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Exam 11: Liabilities: Bonds Payable

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Question 21

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On February 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions. (a) Issuance of the bonds. (b) First semiannual interest payment (record as separate entry from premium amortization). (c) Amortization of bond discount for the year, using the straight-line method of amortization. (Round to the nearest dollar when necessary.)

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(a) _TB228...

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Question 22

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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

H) C) and G)
I) All of the above

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Question 23

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When the bonds are sold for more than their face value, the carrying amount of the bonds is equal to

The value of a bond stated on the bond certificate

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

If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the gain on redemption of bonds is $10,000.

On the first day of the fiscal year, a company issues an $800,000, 6%, 5-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.

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 principal of the bond issue is paid back in installments

Match each description below to the appropriate term (a-g) . -A form of an interest-bearing note

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?

The Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a

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.

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. What is the entry to record the calling of the bonds at the end of year 5 at 97? (Assume interest for the period has been separately recorded.)

On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. Use the following format and round figures to nearest dollar. The bonds were issued for $1,851,234. ​ (a) Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method. Date Interest Paid Interest Expense Amortization Bond Carrying Amount ​ (b) Show how this bond would be reported on the balance sheet at December 31, Year 2.

Only callable bonds can be purchased by the issuing corporation before maturity.

If bonds payable are not callable, the issuing corporation

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5-year bond that pays semiannual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the first interest payment and the amortization of the related bond discount using the straight-line method. Round answers to the nearest dollar.

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

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.