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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 91

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On August 1,2010,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.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31,2010.

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Question 92

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Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

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B) False

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Question 93

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A company issued 18-year,6% bonds with a par value of $750,000.The company received $761,736 cash for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

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?

Amortizing a bond discount:

A bond's par value is not necessarily the same as its market value.

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.

Adidas issued 10-year,8% bonds with a par value of $200,000,where interest is paid semiannually.The market rate on the issue date was 7.5%.Adidas received $206,948 in cash proceeds.Which of the following statements is true?

A company issued 10-year,8% bonds with a par value of $200,000.The company received $190,000 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

A company issues bonds with a par value of $800,000 on their issue date.The bonds mature in 5 years and pay 6% annual interest in two semiannual payments.On the issue date,the market rate of interest is 8%.Compute the price of the bonds on their issue date.The following information is taken from present value tables: $\begin{array}{|l|l|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756\\\hline\end{array}$

Bonds that give the issuer an option of retiring them prior to the date of maturity are:

On January 1,2010,the Plimpton Corporation leased some equipment on a 2-year lease,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 31,2010.

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

Match each of the following terms with the appropriate definitions 1 through 10.

Match each definition with its term

The type of bond that provides the greatest security from theft of loss is the debenture.

An advantage of bonds is that interest does not have to be paid.

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal.What journal entry would the issuer record for the first payment?

Unsecured bonds are also called ____________________ and are backed by the issuer's general credit standing.