acct 10

A company issues $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $85,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.

Blank 1: debit Blank 2: 5000

A(n) on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

Blank 1: discount

When a bond contract rate is less than the current market rate on the date of issuance, the bond will be sold at a (premium/discount)

Blank 1: discount

The legal contract between the bondholders and the issuer is called the bond

Blank 1: indenture

A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principal plus interest. This is an example of a(n) note.

Blank 1: installment

A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.

Blank 1: interest Blank 2: expense

The rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level is called the bond's rate.

Blank 1: market

The bond carrying value can be determined by taking the bond value minus the discount on bonds payable

Blank 1: par

Most bonds require (interest/par) value to be repaid at maturity and (interest/par) to be paid semiannually.

Blank 1: par Blank 2: interest

An agreement for an employer to provide benefits to employees after they retire is called a plan.

Blank 1: pension

Many bonds are (sinking/secured) fund bonds, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

Blank 1: sinking

The required semiannual interest payment for a premium bond using the effective interest amortization method includes the following:

Bond Interest Expense and Premium on Bonds Payable are debited and Cash is credited

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31, each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a debit to ______ in the amount of ______.

Bonds Payable; $50,000

When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to _______ in the amount of _______.

Bonds Payable; $50,000

Which of the following statements are disadvantages of bond financing? (Check all that apply.)

Bonds can decrease return on equity. Bonds require payment of interest and par value.

_______ bonds (and notes) have specific assets of the issuer pledged (or mortgaged) as collateral.

Secured

_______ bonds (and notes) mature at more than one date (often in series) and, thus, are usually repaid over a number of periods.

Serial

A bond discount increases __________ at each semi-annual interest payment.

interest expense

While the straight-line method of amortizing bond premium or discounts keeps the amortization equal over the life of the bond, the effective interest method keeps the __________ equal over the life of the bond.

interest rate

The ________ value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bond's maturity date.

par

The bond contract rate determines the annual interest paid by multiplying the bond ______ value by the contract rate.

par

A(n) ________ plan is a contractual agreement between an employer and its employees in which the employer agrees to provide benefits (payments) to employees after they retire.

pension

When the contract rate of the bonds is higher than the market rate, the bond sells at a higher price than par value. The amount by which the bond price exceeds par value is the _______ on bonds.

premium

A company enters into an operating lease for a piece of machinery. The company calculates amortization on the equipment of $2,000 per year. The entry to record amortization expense the first year will include a debit to:

Amortization Expense

A company issues $50,000 of 5%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $48,000. Using the straight-line amortization method, the company will amortize the discount by $ on each semiannual interest payment.

Blank 1: 100

A company borrows $50,000 by signing a $50,000, 8% note that requires six equal payments of (round to the nearest dollar) at the end of each year. (The present value of an annuity of six annual payments, discounted at 8% equals 4.6229.)

Blank 1: 10816

A company borrows $100,000 by signing a $100,000, 5% note that requires four equal payments of $ (round to the nearest dollar) at the end of each year. (The present value of an annuity of four annual payments, discounted at 5% equals 3.5460.)

Blank 1: 28,201

A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to in the amount of $.

Blank 1: Cash Blank 2: 100000, 100,000, or $100,000

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a credit to in the amount of $.

Blank 1: Cash Blank 2: 2000

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a credit to in the amount of $.

Blank 1: Cash Blank 2: 75000

The difference between the cash interest paid and the bond interest expense is the premium under the effective interest of amortization of a bond premium method.

Blank 1: amortization

A company issues $400,000 of 8%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the sale with a (debit/credit) to Bonds Payable in the amount of $.

Blank 1: credit Blank 2: 400000

A company issues $80,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $84,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of $4,000.

Blank 1: credit Blank 2: Premium

A company issues $90,000 of 9%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a (debit/credit) ________ to bond payable in the amount of _______.

debit; $90,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the $5,000 premium on bonds payable will ________ total interest expense recognized over the life of the bond.

decrease

When a bond is sold at a premium, the carrying value will _______ each period that the premium is amortized.

decrease

The _________ method allocates total bond interest expense over the bonds' life in a way that yields a constant rate of interest.

effective interest

A finance lease is a long-term lease which meets one or more of the following criteria:

has a purchase option that lessee is reasonably certain to exercise lease term is for major part of asset's remaining economic life transfers ownership to lessee

The legal contract between the bondholders and the issuer is called the bond ______.

indenture

A(n) _____ note is an obligation requiring a series of payments to the lenders.

installment

The _____ is the owner of a lease and the _____ is the tenant of a lease.

lessor; lessee

The bond's _______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

market

Typical examples of asset's leased as a finance lease include all of the following except:

office supplies

A(n) _____ lease is a long-term lease in which the present value of the lease payments is less than the asset's fair value.

operating

A(n) ______ lease is a long-term lease that does not meet any of the five criteria for a finance lease.

operating

Under the effective interest amortization of a premium bond, the _____ account is debited for the amortization of the interest expense.

premium on bonds payable

Bonds issued in the names and addresses of their holders are _______ bonds.

registered

Many bonds are _______, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

sinking fund bonds

The ________ bond amortization method allocates an equal portion of the total bond interest expense to each interest period.

straight-line

_____ bonds (and notes) are scheduled for maturity on one specified date.

term

A company issues $500,000 of 9%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $480,000, yielding a discount of $20,000. Using the straight-line amortization method, the company will amortize the discount by ________ on each semiannual interest payment.

$1,000

Bonds are securities that can be readily bought and sold. A bond issue consists of a number of bonds, usually in denominations of ______ or _____ and is sold to many different lenders.

$1,000; $5,000

Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?

$15,000 x .10 = $1,500

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by:

$15,142-5,600=$9,542.

A company enters into an operating lease for a piece of machinery. The company calculates amortization on the equipment of $2,000 per year. The entry to record amortization expense the first year will include a credit to:

Accumulated Amortization - Right-of-Use Asset

The journal entry for a right-of-use asset to record the periodic amortization includes a credit to:

Accumulated Amortization-Right-of-Use Asset

A $200,000 4 year bond was issued for $210,000. The semi-annual amortization of the bond premium using the straight-line method equals $

Blank 1: 1,250

A company issues $100,000 of 12%, 6-year bonds that pay interest semiannually. The bonds are issued when the market rate is 10%. The present value of an annuity table indicates that the present value factor for 5% at 12 periods is 8.8633. The present value of 1 table indicates that the present value factor for 5% at 12 periods is 0.5568. The present value of the price of the bond rounded to the nearest whole dollar is $

Blank 1: 108,860

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $

Blank 1: 8179

A company issues $80,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $84,000 for the bonds, the issuer will record the sale with a (debit/credit) _ to (Discount/Premium) _ on Bonds Payable in the amount of $4,000.

Blank 1: credit Blank 2: Premium

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/credit) to Bonds Payable in the amount of $

Blank 1: debit Blank 2: 50000

Total bond interest is the sum of the interest payments plus the bond discount.

Blank 1: expense

A(n) is a contractual agreement between a lessor (asset owner) and a lessee (asset renter or tenant) that grants the lessee the right to use the asset for a period of time in return for cash (rent) payments.

Blank 1: lease

The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's date.

Blank 1: maturity

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a(n) (mortgage/installment/bond) note payable, which allows the bank to be paid by the cash proceeds of the sale of the building if Brown fails to pay on the note.

Blank 1: mortgage

Lyle Co. borrowed $20,000 from First Bank by signing a written promise to pay a definite sum of money on a specific future date. Lyle will record this in the general ledger as a(n) payable

Blank 1: note or notes

When the current market rate is less than the bond contract rate on the date of issuance, the bond will be sold at a(n)

Blank 1: premium

When the market rate is less than the bond contract rate on the date of issuance, the bonds will be sold at a (discount/premium)

Blank 1: premium

Which of the following statements is an advantage of bond financing?

Bonds do not affect owner control.

Which of the following statements is not an advantage of bond financing?

Bonds require interest payments and payment of par value.

Which of the following is a disadvantage of bond financing?

Bonds require payment of periodic interest and the par value.

_____ bonds (and notes) have an option exercisable by the issuer to retire them at a stated dollar amount before maturity.

Callable

Bilos Co. enters into a 6-year finance lease for a copy machine. The lease requires six annual payments of $25,000. Interest expense is recorded with a credit to the following account:

Cash

_____ bonds (and notes) can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Convertible

Which of the following agreements would require amortization expense?

Finance lease

Bilos Co. enters into a 6-year finance lease for a copy machine. The lease requires six annual payments of $25,000. Interest expense is recorded with a debit to the following accounts:

Interest Expense Lease Liability

A company issues $100,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a debit to which of the following accounts and in what amount?

Interest Expense, $2,500

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $8,179. The journal entry to record this payment will include a debit to which of the following accounts and in what amount? (Check all that apply.)

Interest Expense; $4,800 Notes Payable; $8,179

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2019, that mature on December 31, 2028, and pay interest semiannually for $2,250. On December 31, 2023, when the bond premium is $2,500, the bonds are called for $54,000. The journal entry to record this transaction would record a (Gain/Loss) ______ on Bond Retirement in the amount of ______.

Loss; $1,500

The bond carrying value can be determined by which of the following formulas?

Par value - discount on bonds payable

A company enters into a short-term operating lease to use construction equipment for $3,000 per month. The journal entry to record one month's rent would include a debit to the _______ account.

Rental Expense

Which of the following are true of amortizing a premium bond using the effective interest amortization method:

The semiannual cash interest payment is larger than the bond interest expense. The excess of the cash payment over the interest expense reduces the principal.

A company issued $50,000 of 8%, 10-year bonds on January 1. The bonds pay semi annual interest. The present value factor of a single amount of 20 periods at 8% is 0.2145.The present value of 10 periods at 4% is 0.6756. The present value of 20 periods at 4% is 0.4564. Determine the present value of the par value of the bonds.

Use the present value of 20 periods at 4%: $50,000 x 0.4564 = $22,820.

Forever, Inc. announces an offer to issue bonds with a $100,000 par value, an 8% annual contract rate (paid semiannually) and a two-year life. The market rate is 10%, so the bonds will be sold at:

a discount

Most bonds require par value to be repaid _______ and interest to be paid _________.

at the maturity date; semiannually

Bonds payable to whomever holds them are called _____ bonds or unregistered bonds.

bearer

A bond _________ may be issued as evidence of the company's debt.

certificate

A bond is evidence of the company's debt.

certificate

The ________ rate is the interest rate specified, sometimes referred to as the coupon rate, stated rate, or nominal rate.

contract

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to Bond Payable in the amount of _______.

credit; $100,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to (Discount/Premium) ______ on Bonds Payable in the amount of $5,000.

credit; Premium

_______ bonds (and notes), also called debentures, are backed by the issuer's general credit standing.

Unsecured

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of

$15,000 x .08 x (60/360) = $200.

A company sells a 6-year, 6% bond with a par value of $100,000 when the market is 8% for $90,615 The bond requires semi-annual interest payments of $3,000. Using the effective interest amortization method, the company will recognize _____ for the amortization of the discount on the first semi-annual interest payment.

$3,000 is the semiannual cash payment. Carrying value of $90,615 x semiannual market rate of 4% = bond interest expense of $3,625. Discount amortization = $3,625 - $3,000 = $625.

Bond market values are expressed as a percentage of their par (face) value. For example, a company's bonds might be trading at 103, which means that they can be bought or sold for ____ of their par value.

103%

A company sells a 5-year, 8% bond with a par value of $100,000 when the market is 10% for $96,454. The bond requires semi-annual interest payments of $4,000. Using the effective interest amortization method, the company will recognize _____ interest expense on the first semi-annual interest payment.

4,823

A company enters into a short-term operating lease to use construction equipment for $3,000 per month. The journal entry to record one month's rent would include a credit to the _______ account.

Cash

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2019, that mature on December 31, 2028, and pay interest semiannually for $2,250. On December 31, 2023, when the bond premium is $2,500, the bonds are called for $52,000. The journal entry to record this transaction would record a (Gain/Loss) ______ on bond retirement in the amount of ______.

Gain; $500

A company issues $100,000 of 10%, 5-year bonds dated January 1 that pay interest semiannually. The bonds are issued when the market rate is 8%. The present value tables indicate that the present value factor for 3% at 5 periods is 0.8626; for 3% at 10 periods is 0.7441; for 4% at 5 periods is 0.8219 and for 4% at 10 periods is 0.6756. The present value of the par value of the bond is:

The 5-year bonds will have 10 interest periods. Use 4% which is half of the market rate. $100,000 x 0.6756=67,560.

A(n) _______ is a legal agreement that helps to protect a lender if a borrower does not make required payments on notes or bonds. This agreement gives the lender the right to be paid from the cash proceeds of the sale of the borrower's assets, as identified in the agreement.

mortgage

A _____ _____ is similar to a bond payable but is normally transacted with a single lender such as a bank.

note payable