ACCT 302 Bonds

On January 2, 2005, Santiago Corporation issued $4,000,000 of 10-year, 10% bonds at 97 due December 31, 2014. Legal and other costs of $50,000 were incurred in connection with the issue. Interest on the bonds is payable semi-annually on each June 30 and December 31. On January 2, 2011, Santiago repurchased $4,000,000 the bonds at 100. Assume that Santiago amortizes the Premium or Discount on Bonds Payable on using the straight-line method. Requirement #1: What is the loss or gain for the FULL extinguishment of the $4,000,000 in face value? (Fill in the exact value only to the nearest $1 with commas and without a decimal point or $; for example, a $100,000 loss is "(100,000)" and a $100,000 gain is "100,000" ) [A] Requirement #2: What is the unamortized discount or premium in the journal entry to record the extinguishment of the bond? (Fill in the exact value for Premium or (Discount) to the nearest $1 with commas and without a $ or decimal point; for example, a $100,000 Discount is "(100,000)" and a $100,000 Premium is "100,000" ) )

#1: (68,000) #2: (48,000)

A $100,000 face value bond has a coupon rate of 10% and pays interest twice per year. The market rate at the time of issance is 8%. What is the amount of one, semi-annual interest payment?

$10,000

On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%, resulting in bond premium of $405,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually. Solis's December 31, 2011, interest expense should be (note: interest is payable only annually)

$270,192

On January 1, 20X1, Cordero Co. issued a 10-year, 14% $100,000 debenture bonds for $111,470 to yield 12%. The bonds pay interest semiannually on July 1 and Jan 1. Album uses the effective interest method to amortize bond premiums and discounts. What is the July 1, 20X1 carrying value?

111158

Album Co. issued 10-year $200,000 debenture bonds on January 2. The bonds pay interest semiannually on July 1 and Jan 1. Album uses the effective interest method to amortize bond premiums and discounts. The carrying value of the bonds on January 2 was $185,953. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,016 and crediting cash for $12,000. What is the annual stated interest rate for the debenture bonds?

12

On January 1, 20X1, Cordero Co. issued a 10-year, 10% $500,000 debenture bonds for $442,648 to yield 12%. The bonds pay interest semiannually on July 1 and Jan 1. Cordero uses the effective interest method to amortize bond premiums and discounts. What is the amount of one interest payment?

25,000

On January 1, 20X1, Cordero Co. issued a 10-year, 10% $500,000 debenture bond for $372,569 to yield 15%. The bonds pay interest semiannually on July 1 and Jan 1. Cordero uses the effective interest method to amortize bond premiums and discounts. What is the July 1, 20X1 interest expense?

27,943

On January 2, 2005, Prebish Corporation issued $4,000,000 of 10-year, 10% bonds at 102 due December 31, 2014. Legal and other costs of $40,000 were incurred in connection with the issue. Interest on the bonds is payable semi-annually on each June 30 and December 31. On January 2, 2013, Prebish repurchased $4,000,000 the bonds at 101. Assume that Prebish amortizes the Premium or Discount on Bonds Payable on using the straight-line method. What is the gain or loss on early extinguishment of the $4,000,000 face value of debt?

32,000 loss

On January 2, 2005, Santiago Corporation issued $1,000,000 of 10-year, 10% bonds at 103 due December 31, 2014. Legal and other costs of $50,000 were incurred in connection with the issue. Interest on the bonds is payable semi-annually on each June 30 and December 31. On January 2, 2009, Santiago repurchased the bonds at 102. Assume that Santiago amortizes the Premium or Discount on Bonds Payable on using the straight-line method. What is the gain or loss on the extinguishment of the $1,000,000 face value of bonds? Answer to the nearest $1 without a "$" or commas.

32000 loss

On January 2, Vole Co. issued bonds with a face value of $480,000 at a discount to yield 10%. The bonds pay interest semiannually. On June 30, Vole paid bond interest of $14,400. After Vole recorded amortization of the bond discount of $3,600, the bonds had a carrying amount of $363,600. What amount did Vole receive upon issuing the bonds? Hint: Try to recreate the Bond Amortization Schedule.

360,000

A $100,000 face value bond has a coupon rate of 10% and pays interest twice per year. The market rate at the time of issance is 8%. What periodic interest rate is used to calculate the present value of the bond?

4%

On January 1, 20X1, Columbia Co. issued a 10-year, 10% $100,000 debenture bonds for $66,878 to yield 17%. The bonds pay interest semiannually on July 1 and Jan 1. Columbia uses the effective interest method to amortize bond premiums and discounts. What is the July 1, 20X1 bond carrying value?

67,563

Choose all the following statements that apply to a bond or a bond issuance

A corporate bond is a debt security that is registered by the U.S. Securities and Exchange Commission. A bond is a long-term liability (except for the portion due in a year) A bond is essentially a debt contract in which the issuer receives the market value of bond at issuance and must pay the required interest and principal amounts over the life of the bond. Bonds are different from most loans and other debts in that public investors can trade them with other public investors.

Foley Co. is preparing the electronic spreadsheet below to amortize the discount on its 10-year, 6%, $100,000 bonds payable. Bonds were issued on December 31 to yield 8%. Interest is paid annually. Foley uses the effective interest method to amortize bond discounts. Which formula should Foley use in cell E3 to calculate the bonds' carrying amount at the end of year 2?

E2+D3 because it is a discount

Match the term with its definition.

Face Value: The amount that is multiplied by the coupon rate to find the amount of an interest payment for a given bond contract. Contractual Rate: The rate used to calculate the amount of each interest payment in a bond contract. Stated Rate: Another name for contractual rate and coupon rate. Prinicipal: Another name for face value, but it can be used for both bonds and loans.

Match the term with its definition.

Par Value: A condition when a bond's market price equals its face value. Discount: A condition when a bond's market price is below its face value. Premium: A condition when a bond's market price is above its face value. Yield: Another term for "market interest rate" or "market rate". The rate used to find the present value of a bond's interest payments and face value.

A five-year 10% coupon rate (debenture) bond pays interest semi-annually and principal at maturity. The market rate at issuance is 8%. Choose each correct statement about the bond.

The bond is issued above it's face value. If the market interest rate increases after issuance, the bond's market price will go down

Both discount on bonds payable and premium on bonds payable are

Valuation Accounts

Choose all statements that make the sentence correct. A bond's contractual interest rate is

also known as its "stated rate". also called its "coupon rate". used to calculate the amount of each interest payment.

Under the effective interest method, interest expense for a bond issued at a premium

always decreases each period the bonds are outstanding

The printing costs and legal fees associated with the issuance of bonds should

be accumulated in a deferred charge account and amortized over the life of the bonds.

A 5-year bond has a 10% coupon rate. Another 5-year bond has a 9% coupon rate. Both bonds are priced to yield 9%. True or Fale? The bond with the 10% rate offers a better economic return.

false

If a bond sold at 97, the market rate was

greater than the stated rate

Choose the answer that makes the sentence correct. A zero coupon bond,

makes no payments throughout its term and makes one payment for the principal and interest at matruity.

Choose all statements that make the sentence correct. A "plain-vanilla" debenture bond (that is, the most typical debenture bond)

pays interest semi-annually (2x per year) pays the full amount of principal at the end of the bond's term (that is, at the end of its life)

The carrying value of bonds reported on the balance sheet equals the face value of bonds payable

plus premiums less discounts.

Choose the answer that makes the sentence correct. An amortizing bond (for example, some mortgages),

requires level payments over its life, and the payments are part principal and part interest.

Choose all statements that make the sentence correct. When a (debenture) bond pays interest semi-annually,

you must divide the annual yield by two to get the semi-annual discount rate for calculating the bond's present value. you must divide the stated rate by two to get the amount of each interest payment. the number of interest payments equals the bond's term in years times two.