Exam 14: Financing Liabilities: Bonds and Long-Term Notes Payable

When bonds have a conversion feature, GAAP requires the difference between proceeds with and without the conversion feature should be allocated to additional paid-in-capital at the time of issuance.

On May 1, 2016, Plotter, Inc., issued $30,000 of ten-year, 12% bonds payable dated January 1, 2016. The cash received amounted to $29,808. The bonds pay interest semiannually. Potter's fiscal year ends on June 30, 2016. What amount of interest expense should be reported on the income statement prepared on June 30, 2016, assuming straight-line amortization?

When zero-coupon bonds are issued, a company will record no interest expense until the bonds mature.

When the market rate of interest is less than the contract rate of interest, the bonds will sell

How should a company treat the issuance of convertible debt per GAAP? What two methods are available to record the issuance?

Which of the following may not be equal to the contract rate of interest?

Debt financing typically has a higher cost of capital than equity.

The portion of proceeds from the sale of bonds with detachable stock warrants attributable to the warrants is accounted for as an)

Exhibit 14-7 Magenta Corporation issued $500,000 of its 6%, 10-year bonds, dated January 1, 2016, at face value plus accrued interest on September 1, 2016. Interest is paid on June 30 and December 31. Magenta uses the most common method to record the sale of the bonds between interest payment periods. -Refer to Exhibit 14-7. The entry to record the payment of interest on December, 2016, would include a

Under current GAAP, the rate of interest assigned to non-interest-bearing notes is

On January 1, 2015, Leslie Co. issued $100,000 of 8% ten-year bonds at 97. Issuance costs amounted to $2,000. On July 1, 2020, all of the bonds were called at 103. What was the loss on bond retirement, assuming the use of straight- line amortization?

Exhibit 14-2 A $500,000, ten-year, 7% bond issue was sold to yield 6% interest payable annually. Actuarial information for 10 periods is as follows: -Refer to Exhibit 14-2. The discount or premium at the date of bond issuance would be

The creditor of a restructured loan calculates interest revenues during the periods after restructuring based on the

Which of the following bonds pay no interest until maturity?

Exhibit 14-13 Yoho Corp. issued $500,000 of its ten-year 6% bonds at 104. Each $1,000 bond carries ten warrants. Each warrant allows the holder to purchase one share of $10 par common stock for $50. Following the sale, relevant market values were: -Refer to Exhibit 14-13. After a total of 4,000 warrants were exercised, the remaining warrants expired. The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for

Under the straight-line amortization method, interest expense on a bond sold at a discount is equal to the

Exhibit 14-4 A $900,000, ten-year, 4% bond issue was sold to yield 5% interest payable annually. Actuarial information for 10 periods is as follows: -Refer to Exhibit 14-4. The discount or premium at the date of bond issuance would be

At the time of the issuance of a note payable the incremental interest rate is what one would pay for similar financing.

Exhibit 14-10 Hawk issued $500,000 of its ten-year 5% bonds for $463,197 on October 1, 2016 so as to yield an effective rate of 6%. Interest is paid each October 1 and April 1 -Refer to Exhibit 14-10. Assuming Hawk uses the effective interest method, the adjusting entry on December 31, 2016, would include rounded to the nearest dollar)

Related to long-term liabilities, reading the notes to the financial statements is important because they contain