Exam 12: Long-Term Liabilities: Bonds and Notes

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

On January 1, 2010, the Horton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $196,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2014. Horton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2010, is

Given the following data, prepare an amortization table (use the effective method) 1/1/10 - issue $800,000, 9%, 3 year bonds, interest paid annually on 12/31, to yield 8% Use the following format (round to nearest dollar - may have a slight rounding difference); Date Cash Paid Interest Exp. Amortization Bond Carrying Value

The market interest rate related to a bond is also called the

Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

A corporation issues for cash $8,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

The cash and securities comprising a sinking fund established to redeem bonds at maturity in 2015 should be classified on the balance sheet as

An installment note payable for a principal amount of $48,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $11,395 beginning December 31, 2011, for each of the next five years. After the final payment, the carrying amount on the note will be

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

Sorenson Co., is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is

On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds, dated June 30, for $1,540,000. Present entries to record the following transactions:

Both callable and non-callable bonds can be purchased by the issuing corporation in the open market.

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue. The amounts set aside are kept separate from other assets in a special fund called a(n)