314 Chapter 14

the issue price of bonds is calculated as the

present value of all the cash flows required of the bonds

long-term notes; when a company borrows cash form a bank they sign a

promissory note

stated rate < market rate

sold at discount

stated rate > market rate

sold at premium

Slater Company issues $1 million face amount bonds for $1.1 million. On the date of maturity, the carrying value of the bonds (assuming that interest has already been accrued) will be equal to

$1 million

What amount related to bonds is reported on the income statement

interest expense

stated rate = market rate

sold face amount

On January 1, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of (amount)

$200,000

On September 30th, year 1, Wald Corporation issues 20-year bonds that pay interest semi-annually on June 30 and December 31. The interest accrued between June 30, year 1 and September 30, year 1 will be

accrued and added to the bond issue price

installment payment formula

amount of loan / present value of ordinary annuity

periodic interest expense formula

amount of outstanding debt * effective interest rate (market rate)

The mirror image a liability is an asset. The mirror image of investments in bonds is

bonds payable

zero-coupon bonds do not pay

cash interest

Margot, an accounting student, tries to determine whether a bond sells at a premium, discount, or face amount. Margot can determine whether the bond sells at a premium, discount, or face amount by

comparing the effective and stated interest rates

Choosing being an installment payment for a notes payable, which will result in higher net income

installment payment (lessening your outstanding balance to be zero)

amortization schedule row headers

date, cash interest, effective interest, increase/decrease in balance, outstanding balance

journal entry for maturity of zero-coupon

debit bonds payable credit cash

Journal Entry to issue a bond for the bond issuer (borrower) at face value

debit cash credit bonds payable

Journal entry for issuance of installment payment

debit cash credit notes payable

Journal Entry to issue a bond for the bond issuer (borrower) at a discount

debit cash debit discount in bonds payable credit bonds payable

Journal Entry to issue a bond for the bond issuer (borrower) at a premium

debit cash credit premium in bonds payable credit bonds payable

adjusting entry for zero-coupon

debit interest expense credit discount on bonds payable

Adjusting journal entry for interest for a discount

debit interest expense credit discount on bonds payable credit cash

Journal entry for discount bond at maturity

debit interest expense debit bonds payable credit discount on bonds payable credit cash

adjusting entry for installment payment

debit interest expense debit notes payable credit cash

Journal Entry to issue a bond for the bondholder (lender) at face value

debit investment in bonds credit cash

Journal Entry to issue a bond for the bondholder (lender) at premium

debit investment in bonds debit premium in bond investment credit cash

What is a bond indenture?

describes promises made to bondholder, held by a trustee

Which type of bond has increasing interest expenses over the life of the bond?

discount -- increasing outstanding balance

The creditworthiness of the company issuing the bonds will affect the company's Multiple choice question.

effectivity interest rate (market rate)

journal entry for the maturity of installment payment

none required (last adjusting entry will bring your notes payable to zero and all interest will be paid for)

What amount related to bonds is reported on the balance sheet

outstanding amount of the bond (net of principle and amortized amounts)

Which type of bond has decreasing interest expenses over the life of the bond?

premium -- decreasing outstanding balance

Generally, liabilities are valued at their

present value

What happens to the price of a bond as the risk of the corporation issuing the bond decreases

the price of the bond increases (inverse relationship)