Exam 10: Reporting and Interpreting Bond Securities

In a recent year,Tommy Toys reported the following amounts (in millions).Identify the activities section of the statement of cash flows where these items would be reported.Also,indicate whether each amount would be added (+)or subtracted (-)in those sections of the cash flow statement.

Assuming no adjusting journal entries have been made during the year,the journal entry on the due date of the cash interest payment for bonds issued at a premium has just been prepared.Which of the following is not an effect of the entry?

A bond will sell at a premium when the market rate of interest is greater than the coupon rate of interest.

Gammell Company issued $50,000 of 9% bonds with annual interest payments.The bonds mature in ten years.The bonds were issued at $48,000.Gammell Company uses the straight-line method of amortization. - What is the amount of the annual interest expense?

Assuming no adjusting journal entries have been made,the journal entry to record the cash interest payment on the due date for bonds issued at their par value results in which of the following?

TreeTop Company had issued $5,000,000 of 10-year bonds with a 6% coupon rate and interest to be paid annually.They were issued on January 1,2013 at 96 and have been amortized using the effective interest method through December 31,2019 at which time the balance in the bond discount was $130,000.The effective interest rate was 7%.On June 30,2020,TreeTop retired all the bonds by exercising the call feature.The call price was 101. Prepare the journal entry for the call of the bonds on June 30,2020.(Remember to amortize the discount and update the book value of the bonds for the half-year prior to retirement).

On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization. -Which of the following statements is incorrect?

Ridgetop Company issued the following ten-year bonds on January 1,2019: $100,000 maturity value,5% interest payable annually on each December 31.The bonds were dated January 1,2019 and the accounting period ends December 31.The bonds were issued for $93,000.Ridgetop uses the effective-interest method for amortization.The amortization for 2019 was $580. A.

Which of the following statements does not correctly describe the accounting for bonds that were issued at a discount?

A bond issued at a discount will pay more cash for interest over the life of the bond than the total interest expense recognized over the life of the bond.

On January 1,2019,Maralie Company issued $500,000,4%,ten-year bonds payable at 92.The market rate at the date of issue is 6%.Interest is payable annually at its year-end on each December 31.Maralie uses the effective interest method of amortization. A.Prepare the journal entry to record the issuance of the bonds on January 1,2019. B.Prepare the journal entry to record the first interest payment and interest expense at December 31,2019.No entries have yet been made for interest on these bonds. C.Prepare the journal entry to record the second interest payment and interest expense at December 31,2020.No entries have been made for these bonds since December 31,2019. D.What would the carrying value of the bonds be on December 31,2020?

Amortization of discount on bonds payable will make the amount of interest expense less than the cash owed for interest for that year.

On November 1,2019,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2019,and interest is payable each November 1 and May 1.Davis uses the straight-line method of amortization. - How much is the amount of discount amortization on each semiannual interest date?

The journal entry to record the issue of a bond when the coupon interest rate exceeds the market rate of interest debits premium on bonds payable.

On January 1,2019,Mendez Company issued 400 of its $1,000,ten-year,9% bonds.The bonds were dated January 1,2019,and interest is paid annually each December 31.The bonds were issued at 99. Part A: Prepare the entry to record the issuance of the bonds on January 1,2019: Part B: Were the bonds issued at par,at a premium,or at a discount? How did you arrive at your answer?

If a bond is issued at 98,the coupon rate was:

A company prepared the following journal entry: Which of the following statements incorrectly describes the effect of this journal entry on the financial statements?

Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium?

Consider the following statement: "Issuing bonds at a discount is bad for the issuing company." Discuss the statement and comment on its validity.

The following information was taken from the income statement of Tommy Toys for the years 2018 through 2020 (in millions): A.Compute Tommy Toys times interest earned ratio for all three years.Round your answers to two decimal places. B.Briefly interpret the times interest earned ratio for the three years.