Exam 14: Financing Liabilities: Bonds and Notes Payable

Exhibit 14-4 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 14-4. Interest expense after the July 1, 2013, interest payment has been posted is

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

The assumption of a stable interest expense per year is inherent under which of the following amortization methods?

Exhibit 14-5 Hawk issued $200,000 of its ten-year 10% bonds for $224,924 on October 1, 2014. The effective rate on the bonds was 8% and interest is paid each October 1 and April 1. -Refer to Exhibit 14-5. Assuming Hawk uses the effective interest method and reversing entries, the entry to record the payment of interest on April 1, 2015, would include a

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?

On May 1, 2013, Legacy Corporation sold $250,000 of its 15%, five-year bonds dated January 1, 2013, for 100 plus accrued interest. How much cash was received?

The theoretical justification in support of the effective interest method of amortizing a discount is that it represents

Serial bonds come due in installments in periodic future dates.

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

Exhibit 14-6 Omega, Inc. issued $100,000 of its 7% five-year bonds on January 1, 2014, at 98. Interest is paid on January 1 and July 1. The bonds are callable at 104 and straight-line amortization is used. The bonds are recalled on April 1, 2016. -Refer to Exhibit 14-6. The journal entry to record the reacquisition of the bonds will include a

Which of the following conditions might be included in a troubled debt restructuring?

Exhibit 14-7 On January 1, 2014, 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, 2016, Jewels, retired $100,000 of the bonds at 104. The book value of the bonds on December 31, 2015, was $212,926. -Refer to Exhibit 14-7. The entry to record the retirement would include a

What is the difference between the stated interest rate on the bond and the effective rate? What can cause the difference between the two rates?

Exhibit 14-9 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 14-9. The entry to record the conversion using the book value method would include a

If a company is having trouble paying its obligations a modification of terms can be granted in the form of interest rate reduction, maturity date extension, and even a reduction in the amount owed.

How does GAAP require a note payable to be valued? What three categories do notes fall within?

The serial bond interest rate fluctuates due to the periodic installments. After each payment the current prevailing rate is used to calculate the next periods interest.

Exhibit 14-11 Harry's Inc. issued a four-year, $75,000, non-interest-bearing note to a customer on January 1, 2013. Harry also agrees to sell inventory to the customer at reduced rates over a five-year period. Sales are to be evenly spread over the five-year period. Harry's incremental interest rate is 8%, and the present value of the note is $55,125. -Refer to Exhibit 14-11. Harry's total liabilities after recording the note have increased by

Which of the following statements is not true?

If a company sells its bonds at less than face value, the effective interest rate is