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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 31

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Bonds with a face amount $1,000,000,are sold at 108.The entry to record the issuance is

A) Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000
B) Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000
C) Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000
D) Cash 1,080,000 Bonds Payable 1,080,000

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

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Question 32

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Sinking Fund Investments would be classified on the balance sheet as

A) a current asset
B) a fixed asset
C) an investment
D) a deferred debit

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

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Question 33

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If the straight-line method of amortization of bond premium or discount is used,which of the following statements is true?

On June 30,2011,Arlington Company issued $1,500,000 of 10-year,8% bonds,dated June 30,for $1,540,000.Present entries to record the following transactions:

There is a loss on redemption of bonds when bonds are redeemed above carrying value.

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

Bonds may be purchased directly from the issuing corporation or through one of the bond exchanges.

On the first day of the fiscal year,a company issues a $500,000,8%,10 year bond that pays semi-annual interest of $20,000 ($500,000 ´ 8% ´ 1/2),receiving cash of $530,000.Journalize the entry to record the issuance of the bonds.

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.The journal entry to record the amoritization of the bond premium (by straight-line method) for the year by Orange Inc.includes a credit to:

Numbers of times interest charges earned is computed as

On January 1,2011,Zero Company obtained a $52,000,four-year,6.5% installment note from Regional Bank.The note requires annual payments of $15,179,beginning on December 31,2011.The December 31,2013 carrying amount in the amortization table for this installment note will be equal to:

If the bondholder has the right to exchange a bond for shares of common stock,the bond is called a convertible bond.

Balance sheet and income statement data indicate the following: Based on the data presented above,what is the number of times bond interest charges were earned (round to two decimal places) ?

Using the following table,what is the present value of $25,000 to be received 5 years,if the market rate is 7% compounded annually?

A legal document that indicates the name of the issuer,the face value of the bond and such other data is called

When callable bonds are redeemed below carrying value

On August 1,Clayton Co.issued $1,300,000 of 20-year,9% bonds,dated August 1,for $1,225,000.Interest is payable semiannually on February 1 and August 1.Present the entries to record the following transactions for the current year:

(a) Prepare the journal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500.000 bonds which sold for $515,000

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

A company issued $2,000,000 of 30-year,8% callable bonds on April 1,2011,with interest payable on April 1 and October 1.The fiscal year of the company is the calendar year.Journalize the entries to record the following selected transactions: