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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 61

True/False

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The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

A) True
B) False

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Question 62

Multiple Choice

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The Victor Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

A) debit to Cash of $1,000,000.
B) credit to Discount on Bonds Payable for $40,000.
C) credit to Bonds Payable for $960,000.
D) debit to Cash for $960,000.

E) B) and C)
F) None of the above

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Question 63

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Both callable and non-callable bonds can be purchased by the issuing corporation in the open market.

The present value of $30,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar)

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)

Given the following data, determine the times interest earned ratio. Net income - $70,000 Bonds Payable (issued at face value), 8% - $5,000,000 Preferred Stock ($50 par value, 6%, 10,000 shares issued & outstanding) Tax rate - 30%

The Designer Company issued 10-year bonds on January 1, 2011. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Designer should record interest expense (round to the nearest dollar) of

A corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Given the following data, prepare an amortization schedule (use the straight line method) 1/1/10 - issued $800,000, 9%, 3 year bonds, interest paid annually on 12/31 to yield 8% _00

Calculate the total amount of interest expense over the life of the bonds for the following independent situations. a) $100,000 face value, 10%, 10-year bonds issued at 101. b) $240,000 face value, 5%, 5-year bonds issued at 100. c) $300,000 face value, 9%, 6-year bonds issued at 98.

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places) ?

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 payment of the first annual amount due on the note would include:

If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

Ulmer Company is considering the following alternative financing plans: Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock. Required: Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.