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

Interest expense is less than the interest paid when a bond is issued for a premium.

______is a contractual obligation that requires a company to deliver cash or other financial asset to another party.

Debenture bonds are only issued by companies with an excellent credit rating.

On May 1, 2014, a $300,000, ten-year, 14% bond was sold to yield 12% plus accrued interest. The bond was dated January 1, 2014, and interest is paid each January 1 and July 1. Present value data follow: Required: a. Compute the amount of cash received from the sale of the bond. b. Prepare the journal entry to record the sale. c. When preparing the journal entry, you recorded a premium or discount. Discuss why.

When is interest expense more than interest paid?

A call provision gives the issuing company the option to recall the debt issue at an effective interest rate less than the contract rate.

Exhibit 14-14 Marley, Inc. sold $500,000 of its ten-year 8% bonds at 96 on January 1, 2014. Interest is paid each January 1 and July 1 and straight-line amortization is used. Each $1,000 bond is convertible into 100 shares of $10 par common stock. One-half of the bonds were converted on January 1, 2019, when the market value of the stock was $14 per share. -Refer to Exhibit 14-14. The entry to record the conversion using the market value method would include a

Bond issue costs are reported on the financial statements as

An advantage of debt financing is that it decreases financial leverage.

The market value method for recording bond conversion to common stock results in no gain or loss at the time of conversion.

This year, Game Co. took advantage of market conditions to refund its outstanding debt. Game should report the excess of the carrying amount of the old debt over the amount paid to extinguish it as an)

In which of the following situations will the book value of a bond be equal to its maturity value?

When a debtor satisfies a liability by exchanging an asset of lesser value, it records the transfer

List three reasons a company might call a bond.

The proper procedure for computing the amortization of a premium using the effective interest method includes multiplying

What is the primary difference between a debtor's and creditor's accounting for a modification of terms in a troubled debt restructuring?

Orange Mfg. Co. issued a four-year non-interest-bearing note with a face value of $500,000. Orange received $329,365, resulting in an effective 11% interest rate. Required: Prepare journal entries to: a. Issue the note b. Record interest at the end of the first year c. Record interest at the end of the second year Note: round all answers to the nearest dollar.)

Briggs Industries, Inc. issued $900,000 of 8% debentures on July 1, 2013. The bonds pay interest semiannually on January 1 and July 1. The maturity date on these bonds is July 1, 2021. The bonds were sold to yield an effective- interest rate of 10%. Briggs incurred issuance costs of $15,000. Requirements 1) Calculate the selling price of the bonds. 2) Prepare the journal entry for the issuance of the bonds and the issuance costs.

Exhibit 14-8 Piazzi, Inc. sold $400,000 of its 9%, five-year bonds dated January 1, 2013, on May 1, 2013, for $393,000 plus accrued interest. Interest is paid on January 1 and July 1 and straight-line amortization is used. -Refer to Exhibit 14-8. The net liability for the bonds after recording the sale would be