Exam 12: Long-Term Liabilities: Bonds and Notes

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Bonds payable would be listed at their carrying value on the balance sheet.

If bonds are issued at a discount, it means that the

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 x 7% x 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.

On January 1, 2011, Gemstone Company obtained a $280,000, 10-year, 11% installment note from Guarantee Bank. The note requires annual payments of $47,544, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $30,800 and principal repayment of $16,744. The journal entry to record the payment of the first annual amount due on the note would include:

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000 (b) Prepare the journal ertry to issue $100,000 bonds which sold for $104,000

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 x 8% x 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

When callable bonds are redeemed below carrying value

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

The balance in Premium on Bonds Payable

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled