Exam 6: Bonds and Long-Term Notes Payable

Cerner Industrial Inc.retires its bonds (par value $100,000)at 105 on January 1 immediately following the payment of semiannual interest.The carrying value of the bonds at retirement date is $103,745.Cerner's journal entry to record the retirement will include a

An installment note is an obligation requiring a series of periodic payments to the lender.

The Emporis Oil Corporation plans to invest $1 million in oil exploration.The corporation is considering two plans to raise the money.Under Plan #1,9% bonds would be issued at par.Under Plan #2,additional common shares would be sold at $20 per share.The corporation currently has 300,000 common shares outstanding,and total equity of $3,000,000.The corporation expects to earn $700,000 each year before bond interest and taxes.Calculate profit under each plan (assume a 50% tax rate)and comment on the relative effects of each alternative. Plan \#1 Plan \#2 Earnings before bond interest and taxes \ 700,000 \ 700,000 Bond inter est expense \ 90,000 Income before taxes \ 610,000 \ 700,000 Income taxes 305,000 \ 350,000 Net income \ 305,000 \ 350,000

Yakult Corporation recognized the conversion of $75,000 par value bonds into 5,000 common shares.Prepare the journal entry to record the transaction.

Notes payable usually represent a transaction with a single lender.

LTC Corporation issued $220,000,6%,10-year bonds,with interest payable semiannually at the end of the period.The market rate on the issue date was 5%.Prepare the entry for issuing the bond. N = 20 I/Y = 6%/2 = 3% PMT = $220,000 × 0.05 × ½ = -$6,600 FV = -$220,000 CMPT PV = $237,148.08

You graphed the carrying value and par value over the life of a bond.You noticed that the carrying value is above the par value line and that the two lines meet over time.Identify the statement below that is best described by the graph you drew.

Which of the following statements is true?

Zamzar Corporation has bonds outstanding with a par value of $400,000.The unamortized discount on these bonds is $24,500.The corporation called these bonds at 96.Calculate the corporation's gain or loss on the retirement.

A bondholder who owns a $1,000,10%,10-year bond has the right to

A disadvantage of bonds is

A bond traded at 102½ means that

A bond's par value is the same as market value.

A note is initially measured and recorded at its selling price.

Accrued interest is paid on bonds that are issued between interest dates.

Explain the amortization of bond discount.

Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called

Bonds owned by investors whose names and addresses are recorded by the issuing corporation,and for which interest payments are made with cheques to the bondholders,are called

Secured bonds

The carrying value of a bond issued at a discount decreases over time