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

Gains or losses from refunding are recognized

When a company sells bonds between interest dates, the company normally will collect from the investors both the selling price and the interest accrued on the bonds from the interest payment date prior to the date of sale.

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 book value method would include a

A material gain or loss from debt refunding should be

Interest expense recognized each period on zero-coupon bonds sold at a discount is equal to the

When a debtor satisfies a liability by exchanging an asset of lesser value, it records the transfer based on the fair value of the asset and recognizes a loss on the debt restructuring.

Exhibit 14-6 Jones Corporation issued $400,000 of its 8%, 10-year bonds, dated January 1, 2016, at face value plus accrued interest on May 1, 2016. Interest is paid on January 1 and July 1. Jones uses the most common method to record the sale of the bonds between interest payment periods. -Refer to Exhibit 14-6. The amount of bond interest expense reported on the year-end 2016 income statement would be

If a company sells its 20-year bonds at a discount, how is the discount account reported on the balance sheet?

The effective rate is less than the contract rate when bonds are issued at a discount.

When a long-term non-interest-bearing note is exchanged solely for cash, the difference between the cash received and the face value of the note is recorded as

When is interest expense less than interest paid?

Small and medium-size companies typically have more difficulty attracting equity capital than debt capital.

How can a company restructure their debt in the event of financial difficulties?

On January 1, 2013, Angle Products issued $24,000 of ten-year bonds at 98. These bonds were each convertible into ten shares of $100 par common stock. On January 1, 2020, Angle converted two-thirds of these bonds when the common stock was selling at $130 a share. What would be the loss on bond conversion?

A company may want to increase its equity capital at a later date in time, in order to accomplish this goal the company decides to issue convertible debt.

Exhibit 14-12 On January 1, 2016, Jewels, Inc. sold $200,000 of its 12% five-year bonds to yield 10%. Interest is paid each January 1 and July 1, and effective interest amortization is used. On May 1, 2018, Jewels, retired $100,000 of the bonds at 104. The book value of the bonds on December 31, 2017, was $212,926. -Refer to Exhibit 14-12. The entry to record the retirement in May, 2018 would include a

Exhibit 14-5 Joseph Company had underwriters prepare a bond issue for $100,000 9%, ten-year bonds dated January 1, 2014 The bonds were issued on March 1, 2014 at 102 plus accrued interest on. Expenses connected with the issue totaled $5,000 and were deducted in arriving at the net proceeds. Joseph amortizes premiums and discounts using the straight-line method. -Refer to Exhibit 14-5. The entry to record the issue would include

Exhibit 14-1 A $300,000, ten-year, 8% bond issue was sold to yield 9% interest payable annually. Actuarial information for 10 periods is as follows: -Refer to Exhibit 14-1. These bonds sold at

Which of the following is always equal to the face rate of interest?

A company could decide to call its bonds because it will eliminate any restrictions on operations from certain debt covenants.