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Exam 10: Long-Term Liabilities

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Question 81

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_______________ bonds are bonds that mature at more than one date,often in a series and thus are usually repaid over a number of periods.

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Question 82

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The market value of a bond is equal to:

A) The present value of all future cash payments provided by a bond.
B) The present value of all future interest payments provided by a bond.
C) The present value of the principal for an interest-bearing bond.
D) The future value of all future cash payments provided by a bond.
E) The future value of all future interest payments provided by a bond.

F) A) and E)
G) B) and D)

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Question 83

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Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders,are called:

On January 1,2013,the Plimpton Corporation leased some equipment for two years,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31,2013.

On August 1,2013,a company issues bonds with a par value of $600,000.The bonds mature in 10 years and pay 6% annual interest,payable each February 1 and August 1.The bonds sold at $592,000.The company uses the straight-line method of amortizing bond discounts and premiums.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31,2013.

Describe the journal entries required to record the issuance of bonds and the payment of bond interest.

A discount on bonds payable occurs when a company issues bonds at a price less than par value.

The issue price of bonds is found by computing the present value of the bond's cash payments,discounted at the _______________ rate of interest at the time of issuance.

Secured bonds:

The present value of an annuity factor for six years at 10% is 4.3553.This means that the present value of an annuity of six annual $2,000 payments at 10% would equal $8,711.

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Using the effective interest method,prepare the issuer's general journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Premium on Bonds Payable increases a company's liabilities..

A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company retired these bonds by buying them on the open market at 97.What is the gain or loss on this retirement?

A company has bonds outstanding with a par value of $600,000.The unamortized discount on these bonds is $3,000.The company retired these bonds by buying them on the open market at 98.What is the gain or loss on this retirement?

A company issued five-year,7% bonds with a par value of $100,000.The company received $97,947 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

An advantage of bonds is that interest does not have to be paid.

Match the following definitions with the appropriate terms

Walker Corporation issued 14%,five-year bonds with a par value of $5,000,000 on January 1,2013.Interest is to be paid semiannually on each June 30 and December 31.The bonds were issued at $5,368,035 cash when the market rate for this bond was 12%. (a)Prepare the general journal entry to record the issuance of the bonds on January 1,2013. (b)Show how the bonds would be reported on Walker's balance sheet at January 1,2013. (c)Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013. (d)Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013.

A company issues bonds with a par value of $800,000 on their issue date.The bonds mature in five years and pay 6% annual interest in two semiannual payments.On the issue date,the market rate of interest is 8%.Compute the price of the bonds on their issue date.The following information is taken from present value tables: $\begin{array}{|l|l|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756\\\hline\end{array}$

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.