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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 91

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When the market rate of interest was 11%, Valley Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be

A) $4,000
B) $896
C) $17,926
D) $1,793

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Question 92

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

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Question 93

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When the effective interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

If $1,000,000 of 8% bonds are issued at 105, the amount of cash received from the sale is

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

On the first day of the fiscal year, a company issues a $800,000, 6%, 5 year bond that pays semi-annual interest of $24,000 ($800,000 x 6% x 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

Sinking Fund Investments would be classified on the balance sheet as

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

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year:

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

Given the following data, prepare the journal entry to record interest expense and any related amortization on December 31st of the first year using the effective method. Assume interest is paid annually on January 1. The bonds were issued on January 1 for $7,411,233. Bonds Payable $8,000,000 (matures in 10 years) Contract rate = 5% Yield = 6% Round answers to nearest dollar.

The effective interest method produces a constant dollar amount of interest expense to be reported each interest period.

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to