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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 41

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On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment note payable with payments of $100,000 principal plus interest due on January 1 of each year for the next 5 years. 1. Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the year. 2. Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on December 31, 2011. 3. Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on December 31, 2011.

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Interest Expense = $40,000 repo...

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Question 42

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Use the following tables to calculate the present value of a $25,000 7%, 5 year bond that pays $1,750 ($25,000 ´ 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

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The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Numbers of times interest charges earned is computed as

The Marx Company issued $100,000 of 12% bonds on April 1, 2010 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2010, and mature on January 1, 2014. The total interest expense related to these bonds for the year ended December 31, 2010 is

Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 ´ 8% ´ 1/2), receiving cash of $437,740. Journalize the entry to record the issuance of the bonds.

At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in 2011 are classified on the balance sheet as current assets.

A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

The cash and securities comprising a sinking fund established to redeem bonds at maturity in 2015 should be classified on the balance sheet as

The face value of a term bond is payable at a single specific date in the future.

Bonds may be purchased directly from the issuing corporation or through one of the bond exchanges.

(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 January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1, 2014 would include:

If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty, $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%.

Given the following data, prepare an amortization table (use the effective method) 1/1/10 - issue $800,000, 9%, 3 year bonds, interest paid annually on 12/31, to yield 8%

An unsecured bond is the same as a

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

The effective-interest method of amortizing a bond discount or premium is the preferred method.