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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 41

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Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

A) $1,200 loss
B) $1,200 gain
C) $17,000 loss
D) $17,000 gain

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Question 42

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Which of the following is not an advantage of issuing bonds instead of common stock?

A) Tax savings result.
B) Income to common shareholders may increase.
C) Earnings per share on common stock may be lower.
D) Stockholder control is not affected.

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Question 43

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

On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions for the current year:

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

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

Bondholders are creditors of the issuing corporation.

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

On January 1, 2010, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2014. Baker records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2010, is

A bond indenture is

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

An equal stream of periodic payments is called an annuity.

Jenson Co., is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

A $300,000 bond was redeemed at 103 when the carrying value of the bond was $315,000. The entry to record the redemption would include a

A bond is usually divided into a number of individual bonds of $500 each.

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

Debenture bonds are

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.

A corporation issues for cash $15,000,000 of 8%, 30-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.