Exam 10: Reporting and Interpreting Bonds

A company prepared the following journal entry: Which of the following statements correctly describes the effect of this journal entry on the financial statements? Interest expense Discount on bonds payable Cash

On January 1, 2014, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming the effective-interest amortization is used, and rounding calculations to the nearest whole dollar, which of the following journal entries correctly records the 2014 interest expense?

The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows.

A bond issued at a premium will pay cash interest in excess of the amount of interest expense recognized for accounting purposes.

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.

Straight-line amortization of a premium related to a bond issuance would result in which of the following?

On July 1, 2015, immediately after recording interest payments, Salsa, Inc. retired one fifth of its $500,000 of bonds payable for $97,500. The bonds were originally issued at par value in 2010. Which of the following statements is correct?

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

On January 1, 2014, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the income statement for the year ended December 31, 2014 is closest to:

Which of the following statements is correct?

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. Gammel Company uses the straight-line method of amortization. Which of the following statements is incorrect?

On January 1, 2014, a corporation issued $400,000 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. Assuming the effective-interest method of amortization is used, and rounding all calculations to the nearest whole dollar, what is the interest expense for the six-month period ending June 30, 2014?

On January 1, 2014, a corporation issued $400,000 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability on December 31, 2014 is closest to:

Which of the following types of bonds has specific assets pledged to guarantee repayment?

A convertible bond can be called for early retirement at the option of the issuing company.

The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability.

On January 1, 2014, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the 2015 interest expense is closest to:

Halverson's times interest earned ratio was 2.98 in 2014, 2.79 in 2013, and 2.31 in 2012. Which of the following statements about the ratio is possibly correct?

Interest expense decreases over time when a bond is initially issued at a premium and the effective-interest method is used.

On January 1, 2013, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided: What was the issuance price of the bonds if the market rate of interest was 8%? Time Period Interest PV of \ 1 PV of a \ 1 Annuity 10 10\% .386 6.145 10 8\% .463 6.710 10 12\% .322 5.650