Ch 14

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. What is interest expense for 2021, using straight-line amortization? $1,540,208 $1,170,000 $1,176,894 $1,184,845

$1,184,845

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.

$1,200,000

On January 1, 2020, 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 2020 is $200,000 $214,836 $215,400 $240,000

$214,836

Farmer Company issues $30,000,000 of 10-year, 9% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date? $29,100,000 $30,675,000 $29,550,000 $28,650,000

$29,550,000

On July 1, 2021, Spear Co. issued 4,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2021 and mature on April 1, 2031. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance? $4,060,000 $4,000,000 $3,960,000 $3,860,000

$4,060,000

On June 30, 2021, Omara Co. had outstanding 8%, $8,000,000 face amount, 15-year bonds maturing on June 30, 2031. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2021 was $360,000. On June 30, 2021, 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? $7,920,000 $7,720,000 $7,640,000 $7,520,000

$7,640,000

At December 31, 2020 the following balances existed on the books of Foxworth Corporation: Bonds Payable $6,000,000 Discount on Bonds Payable 840,000 Interest Payable 150,000 If the bonds are retired on January 1, 2021, at 102, what will Foxworth report as a loss on redemption? $1,110,000 $960,000 $810,000 $600,000

$960,000

Bonds that were authorized on January 1, 2014, and that pay interest on January 1 and July 1 of each year were issued on October 1, 2014. If the issuer's accounting year ends on December 31, how many months would any discount or premium be amortized in 2014? 12 months 9 months 6 months 3 months

3 months

A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $1,500,000. To extinguish this debt, the company had to pay a call premium of $500,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes? Amortize $2,000,000 over four years Charge $2,000,000 to a loss in the year of extinguishment Charge $500,000 to a loss in the year of extinguishment and amortize $1,500,000 over four years Either amortize $1,000,000 over four years or charge $1,000,000 to a loss immediately, whichever management selects

Charge $2,000,000 to a loss in the year of extinguishment

The rate of interest actually earned by bondholders is called the stated rate coupon rate nominal rate effective rate

effective rate

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as an adjustment to the cost basis of the asset obtained by the debt issue an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption

a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption

Premium on bonds payable is contra account reported as a reduction of the bond liability debited to a deferred charge account and amortized over the life of the bonds an adjunct account

an adjunct account

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless no interest rate is stated the stated interest rate is unreasonable the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note any of these answers are correct

any of these answers are correct

The interest rate written in the terms of the bond indenture is known as the coupon rate nominal rate stated rate coupon rate, nominal rate, or stated rate

coupon rate, nominal rate, or stated rate

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 Loss on Bond Redemption credit of $18,750 to Discount on Bonds Payable debit of $28,750 to Gain on Bond Redemption debit of $10,000 to Premium on Bonds Payable

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 debit to Interest Payable credit to Interest Receivable credit to Interest Expense credit to Unearned Interest

credit to Interest Expense

Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a credit of $18,725 to Loss on Bond Redemption debit of $18,725 to Premium on Bonds Payable credit of $6,275 to Gain on Bond Redemption debit of $25,000 to Premium on Bonds Payable

debit of $18,725 to Premium on Bonds Payable

A ten-year bond was issued in 2019 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2021, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2021 should have equaled the call price call price less unamortized discount face amount less unamortized discount face amount plus unamortized discount

face amount less unamortized discount

Bond interest paid is equal to the carrying value of the bonds multiplied by the effective-interest rate carrying value of the bonds multiplied by the stated interest rate face amount of the bonds multiplied by the stated interest rate face amount of the bonds multiplied by the effective-interest rate

face amount of the bonds multiplied by the stated interest rate

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be greater than if the straight-line method were used greater than the amount of the interest payments the same as if the straight-line method were used less than if the straight-line method were used

greater than if the straight-line method were used

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization amount will increase only if the bonds were issued at a discount decrease only if the bonds were issued at a premium increase only if the bonds were issued at a premium increase if the bonds were issued at either a discount or a premium

increase if the bonds were issued at either a discount or a premium

Note disclosures for long-term debt generally include all of the following except assets pledged as security call provisions and conversion privileges restrictions imposed by the creditor names of specific creditors

names of specific creditors

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to the stated (nominal) rate of interest multiplied by the face value of the bonds the market rate of interest multiplied by the face value of the bonds the stated rate multiplied by the beginning-of-period carrying amount of the bonds. the market rate multiplied by the beginning-of-period carrying amount of the bonds

the market rate multiplied by the beginning-of-period carrying amount of the bonds

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from the date of issue. If the bonds were issued at a premium, this indicates that the effective yield or market rate of interest exceeded the stated (nominal) rate the nominal rate of interest exceeded the market rate the market and nominal rates coincided no necessary relationship exists between the two rates

the nominal rate of interest exceeded the market rate

The debt to assets ratio is computed by dividing current liabilities by total assets long-term liabilities by total assets total liabilities by total assets total assets by total liabilities

total liabilities by total assets