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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 91

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On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amortization of the premium (by the straight-line method) for the year by Lisbon Co. includes a debit to​

A) Interest Expense for $2,500
B) Premium on Bonds Payable for $2,500
C) Interest Expense for $5,000
D) Premium on Bonds Payable for $5,000

E) B) and C)
F) A) and D)

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Question 92

Multiple Choice

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Match each description below to the appropriate term (a-g) . ​ -The rate printed on the bond certificate

A) Contract rate
B) Effective rate
C) Bond discount
D) Bond premium
E) Bond
F) Bond indenture
G) Principal

H) F) and G)
I) B) and C)

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Question 93

Multiple Choice

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Balance sheet and income statement data indicate the following:​ Based on the data presented above, what is the times interest earned ratio (round to two decimal places) ?

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

Match each description below to the appropriate term (a-g) . ​ -If the contract rate exceeds the effective rate

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

If bonds payable are not callable, the issuing corporation

Match each description below to the appropriate term (a-g) . -The legal contract between issuer and bondholder

When the maturities of a bond issue are spread over several dates, the bonds are called

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

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

On the first day of the fiscal year, a company issues an $800,000, 6%, five-year bond that pays semiannual interest of $24,000 ($800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

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

The effective interest rate method of amortizing a bond discount or premium is the preferred method.

Balance sheet and income statement data indicate the following:​ (a)For each company, what is the times interest earned ratio (round to one decimal place)? (b)Which company gives potential creditors the most protection?

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

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

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

The present value of an annuity is the sum of the present values of each cash flow.