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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 71

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Bonds may be purchased directly from the issuing corporation or through one of the bond exchanges.

A) True
B) False

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Question 72

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Use the following tables to calculate the present value of a $20,000 7%, 5 year bond that pays $1,400 ($20,000 x 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

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Question 73

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One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

If $3,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

The Designer Company issued 10-year bonds on January 1, 2011. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Designer should record interest expense (round to the nearest dollar) of

A $525,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $475,000. Journalize the redemption of the bonds.

There is a loss on redemption of bonds when bonds are redeemed above carrying value.

The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)

A bond is simply a form of an interest bearing note.

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

Given the following data, prepare an amortization schedule (use the straight line method) 1/1/10 - issued $800,000, 9%, 3 year bonds, interest paid annually on 12/31 to yield 8% Use the following format (round to nearest dollar, may have small rounding difference); Date Cash Paid Interest Exp. Amortization Bond Carrying Value

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

The higher the times interest earned ratio, the better the creditors' protection.

Balance sheet and income statement data indicate the following:

The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.

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.

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

(a) Prepare the journal entry to issue $200,000 bonds which sold for $195,000 (b) Prepare the journal ertry to issue $200,000 bonds which sold for $204,000

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

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