeemed.For the six months ended December 31,2014,the following information is available: What is the estimated liability for premium claims outstanding at December 31,2014?

Bonds usually sell at a premium

Bond discount should be presented in the financial statements of the issuer as a(n)

The effective interest rate on bonds is higher than the stated rate when bonds sell

At December 31,2014,Ambrose Sales & Service has a $100,000,120-day note payable outstanding.The company has followed the policy of replacing the note rather than repaying it over the last three years.The company's treasurer says that this policy is expected to continue indefinitely,and the arrangement is acceptable to the bank to which the note was issued.The proper classification of the note on the December 31,2014,balance sheet is