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

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2018, contained the following accounts. 5-year Bonds Payable 8% $3,000,000 Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 months.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries and Wages Payable 18,000 Income Taxes Payable (due 3/15 of 2019) 25,000 The total long-term liabilities reported on the balance sheet are

$3,450,000

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

$322,400

On July 1, 2018, Spear Co. issued 4,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2018 and mature on April 1, 2028. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?

$4,060,000

On June 30, 2018, Omara Co. had outstanding 8%, $8,000,000 face amount, 15-year bonds maturing on June 30, 2028. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2018 was $360,000. On June 30, 2018, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

$7,460,000

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.

$93,000

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

-Any costs of issuing the bonds must be amortized up to the purchase date -Interest must be accrued from the last interest date to the purchase date -The premium must be amortized up to the purchase date

Note disclosures for long-term debt generally include all of the following

-Assets pledged as security -Call provisions and conversion privileges -Restrictions imposed by the creditor NOT names of specific creditors

What is Josh's favorite place to get coffee in Newberg?

Coffee Cottage

When a company enters into what is referred to as off-balance-sheet financing, the company

can enhance the quality of the balance sheet and permits credit to be obtained more readily and at less cost

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a

credit of $18,750 to Discount on Bonds Payable

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

credit to Interest Expense

The term used for bonds that are unsecured as to principal is

debenture bonds

Bonds that pay no interest unless the issuing company is profitable are called

income bonds

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that

the nominal rate of interest exceeded the market rate