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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 51

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A bond with a par value of less than $1,000 is called a ______________ bond.

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Question 52

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The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties is called a(n) :

A) Debenture
B) Bond indenture
C) Mortgage
D) Installment note
E) Mortgage contract

F) A) and E)
G) B) and E)

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Question 53

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The _______________ amortization method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000.The difference between par value and issue price for this bond is recorded as a:

A basic present value concept is that cash received in the future is worth more value than the same amount of cash received today.

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

A basic present value concept is that cash in the future is worth less than the same amount of cash today.

Bonds that mature at different dates and end up with the total principal repaid gradually over a number of periods are referred to as:

On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.

A company issued 25-year,8% bonds with a par value of $900,000.The company received $1,000,000 cash for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Explain how a bond premium is amortized.Identify and describe the amortization methods available.

On January 1,2010,Timley issues 2,200,000 of 6%,12-year bonds at a price of 105½.The straight-line method is used to amortize any bond discount.What is the journal entry to record the first interest payment?

The present value of an annuity factor for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% would equal $8,711.

When a bond sells at a premium:

The payment pattern for installment notes that consists of accrued interest plus equal amounts of principal yields cash flows of equal amounts over the life of the note.

Martin Corporation issued $3,000,000 of 8%,20-year bonds payable at par value on January 1,2010.Interest is payable each June 30 and December 31. (a)Prepare the general journal entry to record the issuance of the bonds on January 1,2010. (b)Prepare the general journal entry to record the first interest payment on June 30,2010.

Identify and explain the advantages and disadvantages of bond financing.

On January 1,2010,Jacob issues $600,000 of 11%,15-year bonds at a price of 102½.Six years later,on January 1,2016,Jacob retires 30% of these bonds by buying them on the open market at 98½. All interest is accounted for and paid through December 31,2015,the day before the purchase.The straight-line method is used to amortize any bond discount. What is the journal entry to record the first interest payment on June 30,2010?

An advantage of bond financing is that issuing bonds does not affect owner control.