Exam 6: Bonds and Long-Term Notes Payable

When a company sells its bonds on a date other than an interest payment date,the purchasers always pay the issuer a premium.

An operating lease

The Premium on Bonds Payable account is a(n)

If a bond sells at a discount,the amortization of the discount will

Promissory notes that require the borrower to make a series of periodic payments consisting of interest and principal are

On December 31,2020,Zimmer Corporation borrowed $80,000 by signing a 12% installment note that is to be repaid in 8 annual payments,the first of which is due on December 31,2021. (a)Prepare a general journal entry to record the borrowing of the money. (b)Assume that the payments are to consist of accrued interest plus equal amounts of principal.Prepare general journal entries to record the first and second installment payments. (c)Contrary to the assumption in (b)above,assume now that the note requires each installment payment to be $14,564.Prepare general journal entries to record the first and second installment payments.(Round all amounts to the nearest whole dollar.)

On January 1, 2021, Freshbooks Industries signed an 18-year lease for heavy equipment. The lease is accounted for by Freshbooks as a finance lease. The lease required annual payments of $19,000 beginning December 31, 2021. The heavy equipment has an estimated useful life of 20 years, with $2,000 residual value. Freshbooks uses straight-line depreciation for all its plant assets. The lease payments have a present value of $159,000, based on a 10% interest rate -How much depreciation expense should Freshbooks report for the lease on its 2021 income statement?

In the event of bankruptcy,owners of secured bonds receive their share of the firm's assets as payment before the owners of other unsecured debt.

The effective interest method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.

The market value of a bond is equal to

Compare the advantages and disadvantages of bond financing.

Debentures have specific assets of the issuing corporation pledged as collateral.

On June 1,2019,when the market rate was 11%,Lada Inc issued $150,000,11% bonds at par plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the journal entry to record the issuance of the bond and the first semiannual interest payment on July 1,2019.

Weta Corporation leases photocopy equipment from Digital Corporation at $24,000 per year for 3 years beginning January 1,2020.The payments are to be made each December 31,beginning in 2020.The lease agreement meets the criteria for a finance lease.The equipment is to be depreciated straight-line over three years.Assuming a 6% effective interest rate,record the entry on January 1,2020,the adjusting entry for depreciation on December 31,2020,and the entry to record the first lease payment.Round all values to the nearest dollar.

The contract rate is also called the

For bonds issued at a premium,the effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over the bond's life.

If a bond is issued at a premium,interest expense will decrease over the term of the bond.

Reckitt Corporation issued $600,000,14%,10-year bonds when the market rate was 11%,and received $708,351.45 in proceeds.Using the effective interest method of amortizing bond premium or discount,prepare the journal entry to record the first quarterly interest payment on March 31^st and amortization of the bond premium or discount.Round values to the nearest dollar.

Akai Inc borrowed $200,000 from the bank and signed a 6-year note at 8%.The present value of an annuity factor for 6 years at 8% is 4.6229.To the nearest dollar,the annual payment is

You graphed bond interest expense and interest paid over the life of a bond.You noticed that the interest expense line was below the interest paid line.Identify the statement below that is best described by the graph you drew.