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Exam 11: Liabilities: Bonds Payable

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Question 1

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The balance in Premium on Bonds Payable

A) should be reported on the balance sheet as a deduction from the related bonds payable
B) should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results obtained by that method materially differ from the results that would be obtained by the effective interest rate method
C) would be added to the related bonds payable on the balance sheet
D) should be reported in the paid-in capital section of the balance sheet

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

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Question 2

Multiple Choice

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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. If Lisbon uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to

A) Interest Payable for $30,000
B) Interest Expense for $32,500
C) Cash for $70,000
D) Premium on Bonds Payable for $5,500

E) None of the above
F) A) and B)

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Question 3

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To determine the six-month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond.

A $300,000 bond was redeemed at 104 when the carrying amount of the bond was $316,000. The entry to record the redemption would include a

Creditors are interested in the times interest earned ratio because they want to

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 June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present entries to record the following transactions.​ (a)Issuance of bonds.(b)Payment of first semiannual interest on December 31 (record separate entry from premium amortization).(c)Amortization by straight-line method of bond premium on December 31.

If $1,000,000 of 8% bonds are issued at 98 1/2, the amount of cash received from the sale is

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.

Discount on Bonds Payable is a contra liability account.

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

Match each description below to the appropriate term (a-g). -The entire principal of the bond is paid back on maturity date A)carrying amount B)face value C)callable bond D)indenture E)term bond F)convertible bond G)serial bond

The prices of bonds are quoted as a percentage of the bonds' market value.

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

Gains and losses on the redemption of bonds are reported as other income (loss) on the income statement.

A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. The bonds are called at the end of year 3 for 104. What is the entry to record the redemption? (Assume the interest payment has been recorded separately.)

Match each description below to the appropriate term (a-g).​ -If the contract rate is less than the effective rate A)contract rate B)effective rate C)bond discount D)bond premium E)bond F)bond indenture G)principal

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

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

Calculate the total amount of interest expense over the life of the bonds for the following independent situations.​ (a) $100,000 face value, 10%, 10-year bonds issued at 101.(b) $240,000 face value, 5%, 5-year bonds issued at 100.(c) $300,000 face value, 9%, 6-year bonds issued at 98.