Bonds

A 10-year term bond was issued in Year 2 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in Year 4, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in Year 4 should have equaled the

Face amount less unamortized discount.

A 5-year term bond was issued on January 1, Year 1, at a discount. The carrying amount of the bond at December 31, Year 2, will be

Higher than the carrying amount at December 31, Year 1.

For a bond issue that sells for less than its par value, the market rate of interest is

Higher than the rate stated on the bond.

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid

Plus Discount

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Plus the present value of all future interest payments at the market (effective) rate of interest.

What type of bonds in a particular bond issuance will not all mature on the same date?

Serial Bonds

Bonds payable issued with scheduled maturities at various dates are called

Yes No

The issue price of a bond is equal to the present value of the future cash flows for interest and principal when the bond is issued

Yes Yes Yes

On June 30, Year 1, Town Co. had outstanding 8%, $2 million face amount, 15-year bonds maturing on June 30, Year 11. Interest is payable on June 30 and December 31. The unamortized balances of bond discount and deferred issue costs on June 30, Year 1, were $70,000 and $20,000, respectively. On June 30, Year 1, Town 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?

$1,910,000

On June 1 of the current year, Dahli Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Dahli report?

$14,000

On November 1, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31 balance sheet?

$16,000

On January 1, Year 2, Pine Corp. sold 200 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, Year 1, and mature on October 1, Year 11. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, Year 1, to January 1, Year 2, amounted to $4,000. On January 1, Year 2, Pine should report bonds payable, net of discount, at

$194,000

On January 2, Year 3, Gill Co. issued $2 million of 10-year, 8% bonds at par. The bonds, dated January 1, Year 3, pay interest semiannually on January 1 and July 1. Bond issue costs were $250,000. What amount of bond issue costs are unamortized at June 30, Year 4?

$212,500

On June 2, Year 1, Tory, Inc., issued $500,000 of 10%, 15-year bonds at par. Interest is payable semiannually on June 1 and December 1. Bond issue costs were $6,000, and Tory uses the straight-line method of amortizing bond issue costs. On June 2, Year 6, Tory retired half of the bonds at 98. What is the net carrying amount that Tory should use in computing the gain or loss on retirement of debt?

$248,000

On its December 31, Year 1, balance sheet, Nilo Corp. reported bonds payable of $8 million and related unamortized bond issue costs of $430,000. The bonds had been issued at par. On January 2, Year 2, Nilo retired $4 million of the outstanding bonds at par plus a call premium of $100,000. What amount should Nilo report in its Year 2 income statement as loss on extinguishment of debt?

$315,000

Based on 8% interest compounded annually from day of deposit to day of withdrawal, what is the present value today of $4,000 to be received 6 years from today?

$4,000 × 0.681 × 0.926.

During Year 4, Eddy Corp. incurred the following costs in connection with the issuance of bonds: Printing and engraving $ 30,000 Legal fees 160,000 Fees paid to independent accountants for registration information 20,000 Commissions paid to underwriter 300,000 What amount should be recorded as a deferred charge to be amortized over the term of the bonds?

$510,000

On July 31, Year 4, Dome Co. issued $1,000,000 of 10%, 15-year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face amount bonds due on July 31, Year 14, at 102. On that date, unamortized bond premium relating to the 11% bonds was $65,000. In its Year 4 income statement, what amount should Dome report as gain or loss, before income taxes, from retirement of bonds?

$53,000 gain

On July 1, Year 1, Eagle Corp. issued 600 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, Year 1, and mature on April 1, Year 11. Interest is payable semiannually on April 1 and October 1. What amount did Eagle receive from the bond issuance?

$609,000

On January 1, Year 1, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, Year 11, but were callable at 101 anytime after December 31, Year 4. Interest was payable semiannually on July 1 and January 1. On July 1, Year 6, Fox called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Fox's gain or loss in Year 6 on this early extinguishment of debt was a

$8,000 gain

The following information pertains to Camp Corp.'s issuance of bonds on July 1, Year 4: Face amount $800,000 Term 10 years Stated interest rate 6% Interest payment dates Annually on July 1 Present value of 1 for 10 periods 0.558 0.422 Future value of 1 for 10 periods 1.791 2.367 Present value of ordinary annuity of 1 for 10 periods 7.360 6.418 What should the issue price be for each $1,000 bond?

$807

On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. What is the amount of interest Evangel will pay at the end of the first year?

$9,000

On January 31, Year 4, Beau Corp. issued $300,000 maturity value, 12% bonds for $300,000 cash. The bonds are dated December 31, Year 3, and mature on December 31, Year 13. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should Beau report in its September 30, Year 4, balance sheet?

$9,000

On December 30 of the current year, Azrael, Inc., purchased a machine from Abiss Corp. in exchange for a noninterest-bearing note requiring 8 payments of $20,000. The first payment was made on December 30, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows: 7 4.712 5.231 8 5.146 5.712 On Azrael's current year December 31 balance sheet, the note payable to Abiss was

$94,240

On June 30, Year 4, Huff Corp. issued 1,000 of its 8%, $1,000 bonds at 99. The bonds were issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30, Year 4, Huff should report the bond liability at

$990,000

Album Co. issued 10-year $200,000 debenture bonds on January 2. The bonds pay interest semiannually. Album uses the effective interest method to amortize bond premiums and discounts. The carrying amount 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%

A bond issued on June 1, Year 4, has interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, Year 4, is for a period of

7 months

A company issues bonds at 98, with a maturity value of $50,000. The entry the company uses to record the original issue should include which of the following?

A debit to bond discount of $1,000.

On March 1, Year 1, Somar Co. issued 20-year bonds at a discount. By September 1, Year 6, the bonds were quoted at 106 when Somar exercised its right to retire the bonds at 105. How should Somar report the bond retirement on its Year 6 income statement?

A loss in continuing operations.

On January 2, Year 4, Nast Co. issued 8% bonds with a face amount of $1 million that mature on January 2, Year 10. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective-interest method to amortize the discount. How is the carrying amount of the bonds affected by the error?

Overstated No Effect

When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond?

Price

A premium on bonds payable arises when

The amount received from sale of the bonds at issuance exceeds the face value of the bonds.