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Exam 14: Bonds and Long-Term Notes

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Question 91

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The December 31, 2012, balance sheet of Ming Inc. included 12% bonds with a face amount of $100 million. The bonds were issued in 2002and had a remaining discount of $3,400,000 at December 31, 2012. On January 1, 2013, Ming called the bonds at a price of 102. Required: Prepare the journal entry by Ming to record the retirement of the bonds on January 1, 2013.

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Question 92

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On June 30, 2013, Hardy Corporation issued $10 million of its 8% bonds for $9.2 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2013, and mature on June 30, 2020. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2013?

A) $32,000.
B) $40,000.
C) $46,000.
D) $60,000.

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

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Question 93

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When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:

Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2013. The bonds sold for $300 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Heidi elected the option to report these bonds at their fair value. On June 30, 2013, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease?

On January 1, 2013, Fowl Products issued $80 million of 6%, 10-year convertible bonds at a net price of $81.6 million. Fowl recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Fowl's no par common stock. Fowl records interest by the straight-line method. On June 1, 2015, Fowl notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2015. By June 30 all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Fowl paid the semiannual interest and issued the requisite number of shares for the bonds being converted. Required: 1. Prepare the journal entry for the issuance of the bonds by Fowl. 2. Prepare the journal entry for the June 30, 2013, interest payment. 3. Prepare the journal entries for the June 30, 2015, interest payment by Fowl and the conversion of the bonds (book value method).

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2013, is for a period of:

Patrick Roch International issued 5% bonds convertible into shares of the company's common stock. Roch applies International Financial Reporting Standards (IFRS) . Upon issuance, Patrick Roch International should record: