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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 81

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(a) Prepare the journal entry to issue $500,000 bonds that sold for $490,000. (b) Prepare the journal entry to issue $500,000 bonds that sold for $515,000.

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Question 82

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If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

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Question 83

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The market interest rate related to a bond is also called the

Bondholders' claims on the assets of the corporation rank ahead of stockholders' claims.

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is to

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year: (a)Issuance of the bonds. (b)First semiannual interest payment (record as separate entry from discount amortization). (c)Amortization of bond discount for the year, using the straight-line method of amortization.

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year: (a)Issuance of the bonds. (b)First annual interest payment (record as separate entry from premium amortization). (c)Amortization of bond premium for the year, using the straight-line method of amortization.

Bonds Payable has a balance of $1,000,000, and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

The amortization of a premium on bonds payable decreases bond interest expense.

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

A bond indenture is

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

Ulmer Company is considering the following alternative financing plans:? Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock.Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

The present value of $60,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

Two companies are financed as follows:​Income tax is estimated at 40% of income for both companies.Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each. ​

The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period.