Acc 302 chapter 14

A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2017? $1,960,623 $1,950,000 $975,000 $975,000

$1,960,623 ($24,505,180 × .04) + ($24,510,387 × .04) = $1,960,623.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet? $14,706,232 $14,709,481 $15,000,000 $14,718,844

$14,709,481 $14,703,108 + [($14,703,108 × .04) - $585,000] + [$14,706,232 × .04) - $585,000] = $14,709,481.

On January 1, 2017, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2017 is $240,000. $215,400. $200,000. $214,836.

$214,836. $2,154,500 × .05 = $107,725 [$2,154,500 - ($120,000 - $107,725)] × .05 = 107,111 $214,836

On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The issue price of the bonds is

$3,204,000 + $2,097,360 = $5,301,360.

On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The present value of the principal is $3,204,000. $3,240,000. 3,738,000 $3,762,000.

$3,738,000. $6,000,000 × .534 = $3,204,000.

On July 1, 2016, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2022. The bonds were issued for $9,560,000 to yield 10%, resulting in a bond discount of $440,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2018, Noble's unamortized bond discount should be $340,000. $352,000. $310,000. $322,400.

$322,400. 2016-2017: $9,560,000 + [($9,560,000 × .1) - ($10,000,000 × .09)] = $9,616,000. 2017-2018: $9,616,000 + ($961,600 - $900,000) = $9,677,600 $10,000,000 - $9,677,600 = $322,400.

At the beginning of 2017, Wallace Corporation issued 10% bonds with a face value of $6,000,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5,558,400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2017? (Round your answer to the nearest dollar.) $669,018 $667,000 $665,000 $688,320

$669,018 $5,558,400 × .06) = $333,504; [$333,504 - ($6,000,000 × .05)] = $33,504 ($5,558,400 + $33,504) × .06 = $335,514 $333,504 + $335,514 = $669,018.

Didde Company issues $25,000,000 face value of bonds at 96 on January 1, 2016. The bonds are dated January 1, 2016, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2019, $15,000,000 of the bonds are called at 102 plus accrued interest. What loss would be recognized on the called bonds on September 1, 2019? $900,000 loss $1,500,000 loss $1,133,750 loss $680,000 loss

$680,000 loss {$24,000,000 + [$1,000,000 × (3 2/3 ÷ 10)]} × .60 = $14,620,000 $15,300,000 - $14,620,000 = $680,000.

The December 31, 2017, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2026 $5,000,000 Unamortized premium on bonds payable 135,000 The bonds were issued on December 31, 2016, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2018, Hess retired $2,000,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. $94,000. $93,000. $100,000. $54,000.

$93,000. 5,135,000- 135,000/18 * 2/6 * .4= 2,053,000

Everhart Company issues $25,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

($25,000,000 × .78120) + ($750,000 × 8.75206) = $26,094,045

In recent year Cey Corporation had net income of $750,000, interest expense of $150,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? $1,000,000. $1,350,000. $1,200,000. None of these answers are correct.

($750,000 + $150,000 + X) ÷ $150,000 = 9 ($900,000 + X) = 9 × $150,000 X = $450,000; IBT = $1,200,000 ($750,000 + $450,000).

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation? The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability. The balance of mortgage payable will remain a constant amount over the 10-year period. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. The amount of interest expense will remain constant over the 10-year period.

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

Which of the following arguments is presented by FASB to explain why a gain is recorded by a company when its creditworthiness is becoming worse? The shareholders' loss is the debtholders' gain. The income of the company will increase as the amount of interest payment will reduce. The decrease in market rate will increase the value of equity shares. The debtholders' loss is the shareholders' gain.

The debtholders' loss is the shareholders' gain.

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, no interest expense or revenue should be recognized in the future. a new effective-interest rate must be computed. a gain should be recognized by the debtor. a loss should be recognized by the debtor.

a new effective-interest rate must be computed.

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition all of these answers are correct. any costs of issuing the bonds must be amortized up to the purchase date. the premium must be amortized up to the purchase date. interest must be accrued from the last interest date to the purchase date.

all of these answers are correct.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will be less than the stated (nominal) rate of interest. exceed what it would have been had the effective-interest method of amortization been used. be the same as what it would have been had the effective-interest method of amortization been used. be less than what it would have been had the effective-interest method of amortization been used.

be less than what it would have been had the effective-interest method of amortization been used.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a debit to Interest Payable. credit to Unearned Interest. credit to Interest Receivable. credit to Interest Expense.

credit to Interest Expense.

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. Another step in calculating the issue price of the bonds is to

multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.