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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 51

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Bonds with a face amount $1,000,000 are sold at 106.The journal entry to record the issuance is

A)
B)
C)
D)

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

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Question 52

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

A) True
B) False

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Question 53

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Ulmer Company is considering the following alternative financing plans: $\begin{array}{|l|r|r|}\hline & \text { Plan 1 } & \text { Plan 2 } \\\hline \text { Issue } 8 \% \text { bonds at face value } & \$ 2,000,000 & \$ 1,000,000 \\\hline \text { Issue preferred stock, } \$ 15 \text { par } & - & 1,500,000 \\\hline \text { Issue common stock, } \$ 10 \text { par } & 2,000,000 & 1,500,000 \\\hline\end{array}$ Income tax is estimated at 35% of income.Dividends of $1 per share were declared and paid on the preferred stock. Required: Determine the earnings per share of common stock,assuming income before bond interest and income tax is $600,000.

The Merchant Company issued 10-year bonds on January 1.The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1.The bonds were sold for $117,205 based on the market interest rate of 12%.Merchant uses the effective interest method to amortize bond discounts and premiums.On July 1 of the first year,Merchant should record interest expense round to the nearest dollar of

The present value of $40,000 to be received in two years,at 12% compounded annually,is rounded to nearest dollar

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $316,000.The entry to record the redemption would include a

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?

The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the balance sheet in the section entitled

When the maturities of a bond issue are spread over several dates,the bonds are called

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

Calculate the total amount of interest expense over the life of the bonds for the following independent situations. a- $100,000 face value,10%,10-year bonds issued at 101. b- $240,000 face value,5%,5-year bonds issued at 100. c- $300,000 face value,9%,6-year bonds issued at 98.

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

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

Selling the bonds at a premium has the effect of

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?

If $2,000,000 of 10% bonds are issued at 97,the amount of cash received from the sale is

On the first day of the fiscal year,Lisbon Co.issued $1,000,000 of 10-year,7% bonds for $1,050,000,with interest payable semiannually.Orange Inc.purchased the bonds on the issue date for the issue price.If Lisbon uses the straight-line method for amortizing the premium,the journal entry to record the first semiannual interest payment by Lisbon Co.would include a debit to

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is to

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000.Journalize the redemption of the bonds.

On the first day of the fiscal year,a company issues a $800,000,6%,5-year bond that pays semiannual interest of $24,000 $800,000 × 6% × 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.