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Exam 22: Long-Term Bonds

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Question 1

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A bond sinking fund investment is started on January 5, 2019, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2019. The entry to record the earnings made on the sinking fund investment includes

A) a debit to Cash for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
B) a debit to Cash for $1,100 and a credit to Bond Sinking Fund Investment for $1,100.
C) a debit to Bond Sinking Fund Investment for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
D) a debit to Cash for $1,100 and a credit to Interest Income for $1,100.

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

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Question 2

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The balance of the Bonds Payable account plus the balance of the Premium on Bonds Payable account or minus the balance of the Discount on Bonds Payable account is called the--------- of the bonds.

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book value...

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Question 3

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Match the following definitions with the proper terms.

Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a debit to the Cash account for

The issuing corporation has the right to require the owner of a convertible bond to surrender the bond for payment before the maturity date of the bond.

Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a credit to the Bonds Payable account for

The board of directors of the Columbus Corporation authorized the issuance of $400,000 face value of 8-year, 9 percent bonds dated April 1, 2019, and maturing on April 1, 2027. Interest is payable semiannually on April 1 and October 1. Each bond has a face value of $1,000. Because the funds to be raised were not immediately needed, no bonds were issued until April 1, 2021. Record the following transactions on page 8 of a general journal. Omit descriptions. 2021 Apr. 1 Issued $80,000 of bonds at 102.4 Oct. 1 Paid the semiannual bond interest 1 Issued $50,000 bonds at face value 1 Recorded the amortization of the premium on the bonds sold on April 1 using the straight-line method Dec.31 Recorded the adjusting entry to accrue the bond interest and to amortize the premium 31 Closed the Bond Interest Expense account into the Income Summary account

Interest on bonds must be paid in full as scheduled in the bond indenture even when the corporation operates at a loss.

The amortization of the bond discount the carrying value of the bond, while the amortization of the bond premium the carrying value of the bond.

Bonds with a face value of $400,000 were issued at 102. The entry to record the issuance will include a debit to the Cash account for

To calculate the gain or loss on the retirement of bonds, the face amount of the bonds is subtracted from the repurchase price.

When bonds mature, a corporation will pay the bondholders

If bonds are issued for a price below their face value, the bond discount should be

Bonds issued at a premium are

Bond interest expense usually appears in the-------------section of the income statement.

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 98, what is the amount of gain or loss on the redemption of the bonds?

Twee Corporation creates a bond sinking fund on July 1, 2019, the first day of its fiscal year in preparation of payment of principal of $300,000 due in six years. Twee makes a $50,000 cash deposit into the account and invests it in an oil stock fund. During the year, $4,400 is earned on this investment. Fund administrative expenses for this fund amount to $50. Record the journal entry for the creation of this fund, the earnings on the investment, and for the required amount of investment into the sinking fund at the beginning of the second year.

Match the following definitions with the proper terms.

A bond sinking fund investment is started on January 5, 2019, by transferring $12,000 in cash to the fund. The company intends to accumulate $12,000 each year in the fund. This $12,000 is invested and earns $1,500 during 2019. On January 5, 2020, the amount of cash transferred to the sinking fund investment will be

To pay interest on------------ bonds, the corporation must keep a record of the name of each bondholder.