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Questions
Q:
The issue price of bonds is found by computing the present value of the bond's cash payments, discounted at the _______________ rate of interest at the time of issuance.
Q:
The _______________ amortization method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.
Q:
The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.
Q:
The process of systematically reducing a bond discount to zero over the life of the bond is called ______________________________.
Q:
When the bond contract rate of interest is above the market rate of interest for that bond, the bond sells at a _____________.
Q:
The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ____________________ of interest.
Q:
The interest rate specified in the bond indenture that is paid by the issuer of the bond is called the ___________________ of interest.
Q:
A bond with a par value of less than $1,000 is called a ______________ bond.
Q:
The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.
Q:
___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.
Q:
_____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
Q:
Unsecured bonds are also called ____________________ and are backed by the issuer's general credit standing.
Q:
____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds at maturity.
Q:
_______________ bonds are bonds that mature at more than one date, often in a series and thus are usually repaid over a number of periods.
Q:
______________ bonds are bonds that are scheduled for maturity on one specified date.
Q:
_______________ bonds have specific assets of the issuing company pledged as collateral.
Q:
Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.
Q:
____________________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.
Q:
_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.
Q:
A _______________________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments) to employees after they retire.
Q:
The ____________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.
Q:
An _______________ is a series of equal payments at equal time intervals.
Q:
The carrying value of a bond payable at any point in time equals par value minus any unamortized _______________ or plus any unamortized _______________.
Q:
Most mortgage contracts grant the lender the right to _______________ on the property if the borrower fails to pay in accordance with the terms of the debt agreement.
Q:
An ________________________________ is an obligation requiring a series of payments to the lender.
Q:
A company issues bonds with a par value of $900,000 on their stated issue date. The bonds mature in 10 years and pays 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. What is the selling price of the bond?
Q:
On January 1, 2013, Silver issues $300,000 of 12%, 20-year bonds at a price of 96. What is the total bond interest expense that will be recognized over the life of the bond?
Q:
On January 1, 2013, Timley issues $2,200,000 of 6%, 12-year bonds at a price of 105 that pay interest semiannually. The straight-line method is used to amortize any bond premium or discount. What is the journal entry to record the first interest payment?
Q:
On January 1, 2013, Timley issues $2,200,000 of 6%, 12-year bonds at a price of 105 that pay interest semiannually. The straight-line method is used to amortize any bond premium or discount. What is the journal entry to record the issuance of the bonds on January 1, 2013?
Q:
A company purchased two new trucks for a total of $250,000 on January 1, 2013. The company paid $40,000 cash and gave a $210,000, three-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments beginning December 31, 2013. Assume the annual installment payments are to consist of equal amounts of principal plus accrued interest. Prepare a note amortization table using the format below. Period Ending Date
Beginning Balance
Debit Interest Expense
Debit Notes Payable
Credit Cash
Ending Balance 12/31/13 12/31/14 12/31/15
Q:
A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium. On the current year's interest date, after the bond interest was paid and after 40% of the total premium had been amortized, the company purchased the entire bond issue on the open market at 98 and retired it. Prepare the journal entry to record the retirement of these bonds.
Q:
A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.
Q:
A company calls $150,000 par value of bonds with a carrying value of $147,950. The company calls the bonds at $151,000. Prepare the journal entry to record the retirement of the bonds.
Q:
A company has $200,000 par value, 10% bonds outstanding. Prepare the company's journal entry to retire the bonds at the date of maturity.
Q:
A company issued 10%, five-year bonds with a par value of $2,000,000, on January 1, 2013. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 to yield the buyers an 8% annual return. The company uses the effective interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the format shown below. Semiannual Interest Period
Cash Interest Paid
Bond Interest Expense
Premium Amortization
Unamortized Premium
Carrying Value (2) Prepare the general journal entry to record the first semiannual interest payment.
Q:
On January 1, 2013, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, which provides the holders an annual yield of 8%. Prepare the issuer's general journal entry to record the first semiannual interest payment assuming the effective interest method is used.
Q:
Walker Corporation issued 14%, five-year bonds with a par value of $5,000,000 on January 1, 2013. Interest is to be paid semiannually on each June 30 and December 31. The bonds were issued at $5,368,035 cash when the market rate for this bond was 12%.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1, 2013.
(b) Show how the bonds would be reported on Walker's balance sheet at January 1, 2013.
(c) Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, 2013.
(d) Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, 2013.
Q:
On August 1, 2013, a company issues bonds with a par value of $600,000. The bonds mature in 10 years and pay 6% annual interest, payable each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts and premiums. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31, 2013.
Q:
On August 1, 2013, a company issues bonds with a par value of $600,000. The bonds mature in 10 years and pay 6% annual interest, payable each February 1 and August 1. The bonds sold at $632,000. The company uses the straight-line method of amortizing bond premiums and discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31, 2013.
Q:
On January 1, 2013, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the general journal entry to record the first semiannual interest payment, assuming the company uses the straight-line method of amortization.
Q:
On January 1, 2013, a company issued 10-year, 10% bonds payable with a par value of $500,000 and received $442,647 in cash proceeds. The market rate of interest at the date of issuance was 12%. The bonds pay interest semiannually on July 1 and January 1. The issuer uses the straight-line method for amortization. Prepare the issuer's general journal entry to record the first semiannual interest payment on July 1, 2013.
Q:
Martin Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on January 1, 2013. 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, 2013.
(b) Prepare the general journal entry to record the first interest payment on June 30, 2013.
Q:
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.
Q:
On October 1 of the current year a corporation sold, at par plus accrued interest, $1,000,000 of its 12% bonds, which were dated July 1 of this year. What amount of bond interest expense should the company report on its current year income statement?
Q:
On January 1, 2013, Leyden Corporation leased a truck, agreeing to pay $15,252 every December 31 for the entire six years of the lease. The present value of the lease payments, at 6% interest is $75,000. The lease is considered a capital lease.
(a) Prepare the general journal entry to record the acquisition of the truck based on a capital lease.
(b) Prepare the general journal entry to record the first lease payment on December 31, 2010.
(c) Record straight-line depreciation on the truck on 12/31/13, assuming a 6-year life and no salvage value.
Q:
On January 1, 2013, the Plimpton Corporation leased some equipment for two years, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31, 2013.
Q:
On March 1, a company issues bonds with a par value of $300,000. The bonds mature in 10 years and pay 6% annual interest, payable each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.
Q:
Assume that a company has a loan agreement that provides it with cash today and that the company must pay $25,000 one year from today, $15,000 two years from today, and $5,000 three years from today. The company agrees to pay 10% interest. The following factors are from the present value of $1 table: Periods Interest rate 10% 1 0.9091 2 0.8264 3 0.7513 What is the amount of cash the company receives today?
Q:
A company enters into an agreement to make five annual year-end payments of $3,000 each, which will begin one year from now. The annual interest rate is 6%. The present value of an annuity factor for five periods, 6%, is 4.2124. What is the present value of these five payments?
Q:
Shin Company has a loan agreement that provides it with cash today. The company must repay this loan in four years with $25,000. Shin agrees to a 6% interest rate. The present value factor for four periods, 6%, is 0.7921. What is the amount of cash that Shin Company receives today?
Q:
How did Kyle Smitley obtain financing to start her company, barley and birch?
Q:
Describe the recording procedures for the issuance, retirement, and paying of interest for notes.
Q:
What methods can a company use to retire its bonds?
Q:
Explain how a bond premium is amortized. Identify and describe the amortization methods available.
Q:
Explain the amortization of a bond discount. Identify and describe the amortization methods available.
Q:
Describe the journal entries required to record the issuance of bonds and the payment of bond interest.
Q:
Define the debt to equity ratio and explain its use when it comes to analyzing the risk of a companys financial structure.
Q:
What is a bond? Identify and discuss the different types of bonds.
Q:
Identify and explain the advantages and disadvantages of bond financing.
Q:
What is a lease? Be sure to explain the differences between an operating lease and a capital lease.
Q:
Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.
Q:
Explain how to record the issuance and sale of a bond between interest payment dates.
Q:
Explain the present value concept and how it applies to long-term liabilities.
Q:
Identify and explain the different types and payment patterns of notes payable.
Q:
Match each of the following terms with the appropriate definitions 1 through 10. 1. Bonds that are made payable to whoever holds them; also called unregistered bonds. Installment note 2. Bonds that mature at more than one date and are usually paid over a number of periods. Bearer bonds 3. An accounting method that allocates interest expense over the bonds' life in a way that yields a constant rate of interest. Unsecured bonds 4. An obligation requiring a series of periodic payments to the lender. Term bonds 5. The interest rate that borrowers are willing to pay and that lenders are willing to accept for a particular bond at its risk level. Bond indenture 6. Bonds that are backed by the issuer's credit standing. Effective interest method 7. Bonds that can be exchanged by the bondholders for a fixed number shares of the issuing corporation's common stock. Coupon bonds 8. Bonds with interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection. Market rate 9. Bonds that are scheduled for payment on one specified date. Convertible bonds 10. The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties. Serial bonds
Q:
Match each of the following terms with the appropriate definitions 1 through 10. 1 The contract between the bond issuer and the bondholder(s); it identifies the rights and obligations of the parties. Secured bonds 2. A series of equal payments at equal intervals. Annuity 3. Bonds that give the issuer an option of retiring them at a stated amount before the date of maturity. Premium on bonds 4. Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity. Callable bonds 5. Bonds that have specific assets of the issuer pledged as collateral. Contract rate 6. The ratio of total liabilities to total equity. Bond indenture 7. The difference between the par value of a bond and its higher issue price or carrying value. Sinking fund bonds 8. The interest rate specified in the bond indenture. Carrying value 9. A written promise to pay an amount identified as the par value along with interest at a stated rate. Debt to equity ratio 10. The net amount at which bonds are reported on the balance sheet. Bond
Q:
On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106. The interest payments are made on June 30 and December 31. Lane elects a fiscal year ending September 30. What is the amount that would be recorded as cash paid in the December 31, 2013, journal entry?
A. $24,500
B. $22,925
C. $12,250
D. $11,462
E. $13,458
Q:
On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106. The interest payments are made on June 30 and December 31. Lane elects a fiscal year ending September 30. What is the amount that would be recorded as interest expense in the December 31, 2013, journal entry?
A. $24,500.00
B. $22,925.00
C. $12,250.50
D. $11,462.50
E. $13,458.00
Q:
Interest Payable
11,462.50 Discount on Bond Payable
50 Interest Expense 12,250
Q:
Interest Payable
11,462.50 Premium on Bonds Payable
50 Cash 12,250
Q:
Interest Expense
11,462.50 Premium on Bonds Payable
50 Interest Payable 12,250
Q:
On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106 3/4. The interest payments are made on June 30 and December 31. The straight-line method is used to amortize any bond discount or premium. Lane elects a fiscal year ending September 30. What is the appropriate adjusting journal entry required for September 30, 2013?
A. Interest Expense
22,925 Cash 22,925 B. Interest Expense
22,925 Premium on Bonds Payable
1,575 Cash 24,500 C.
Q:
On April 1, 2013, Jared Enterprises issues bonds dated January 1, 2013, that have a $2,430,000 par value, mature in 20 years, and pay 7% interest semiannually on June 30 and December 31. The bonds are sold at par plus three months' accrued interest. What is the total amount of cash Jared Enterprises will collect on April 1, 2013?
A. $2,600,100
B. $2,430,000
C. $2,472,525
D. $2,750,000
E. $2,515,050
Q:
On January 1, 2013, Jacob issued $600,000 of 11%, 15-year bonds at a price of 102. The straight-line method is used to amortize any bond discount or premium and interest is paid semiannually. All interest has been accounted for (and paid) through December 31, 2018. The company retires 30% of these bonds by buying them on the open market at 98 .
What is the journal entry to record the retirement of 30% of the bonds on January 1, 2019?
A. Bonds Payable
180,000 Cash 177,300 Discount on Bonds Payable 2,700 B. Bonds Payable
180,000 Loss on Retirement
11,815 Discount on Bonds Payable 2,700 Cash 177,300 C. Bonds Payable
180,000 Discount on Bonds Payable
2,700 Gain on Retirement 177,300 Cash 5,400 D. Bonds Payable
180,000 Premium on Bonds Payable
2,700 Gain on Retirement 5,400 Cash 177,300 E. Bonds Payable
180,000 Cash 180,000
Q:
On January 1, 2013, Jacob issued $600,000 of 11%, 15-year bonds at a price of 102. The straight-line method is used to amortize any bond discount or premium and interest is paid semiannually. If all interest has been accounted for properly, what is the carrying value of these bonds on January 1, 2019?
A. $472,000
B. $531,076
C. $584,924
D. $609,000
E. $600,000
Q:
On January 1, 2013, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102. The straight-line method is used to amortize any bond premium or discount. What is the total interest expense for the life of these bonds?
A. $975,000
B. $964,000
C. $936,000
D. $772,000
E. $990,000
Q:
On January 1, 2013, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102. The straight-line method is used to amortize any bond discount or premium. What is the journal entry to record the first interest semi-annual interest payment on June 30, 2013?
A. Interest Expense
33,000 Cash 33,000 B. Cash
33,000 Interest Expense 33,000 C. Interest Expense
32,500 Discount on Bonds Payable
500 Cash 33,000 D. Interest Expense
32,500 Premium on Bonds Payable
500 Cash 33,000 E. Interest Expense
33,000 Discount on Bonds Payable 500 Cash 32,500
Q:
On January 1, 2013, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102. What is the journal entry to record the issuance of these bonds?
A. Cash
600,000 Bonds Payable 600,000 B. Bonds Payable
600,000 Cash 600,000 C. Cash
615,000 Bonds Payable 600,000 Premium on Bonds Payable 15,000 D. Cash
600,000 Premium on Bonds Payable
15,000 Bonds Payable 615,000 E. Cash
600,000 Discount on Bonds Payable
9,000 Bonds Payable 609,000
Q:
On January 1, 2013, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96. Six years later, on January 1, 2019, Jacob retires 20% of these bonds by buying them on the open market at 105 . All semiannual interest is accounted for and paid through December 31, 2018, the day before the purchase. The straight-line method is used to amortize any bond discount or premium. What is the journal entry to record the retirement of 20% of the bonds on January 1, 2019?
A. Bonds Payable
160,000 Cash 156,985 Discount on Bonds Payable 3,015 B. Bonds Payable
160,000 Loss on Retirement
11,815 Discount on Bonds Payable 3,015 Cash 168,800 C. Bonds Payable
160,000 Discount on Bonds Payable
3,015 Cash 168,800 Gain on Retirement 5,785 D. Bonds Payable
160,000 Premium on Bonds Payable
2,585 Discount on Bonds Payable 3,015 Cash 154,400 E. Bonds Payable
168,800 Cash 168,800
Q:
On January 1, 2013, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96. Six years later, on January 1, 2019, Jacob retires 20% of these bonds by buying them on the open market at 105 . All interest is accounted for and paid through December 31, 2018, the day before the purchase. The straight-line method is used to amortize any bond discount or premium. What is the carrying value of the bond on January 1, 2019?
A. $772,000
B. $831,076
C. $784,924
D. $277,000
E. $800,000