Exam 10: Reporting and Analyzing Long-Term Liabilities

On January 1,2010,a company issued 10%,10-year bonds payable with a par value of $720,000.The bonds pay interest each July 1 and January 1.The bonds were sold for $817,860 cash,which provides the holders an annual yield of 8%.Prepare the issuer's general journal entry to record the first semiannual interest payment assuming the effective interest method is used.

A company issued 5-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $101,137 cash for the bonds.Using the effective interest method,the amount of recorded interest expense for the first semiannual interest period is:

A bondholder that owns a $1,000,10%,10-year bond has:

On January 1,2010,Jacob issues $800,000 of 9%,13-year bonds at a price of 96½.Six years later,on January 1,2016,Jacob retires 20% of these bonds by buying them on the open market at 105½.All interest is accounted for and paid through December 31,2015,the day before the purchase.The straight-line method is used to amortize any bond discount. What is the carrying value of the bond on January 1,2016?

The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

Sinking fund bonds:

What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity?

Identify and explain the different types and payment patterns of notes payable.

Explain the present value concept and how it applies to long-term liabilities.

______________ bonds are bonds that are scheduled for maturity on one specified date.

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Using the effective interest method,prepare the issuer's general journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Walker Corporation issued 14%,5-year bonds with a par value of $5,000,000 on January 1,2010.Interest is to be paid semiannually on each June 30 and December 31.The bonds were issued at $5,368,035 cash when the market rate for this bond is 12% (a)Prepare the general journal entry to record the issuance of the bonds on January 1,2010. (b)Show how the bonds would be reported on Walker's balance sheet at January 1,2010. (c)Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2010. (d)Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2010.

Which of the following is true regarding the effective interest amortization method?

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

If a bond's interest period does not coincide with the issuing company's accounting period,an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

The balance of a note payable at any point in time equals its face value minus any unamortized _______________ or plus any unamortized _______________.

On January 1,2010,Jacob issues $800,000 of 9%,13-year bonds at a price of 96½.Six years later,on January 1,2016,Jacob retires 20% of these bonds by buying them on the open market at 105½.All interest is accounted for and paid through December 31,2015,the day before the purchase.The straight-line method is used to amortize any bond discount. What is the journal entry to record the retirement of 20% of the bonds on January 1,2016?

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ____________________ of interest.

If an issuer sells a bond at any other date than the interest payment date:

The interest rate specified in the bond indenture that is paid by the issuer of the bond is called the ___________________ of interest.