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Exam 11: Liabilities: Bonds Payable

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Question 61

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The balance in Discount on Bonds Payable

A) should be reported on the balance sheet as an asset because it has a debit balance
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 to determine the carrying amount of the bonds
D) would be subtracted from the related bonds payable on the balance sheet

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

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Question 62

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On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

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Question 63

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Balance sheet and income statement data indicate the following: $\begin{array} { l r } \text { Bonds payable, } 6 \% \text { (due in } 15 \text { years) } & \$ 1,200,000 \\\text { Income before income tax for year } & 320,000 \\\text { Income tax for year } & 80,000 \\\text { Interest payable } & 33,000 \\\text { Interest receivable } & 19,000\end{array}$ Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

If bonds are issued at a discount, it means that the

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

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. What is the journal entry needed when the bonds are issued at face value?

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

Using the following table, what is the present value of $15,000 to be received in 10 years, if the market rate is 5% compounded annually? $\begin{array} { | l | c | c | c | c | } \hline \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% \\\hline 1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 \\\hline 2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 \\\hline 3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 \\\hline 4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 \\\hline 5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 \\\hline 6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 \\\hline 7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 \\\hline 8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 \\\hline 9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 \\\hline 10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 \\\hline\end{array}$

An equal stream of periodic payments is called an annuity.

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30. Use the following table, if needed. $\begin{array}{l}\text { Present Value of } \$ 1 \text { at Compound Interest }\\\begin{array} { l l l l l l } \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% & 12 \% \\1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 & 0.89286 \\2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 & 0.79719 \\3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 & 0.71178 \\4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 & 0.63552 \\5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 & 0.56743 \\6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 & 0.50663 \\7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 & 0.45235 \\8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 & 0.40388 \\9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 & 0.36061 \\10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 & 0.32197\end{array}\end{array}$

The balance in Premium on Bonds Payable

Match each description below to the appropriate term (a-g) . -The face amount of each bond

On January 1, the Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 of the first year is

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

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

Eddie Industries issues $1,500,000 of 8% bonds at 105. The amount of cash received from the sale is