Question 1

On January 1, 2009, BBX issued $400,000 of its 8% bonds for $368,000. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. BBX records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2009, the fair value of the bonds was $370,000 as determined by their market value on the NYSE.
Required:
1. Prepare the journal entry to record interest on June 30, 2009 (the first interest payment).
2. Prepare the journal entry to record interest on December 31, 2009 (the second interest payment).
3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2009, balance sheet.

Accepted Answer

The answer of On January 1, 2009, BBX issued $400,000...

Question 2

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Accepted Answer

A)  Six months.
B)  Four months.
C)  Ten months.
D)  Twelve months.E) A) and B)
F) A) and C)

Question 3

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2010, rounded up to the nearest thousand?

Accepted Answer

A)  $252,369,000
B)  $256,369,000
C)  $256,300,000
D)  $257,030,000.This is the beginning liability of $255,369,000 + interest accrued for six months (3% of issue price)  cash paid of $6,000,000.E) A) and B)
F) None of the above D

Question 4

When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense:

Accepted Answer

A)  Increases.
B)  Decreases.
C)  Remains the same.
D)  Is equal to the change in book value.E) A) and D)
F) B) and C)

Question 5

The specific provisions of a bond issue are described in a document called a bond indenture.

Accepted Answer

A) True 
 B)False

Question 6

For a bond issue that sells for more than the bond face amount, the effective interest rate is:

Accepted Answer

A)  The rate printed on the face of the bond.
B)  The Wall Street Journal prime rate.
C)  More than the rate stated on the face of the bond.
D)  Less than the rate stated on the face of the bond.E) A) and D)
F) All of the above

Question 7

Bonds will sell for a premium when the market rate of interest exceeds their stated rate.

Accepted Answer

A) True 
 B)False

Question 8

Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

Accepted Answer

A) True 
 B)False

Question 9

AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction:

Accepted Answer

A)  The machine should be depreciated over the note's term to maturity.
B)  If fair values of the note and machine are unavailable, the note should be recorded at its present value, discounted at the market rate of interest.
C)  Both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable.
D)  The note is recorded at its face amount unless the fair value of the machine is readily available.E) B) and D)
F) All of the above

Question 10

TMC issued $50 million of its 12% bonds on April 1, 2009, at 98 plus accrued interest. The bonds are dated January 1, 2009, and mature on December 31, 2030. Interest is payable semiannually on June 30 and December 31. What amount did TMC receive from the bond issuance?

Accepted Answer

A)  $50.5 million
B)  $51.5 million
C)  $49.0 million
D)  $49.5 million $50 million .98 = $49 million12% $50 million 3/12 = $1.5 million$49 million + 1.5 Million = $50.5 millionE) None of the above
F) A) and B)

Question 11

On February 1, 2009, Fox Corporation issued 9% bonds dated February 1, 2009, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Fox's fiscal year is the calendar year. Fox uses the straight-line method of amortization.
Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2009.
2. Prepare the entry to record interest on July 31, 2009.
3. Prepare the necessary journal entry on December 31, 2009.
4. Prepare the necessary journal entry on January 31, 2010.

Accepted Answer

The answer of On February 1, 2009, Fox Corporation issued...

Question 12

The interest rate that is printed on the bond certificate is not referred to as the:

Accepted Answer

A)  Stated rate.
B)  Contract rate.
C)  Nominal rate.
D)  Effective rate.E) B) and C)
F) C) and D)

Question 13

On March 1, 2009, Doll Co. issued 10-year convertible bonds at 106. During 2012, the bonds were converted into common stock when the market price of Doll's common stock was 500 percent above its par value. On March 1, 2009, cash proceeds from the issuance of the convertible bonds should be reported as

Accepted Answer

A)  A liability for the entire proceeds.
B)  Paid-in capital for the entire proceeds.
C)  Paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.
D)  A liability for the face amount of the bonds and paid-in capital for the premium over the par value.Convertible bonds are debt securities reported entirely as a liability.E) C) and D)
F) B) and D)

Question 14

What is the interest expense on the bonds in 2010?

Accepted Answer

A)  $800,000.
B)  $680,759.
C)  $342,961.
D)  $119,241.Semiannual effective rate = $344,632 / $11,487,747 = 3% Interest expense = $341,261 + ($11,316,611 3%)  = $680,759E) A) and B)
F) All of the above

Question 15

On January 1, 2009, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

Accepted Answer

A)  $80,000.
B)  $82,000.
C)  $78,000.
D)  $89,000.Interest consists of cash paid out, $80,000, plus $20,000/10 years.E) B) and D)
F) B) and C)

Question 16

Required: How much interest will Morton Sales Co. pay on these bonds in 2009?

Accepted Answer

None. Zero coupon bo...

Question 17

On January 1, 2009, Tiny Tim Industries had outstanding $1,000,000 of 12% bonds with a carrying amount of $966,130. The indenture specified a call price of $981,000. The bonds were issued previously at a price to yield 14%. Tiny Tim called the bonds (retired them)  on July 1, 2009. What is the amount of the loss on early extinguishment?

Accepted Answer

A)  $0.
B)  $6,932.
C)  $7,241.
D)  $7,629.E) A) and D)
F) B) and D)

Question 18

What is the stated annual rate of interest on the bonds?

Accepted Answer

A)  3%.
B)  4%.
C)  6%.
D)  8%.($300,000 / $10,000,000)  2 = 6%E) None of the above
F) A) and D)

Question 19

What is the carrying value of the bonds as of December 31, 2010?

Accepted Answer

A)  $8,834,770.
B)  $8,686,606.
C)  $8,734,070.
D)  $8,783,433.Semiannual effective rate = $345,639 / $8,640,967 = 4% Amortization Payment 4 = ($8,783,433 4%)  $300,000 = $51,337Carrying value = $8,783,433 + $51,337 = $8,834,770E) A) and D)
F) A) and C) A

Question 20

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance at December 31, 2009, rounded up to the nearest thousand?

Accepted Answer

A)  $252,369,000
B)  $256,369,000
C)  $256,200,000
D)  $257,030,070.This is the beginning liability of $255,369,000 + interest accrued for three months (1.5% of issue price)  interest payable of $3,000,000 ($300,000,000 4% 3/12) .E) A) and C)
F) None of the above

Exam 14: Bonds and Long-Term Notes

Correct Answer
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When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Correct Answer
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Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2010, rounded up to the nearest thousand?

Correct Answer
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D

When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense:

Correct Answer
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The specific provisions of a bond issue are described in a document called a bond indenture.

Correct Answer
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For a bond issue that sells for more than the bond face amount, the effective interest rate is:

Correct Answer
verified

Bonds will sell for a premium when the market rate of interest exceeds their stated rate.

Correct Answer
verified

Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

Correct Answer
verified

AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction:

Correct Answer
verified

TMC issued $50 million of its 12% bonds on April 1, 2009, at 98 plus accrued interest. The bonds are dated January 1, 2009, and mature on December 31, 2030. Interest is payable semiannually on June 30 and December 31. What amount did TMC receive from the bond issuance?

Correct Answer
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Correct Answer
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The interest rate that is printed on the bond certificate is not referred to as the:

Correct Answer
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Correct Answer
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What is the interest expense on the bonds in 2010?

Correct Answer
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On January 1, 2009, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

Correct Answer
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Required: How much interest will Morton Sales Co. pay on these bonds in 2009?

Correct Answer
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None. Zero coupon bo...
View Answer

Correct Answer
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What is the stated annual rate of interest on the bonds?

Correct Answer
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What is the carrying value of the bonds as of December 31, 2010?

Correct Answer
verified
A

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance at December 31, 2009, rounded up to the nearest thousand?

Correct Answer
verified

Exam 14: Bonds and Long-Term Notes

Correct Answerverified11ea92df_72a5_2841_9bd4_3f81a17a3eeb_TB5911_00

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Correct AnswerverifiedShow Answer

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2010, rounded up to the nearest thousand?

Correct AnswerverifiedD

When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense:

Correct AnswerverifiedShow Answer

The specific provisions of a bond issue are described in a document called a bond indenture.

Correct AnswerverifiedShow Answer

For a bond issue that sells for more than the bond face amount, the effective interest rate is:

Correct AnswerverifiedShow Answer

Bonds will sell for a premium when the market rate of interest exceeds their stated rate.

Correct AnswerverifiedShow Answer

Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

Correct AnswerverifiedShow Answer

AMC issues a note in exchange for a machine with no stated interest rate. In accounting for the transaction:

Correct AnswerverifiedShow Answer

TMC issued $50 million of its 12% bonds on April 1, 2009, at 98 plus accrued interest. The bonds are dated January 1, 2009, and mature on December 31, 2030. Interest is payable semiannually on June 30 and December 31. What amount did TMC receive from the bond issuance?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The interest rate that is printed on the bond certificate is not referred to as the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the interest expense on the bonds in 2010?

Correct AnswerverifiedShow Answer

On January 1, 2009, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

Correct AnswerverifiedShow Answer

Required: How much interest will Morton Sales Co. pay on these bonds in 2009?

Correct AnswerverifiedNone. Zero coupon bo...View AnswerShow Answer

Correct AnswerverifiedShow Answer

What is the stated annual rate of interest on the bonds?

Correct AnswerverifiedShow Answer

What is the carrying value of the bonds as of December 31, 2010?

Correct AnswerverifiedA

Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance at December 31, 2009, rounded up to the nearest thousand?

Correct AnswerverifiedShow Answer

Correct Answer
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D

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None. Zero coupon bo...
View Answer

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A

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