CH 10 - LT Liabilities
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 Reason: ($500,000-$480,000)=$20,000/20 periods=$1,000.
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:
$9,542 Reason: $15,142-5,600=$9,542.
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 $
1,250
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.
100
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 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.)
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.)
28,201
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 $
8179
Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is sold at 93 will trade at $
930
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 Reason: When the bonds mature, Bonds Payable is debited and Cash is credited for the par value of $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.
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.
A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts?
Cash and Discount on Bonds Payable
A company issues $500,000 of 6%, 10-year bonds dated January 1, 2017 that mature on December 31, 2026. 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 which of the following entries?
Debit to Cash $500,000; and credit to Bond Payable $500,000.
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 bonds are sold at par value, the issuer records the first semi-annual interest payment with which of the following entries? (Check all that apply.)
Debit to Interest Expense for $3,000. Credit to Cash for $3,000.
A company issues $50,000 of 9%, 10-year bonds dated January 1, 2027, that mature on December 31, 2036, and pay interest semiannually for $2,250. On December 31, 2031, 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 Reason: $50,000+2500=$52,500. $52,000-$52,500=$500 Gain.
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 $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much? (Check all that apply.)
Interest Expense $5,600 Notes Payable; $9,542
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 issues $50,000 of 9%, 10-year bonds dated January 1, 2027, that mature on December 31, 2036, and pay interest semiannually for $2,250. On December 31, 2031, 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) Blank______ on Bond Retirement in the amount of Blank______.
Loss; $1,500 Reason: Book value of bonds = $50,000+2,500=$52,500. Cash paid $54,000 - 52,500=$1,500 loss.
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.)
Notes Payable; $8,179 Interest Expense; $4,800
The bond carrying value can be determined by which of the following formulas?
Par value - discount on bonds payable
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
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 $
cash, 100000
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 $
cash, 75000
A bond ____ is evidence of the company's debt.
certificate
A bond ______ may be issued as 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
When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a (debit/credit) to Cash in the amount of $.
credit, 60000
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.
credit, premium
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 $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 Reason: 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 credit to Bond Payable in the amount of $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
A company issues $50,000 of 9%, 10-year bonds dated January 1, 2026, that mature on December 31, 2035, and pay interest semiannually of $2,250. On December 31, 2031, when the bond premium is $2,500, the bonds are called for $55,000. The journal entry to record this transaction would record a (debit/credit)to Loss on Bond Retirement of $2,500.
debit
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 $
debit, 5000
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 $
debit, 50000
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
A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) total interest expense recognized over the life of the bond by $
decrease, 2000
A(n) ____ on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.
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)
discount
Total bond interest _____ is the sum of the interest payments plus the bond discount.
expense
The legal contract between the bondholders and the issuer is called the bond
indenture
The legal contract between the bondholders and the issuer is called the bond (issuance/indenture/certificate)
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
installment
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
installment
A(n) ______ note is an obligation requiring a series of payments to the lenders.
installment
A bond discount increases __________ at each semi-annual interest payment.
interest expense
The straight-line bond amortization method allocates an equal portion of the total bond ____ _____ to each interest period.
interest expense
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
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
market
The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's ____ date
maturity
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
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.
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
note
A Blank______ Blank______ is similar to a bond payable but is normally transacted with a single lender such as a bank.
note payable
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 carrying value can be determined by taking the bond ____ value minus the discount on bonds payable.
par
The bond contract rate determines the annual interest paid by multiplying the bond ______ value by the contract rate.
par
Most bonds require (interest/par) value to be repaid at maturity and (interest/par) to be paid semiannually.
par, interest
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
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)
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)
premium
The ______ bond amortization method allocates an equal portion of the total bond interest expense to each interest period.
straight-line
the______ bond amortization method allocates an equal portion of the total bond interest expense to each interest period.
straight-line
