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Exam 14: Long-Term Liabilities

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Question 81

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Secured bonds:

A) Are called debentures.
B) Have specific assets of the issuing company pledged as collateral.
C) Are backed by the issuer's bank.
D) Are subordinated to those of other unsecured liabilities.
E) Are the same as sinking fund bonds.

F) A) and D)
G) B) and C)

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Question 82

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The effective interest method yields increasing amounts of bond interest expense and decreasing amounts of premium amortization over the bond's life for bonds issued at a premium.

A) True
B) False

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Question 83

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On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.

On March 1, a company issues bonds with a par value of $300,000. The bonds mature in 10 years, and pay 6% annual interest, payable each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

Shin Company has a loan agreement that provides it with cash today, and the company must pay $25,000 4 years from today. Shin agrees to a 6% interest rate. The present value factor for 4 periods, 6% is 0.7921. What is the amount of cash that Shin Company receives today?

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

_______________ bonds have specific assets of the issuing company pledged as collateral.

On August 1, 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. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.

If an issuer sells bonds at a date other than an interest payment date:

The Premium on Bonds Payable account is a(n) :

What is a bond? Identify and discuss the different types of bonds.

A bond sells at a discount when the:

A basic present value concept is that cash paid or received in the future is worth more than the same amount of cash received today.

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using the effective interest method of amortization is:

Bonds can be issued: