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Exam 14: Bonds and Long-Term Notes

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Question 91

Multiple Choice

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A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is:

A) Equal to $500,000.
B) More than $500,000.
C) Less than $500,000.
D) The answer cannot be determined from the information provided.

E) A) and D)
F) A) and B)

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Question 92

Multiple Choice

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Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Discount on bonds

A) Market rate higher than stated rate.
B) Market rate less than stated rate.
C) Legal, accounting, printing.
D) No maturity payment.
E) Many separate maturity dates.

F) C) and D)
G) All of the above

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Question 93

Multiple Choice

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Discount-Mart issued ten thousand $1,000 bonds on January 1, 2018. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. - What is the interest expense on the bonds for the year ended December 31, 2019?

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2018. LPC's accountant has projected the following amortization schedule from issuance until maturity: -LPC calls the bonds at 103 immediately after the interest payment on 12/31/2019 and retires them. What gain or loss, if any, would LPC record on this date?

Mind Explorers issues bonds with a stated interest rate of 7%, face value of $200,000, and due in 10 years. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Using present value tables, calculate the issue price of the bonds.

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Materiality concept

Little Company borrowed $48,000 from Sockets on January 1, 2018, and signed a three-year, 6% installment note to be paid in three equal payments at the end of each year. The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.67301. Required: (1.) Prepare the journal entry on January 1, 2018, for Sockets' lending the funds. (2.) Calculate the amount of one installment payment. (3.) Prepare an amortization schedule for the three-year term of the installment note. (4.) Prepare the journal entry for Sockets' first installment payment received on December 31, 2018. (5.) Prepare the journal entry for Sockets' third installment payment received on December 31, 2020.

Pockets lent $20,000 to Lego Construction on January 1, 2018. Lego signed a three-year, 5% installment note to be paid in three equal payments at the end of each year. Required: (1.) Prepare the journal entry on January 1, 2018, for Pockets' lending the funds. (2.) Calculate the amount of one installment payment. (3.) Prepare an amortization schedule for the three-year term of the installment note. (4.) Prepare Pockets' journal entry for the first installment payment on December 31, 2018. (5.) Prepare Pockets' journal entry for the third installment payment on December 31, 2020.

Scottie Adams Bird Supplies issued 10% bonds, dated January 1, with a face amount of $240,000 on January 1, 2018. The bonds mature in 2028 (10 years) . For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31. What is the price of the bonds at January 1, 2018? Some relevant and irrelevant present value factors: * PV of annuity due of $1: n = 20; i = 6% is 12.15812 * PV of ordinary annuity of $1: n = 20; i = 6% is 11.46992 **PV of $1: n = 20; i = 6% is 0.31180

Warren Peace Bookstore issues a note with no stated interest rate in exchange for a building. In accounting for the transaction:

On April 1, 2018, Austere Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond was sold with 25 detachable stock warrants, each permitting the investor to purchase one share of common stock for $17. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $2. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Stated rate higher than market rate

Brown Co. issued $100 million of its 10% bonds on April 1, 2018, at 99 plus accrued interest. The bonds are dated January 1, 2018, and mature on December 31, 2037. Interest is payable semiannually on June 30 and December 31. What amount did Brown receive from the bond issuance?

On January 1, 2018, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2028. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. What is the carrying value of the bonds reported in the December 31, 2018, balance sheet?

How would the book value of bonds payable be affected by the amortization of each of the following?

When bonds and other debt are issued, costs such as legal costs, printing costs, and underwriting fees are referred to as debt issue costs. When debt issue costs are incurred:

When bonds are sold at a discount, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of discount is:

Seaside issues a bond that has a stated interest rate of 10%, face amount of $50,000, and is due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue price of the bond?

Bonds usually sell at their:

Tim Burr Lumber issued bonds at a premium. In the bond amortization schedule: