ACCT 1: Ch. 9

present value; market

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant wants to calculate the expected issue they should calculate the ______ of the related future cash payments using the _______ interest rate.

- Debit to interest expense $3,211 - Debit premium on bonds payable $789 - Credit cash $4,000

On January 1, year 1, Saturn Corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The effective rate at the issue date was 6%. The journal entry to record the interest expense on June 30 will include:

Debit to interest expense $3,211

On January 1, year 1, Saturn corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The effective rate at the issue date was 6%, The journal entry to record the interest expense on June 30 will include which of the following?

long-term liabilities

Quattro Lending Company is considering lending a large sum to Eleance Inc. During its decision process, Quattro should. especially consider Eleance's existing:

Maturity date

Regardless of whether bonds are issued at face amount, a discount, or a premium, their carrying value is equal to face amount at the _____________ date.

bond

a formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date

secured bond

bonds supported by a specific asset the issuer pledges as collateral

serial bonds

bonds that mature in installments

- debit to bonds payable of $100,000 - debit to Loss on bond retirement of $1,000 - credit to cash of $101,000

in 2008, ABC Company issued $100,000 of 20-year bonds at face value. Ten years later, in 2018, the company retired the bonds early by purchasing them in the open market at $101,000. The entry to record this transaction includes:

discounted bonds

interest expense increases each interest period

- Notes payable - Leases - Bonds

methods of long-term financing with debt

semiannually

most corporate bonds pay interest:

total liabilities / total stockholders' equity

the debit to equity ratio is calculated as:

equity and debt financing

the two types of financing:

Debenture bonds

unsecured bonds

capital lease

when a leasee essentially buys an asset and borrows the money through a lease to pay for the asset

extinguishment of debt

when bonds or any type of debt are retired prior to the maturity date

Premium bonds

interest expense decreases each interest period

interest expense

the times interest earned formula is calculated as earnings before interest and taxes divided by:

- face amount of bonds - number of periods to maturity - interest payment each period - market interest rate per period

information necessary to calculate the issue price of bonds

net income divided by average total assets

the formula to compute the return on assets

convertible bonds

- bonds that are retired when the bondholder exchanges them for the issuing company's stock - beneficial for both, the borrower (bond issuer) and lender (bond investor)

Term bond

- bonds that require payment of the full principle amount of the bond at the end of the term (matures on a single date)

callable bonds

- primarily beneficial for lender (bond issuer) - the issuing company can pay off the bonds at any time

- Debit to interest expense of $6,000 - Credit to cash of $6,000

ABC company issues a bond with a face value of $100,000 at par on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes:

bond issuer

Callable bonds can be redeemed at the choice of the _______________.

- Debit bonds payable $100,000 - Credit cash $100,000

Candy Corporation has $100,000 of 8% bonds that were issued in year 1 at par. When the bonds are repaid at the maturity date, the journal entry will require the following:

- Debit to discount on bonds payable for $2,000 - Credit to bonds payable for $100,000

Totito Inc. issues $100,000 face amount bones at 98. The journal entry to record the issuance should include:

credit to notes payable for $24,000

Walker Inc. signs a $24,000 installment note, which requires equal monthly payments of $1,100 over the next two years. The journal entry to recognize the note includes a:

retired bonds

When a corporation repurchases its bonds from the bondholders, the bonds are called _________ bonds

the mixture of debt and equity used to finance the company

a company's capital structure refers to:

Lease

a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time

installment notes

promissory notes requiring periodic payments of interest and principle

debt financing

refers to borrowing money from creditors

- Debit to cash of $110,000 - Credit to bonds payable of $100,000 - Credit to premium on bonds payable of $10,000

If ABC company issues 100 of its $1,000 bonds at a price of 110, the journal entry will include the following entries:

Equity financing

In order to expand its business, Mueller Inc. is selling $10 million in common stock. Mueller is utilizing this type of financing:

cash; bonds payable

the journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ________ and a credit to ___________.