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Exam 22: Long-Term Bonds

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Question 41

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Unsecured Bonds:

A) represent a safer investment than secured bonds.
B) are called debentures.
C) are backed by the issuer's bank.
D) are the same as sinking bonds.

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

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Question 42

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Using borrowed funds to earn a profit greater than the interest that must be paid on the borrowed funds is called trading on the equity, or----------- .

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Question 43

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When bonds are issued at a premium, the annual interest expense reported for the bonds will be greater than the annual cash interest payments for the bonds.

A company issues 6%, 10 year bonds with a par value of $500,000 at 98. The current market rate of interest is 7%. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:

On April 1, 2021, Flummery Corporation purchased on the open market $100,000 of its 10-year 7% (interest paid semiannually)bonds and retired them. They are purchased at $102,000. These bonds were originally sold at their $100,000 face value on January 2, 2019. Prepare the journal entries necessary for this transaction.

Which of the following is not a disadvantage of raising capital through the issue of bonds payable?

The ---------------amortization method amortizes an equal amount of the discount or premium each month.

Bonds payable and mortgage loans are both long-term debt instruments. (a)How do bonds payable differ from notes payable? (b)Define bonds payable. (Include in your definition several characteristics and types of bonds payable.)

The entry to record the adjustment for accrued bond interest includes

Twenty-year, 6% bonds with a face value of $550,000 are issued at 102 on January 1 of the current year. How much of the premium will be amortized under the straight-line method in the first Semi-annual interest period?

The Bond Sinking Fund Investment account is reported as an investment in the Assets section of the balance sheet.

Bond interest is not deducted from revenue when a corporation calculates its taxable income.

The adjusting entry to record interest accrued on bonds at the end of the accounting period can be reversed on the first day of the following period.

On April 1, Fifedom, Inc. repurchased its $100,000 10-year, 9% bonds on the open market at 107. The bond's carrying value after accruing interest was $98,000 at the time of repurchase. The gain/loss on early retirement of the bonds is:

The Morris Corporation has outstanding $300,000 face value of 12 percent bonds payable dated January 1, 2019, and maturing 10 years later on January 1, 2029. The corporation is required under the bond contract to transfer $30,000 each year to a bond sinking fund investment. The cash in the sinking fund investment is invested to earn interest. Record the following entries on page 6 of a general journal. Omit descriptions. 2019 Dec. 31 Made the annual deposit to the bond sinking fund investment 2020 Dec. 31 Recorded the $3,750 earnings on the bond sinking fund investments for the past year 31 Made the annual deposit to the bond sinking fund investment 2021 Dec. 31 Recorded the $6,600 earnings on the bond sinking fund investments for the past year 31 Made the annual deposit to the bond sinking fund investment 2029 Jan. 1 Paid the amount due to retire the bonds. Assume that the balance of the Bond Sinking Fund Investment account is $300,000

The corporation must maintain a subsidiary ledger showing who owns the bonds and is entitled to receive interest payments if the bonds are

The face interest is the contractual interest specified on the bond.

If a bond is a registered bond, it can NOT be a bond.

The investment banker who acts to protect the bondholders' interests, as in the case of default, is called a------------ .

The Premium on Bonds Payable account is shown