Intermediate chapter 14
The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture. b. bond debenture. c. registered bond. d. bond coupon
a
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31,2017 balance sheet? a. $14,709,481 b. $15,000,000 c. $14,718,844 d. $14,706,232
a
A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31,2017 balance sheet? a. $24,515,802 b. $25,000,000 c. $24,531,405 d. $24,510,385
a
A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place a. the present value of the debt instrument must be approximated using an imputed interest rate. b. it should not be recorded on the books of either party until the fair value of the property becomes evident. c. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. d. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property
a
A project financing arrangement refers to: a. an arrangement where a company creates a special-purpose entity to perform a special project. b. an arrangement where a company borrows from its subsidiary to finance a project. c. an arrangement where a company promises future repayment by placing purchased assets in an irrevocable trust. d. an arrangement where a company finances a project from a sinking fund established for bond repayments.
a
An example of an item which is not a liability is a. dividends payable in stock. b. advancesfrom customers on contracts. c. accrued estimated warranty costs. d. the portion of long-term debt due within one year.
a
Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. term bonds. c. debenture bonds. d. secured bonds.
a
If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used. b. be less than what it would have been had the effective-interest method of amortization been used. c. be the same as what it would have been had the effective-interest method of amortization been used. d. be less than the stated (nominal) rate of interest.
a
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 a. greater than if the straight-line method were used. b. greater than the amount of the interest payments. c the same as if the straight-line method were used. d. less than if the straight-line method were used.
a
In the recent year Hill Corporation had net income of $210,000, interest expense of $50,000, and tax expense of $90,000. What was Hill Corporation's times interest earned for the year? a. 7.0 b. 6.0 c. 5.2 d. 4.2
a
On December 31, 2015, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2018, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year Nolte should record interest expense for 2018 of a. $0. b. $75,000. c. $150,000. d. $225,000.
a
On January 1, 2017, Ann Price loaned $187,825 to Joe Kiger. A zero-interest-bearing note (face amount, $250,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2019. The prevailing rate of interest for a loan of this type is 10%. The present value of $250,000 at 10% for three years is $187,825. What amount of interest income should Ms. Price recognize in 2017? a. $18,783. b. $25,000. c. $75,000. d. $56,350.
a
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%......................................... .627 Present value of 1 for 8 periods at 8%......................................... .540 Present value of 1 for 16 periods at 3%....................................... .623 Present value of 1 for 16 periods at 4%....................................... .534 Present value of annuity for 8 periods at 6%............................... 6.210 Present value of annuity for 8 periods at 8%............................... 5.747 Present value of annuity for 16 periods at 3%.............................. 12.561 Present value of annuity for 16 periods at 4%.............................. 11.652 62. The issue price of the bonds is a. $5,301,360. b. $5,308,920. c. $5,337,360. d. $5,997,600.
a
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%.Table values are: Present value of 1 for 8 periods at 6%......................................... .627 Present value of 1 for 8 periods at 8%......................................... .540 Present value of 1 for 16 periods at 3%....................................... .623 Present value of 1 for 16 periods at 4%....................................... .534 Present value of annuity for 8 periods at 6%............................... 6.210 Present value of annuity for 8 periods at 8%............................... 5.747 Present value of annuity for 16 periods at 3%............................. 12.561 Present value of annuity for 16 periods at 4%............................. 11.652 60. The present value of the principal is a. $3,204,000. b. $3,240,000. c. $3,738,000. d. $3,762,000.
a
On October 1, 2017 Macklin Corporation issued 5%, 10-year bonds with a face value of $6,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 78. Bond interest expense reported on the December 31, 2017 income statement of Macklin Corporation would be a. $69,000 b. $75,000 c. $81,000 d. $138,000
a
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? a. Amortize $2,000,000 over four years. b. Charge $2,000,000 to a loss in the year of extinguishment. c. Charge $500,000 to a loss in the year of extinguishment and amortize $1,500,000 over four years. d. Either amortize $1,000,000 over four years or charge $1,000,000 to a loss immediately, whichever management selects.
b
At December 31, 2017the 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, 2018, at 102, what will Foxworth report as a loss on redemption? a. $1,110,000 b. $960,000 c. $810,000 d. $600,000
b
At the beginning of 2017, Wallace Corporation issued 10% bonds with a face value of $6,000,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5,558,400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2017? (Round your answer to the nearest dollar.) a. $688,320 b. $669,018 c. $667,000 d. $665,000
b
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 a. credit of $18,725to Loss on Bond Redemption. b. debit of $18,725to Premium on Bonds Payable. c. credit of $6,275to Gain on Bond Redemption. d. debit of $25,000 to Premium on Bonds Payable.
b
Cortez Company issues $6,000,000 face value of bonds at 96 on January 1, 2016. The bonds are dated January 1, 2016, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2019, $3,600,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2019? a. $360,000 loss b. $163,200 loss c. $216,000 loss d. $271,500 loss
b
Didde Company issues $25,000,000 face value of bonds at 96 on January 1, 2016. The bonds are dated January 1, 2016, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2019, $15,000,000 of the bonds are called at 102 plus accrued interest. What loss would be recognized on the called bonds on September 1, 2019? a. $1,500,000 loss b. $680,000 loss c. $900,000 loss d. $1,133,750loss
b
In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the a. carrying amount of the pre-restructure debt is less than the total future cash flows. b. carrying amount of the pre-restructure debt is greater than the total future cash flows. c. present value of the pre-restructure debt is less than the present value of the future cash flows. d. present value of the pre-restructure debt is greater than the present value of the future cash flows
b
In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize a. no gain or loss on the restructuring. b. a gain on the restructuring. c. a loss on the restructuring. d. None of these answers are correct
b
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 a. credit of $18,750to Loss on Bond Redemption. b. credit of $18,750to Discount on Bonds Payable. c. debit of $28,750to Gain on Bond Redemption. d. debit of $10,000 to Premium on Bonds Payable
b
On December 31, 2015, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2018, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year Nolte should recognize a gain or loss on the transfer of the equipment of a. $0. b. $200,000 gain. c. $300,000 gain. d. $950,000 loss.
b
On January 1, 2012, Hernandez Corporation issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2018, when the fair value of the bonds was 96, Hernandez repurchased $4,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2018. Ignoring income taxes and assuming that the gain is material, Hernandezshould report this reacquisition as a. a loss of $196,000. b. a gain of $196,000. c. a loss of $244,000. d. a gain of $244,000
b
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%......................................... .627 Present value of 1 for 8 periods at 8%......................................... .540 Present value of 1 for 16 periods at 3%....................................... .623 Present value of 1 for 16 periods at 4%....................................... .534 Present value of annuity for 8 periods at 6%............................... 6.210 Present value of annuity for 8 periods at 8%............................... 5.747 Present value of annuity for 16 periods at 3%............................. 12.561 Present value of annuity for 16 periods at 4%............................. 11.652 61. The present value of the interest is a. $2,068,920. b. $2,097,360. c. $2,235,600. d. $2,260,980.
b
On January 1, 2017, 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 2017is a. $200,000. b. $214,836. c. $215,400. d. $240,000.
b
On January 1, 2018, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $5,000,000 zerointerest-bearing note payable in 5 equal annual installments of $800,000, with the first payment due December 31, 2018. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $3,605,000 at January 1, 2018. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2018 after adjusting entries are made, assuming that the effective-interest method is used? a. $0 b. $1,070,550 c. $1,116,000 d. $1,395,000
b
On January 1, Martinez Inc. issued $6,000,000, 11% bonds for $6,390,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of: a. $370,260 b. $369,000 c. $347,000 d. $330,000
b
On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. $274,500. b. $285,500. c. $258,050. d. $255,000.
b
On October 1, 2017 Bartley Corporation issued 5%, 10-year bonds with a face value of $8,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 79. The entry to record the issuance of the bonds would include a a. credit of $200,000 toInterest Payable. b. credit of $320,000 to Premium on Bonds Payable. c. credit of $7,680,000 to Bonds Payable. d. debit of $320,000 to Discount on Bonds Payable.
b
Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates
b
The 10% bonds payable of Nixon Company had a net carrying amount of $2,850,000 on December 31, 2017. The bonds, which had a face value of $3,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2018, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2018 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2018? Ignore taxes. a. $60,000. b. $189,000. c. $168,000. d. $210,000.
b
The 12% bonds payable of Nyman Co. had a carrying amount of $4,160,000 on December 31, 2017. The bonds, which had a face value of $4,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2018, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is a. $0. b. $32,000. c. $49,600. d. $160,000.
b
The face value of bonds is also called each of the following except a. maturity value. b. stated value. c. par value. d. principal.
b
The term used for bonds that are unsecured as to principal is a. mortgage bonds. b. debenture bonds. c. indenture bonds. d. callable bonds
b
A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2017? a. $975,000 b. $1,950,000 c. $1,960,623 d. $1,960,415
c
"In-substance defeasance" is a term used to refer to an arrangement whereby a. a company gets another company to cover its payments due on long-term debt. b. a governmental unit issues debt instruments to corporations. c. a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust. d. a company legally extinguishes debt before its due date.
c
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, how much interest expense will be recognized in 2017? a. $585,000 b. $1,170,000 c. $1,176,373 d. $1,176,249
c
A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation? a. The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability. b. The balance of mortgage payable will remain a constant amount over the 10-year period. c. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. d. The amount of interest expense will remain constant over the 10-year period.
c
At December 31, 2017the following balances existed on the books of Rentro Corporation: Bonds Payable $7,000,000 Discount on Bonds Payable 980,000 Interest Payable 168,000 If the bonds are retired on January 1, 2018, at 102, what will Rentro report as a loss on redemption? a. $700,000 b. $945,000 c. $1,120,000 d. $1,288,000
c
At the beginning of 2017, Winston Corporation issued 10% bonds with a face value of $4,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $3,705,600 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2017? (Round your answer to the nearest dollar.) a. $443,334 b. $444,666 c. $446,012 d. $458,880
c
Bond interest paid is equal to the a. carrying value of the bonds multiplied by the effective-interest rate. b. carrying value of the bonds multiplied by the stated interest rate. c. face amount of the bonds multiplied by the statedinterest rate. d. face amount of the bonds multiplied by the effective-interest rate
c
Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a. $5,000,000 b. $5,216,494 c. $5,218,809 d. $5,217,309
c
Everhart Company issues $25,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a. $25,000,000 b. $26,082,470 c. $26,094,045 d. $26,086,540
c
Farmer Company issues $30,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $29,100,000 b. $30,675,000 c. $29,550,000 d. $28,650,000
c
Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $19,400,000 b. $20,450,000 c. $19,700,000 d. $19,100,000
c
If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting a. Bonds Payable. b. Gain on Restructuring of Debt. c. Unrealized Holding Gain/Loss-Income. d. Realized Holding Gain.
c
If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.
c
In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, a. a loss should be recognized by the debtor. b. a gain should be recognized by the debtor. c. a new effective-interest rate must be computed. d. no interest expense or revenue should be recognized in the future.
c
In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should a. compute a new effective-interest rate. b. not recognize a loss. c. calculate its loss using the historical effective rate of the loan. d. calculate its loss using the current effective rate of the loan.
c
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? a. $1,000,000 b. $1,350,000 c. $1,200,000 d. None of these answers are correct
c
On January 1, 2018, Jacobs Company sold property to Dains Company which originally cost Jacobs $2,660,000. There was no established exchange price for this property. Danis gave Jacobs a $4,200,000 zero-interest-bearing note payable in three equal annual installments of $1,400,000 with the first payment due December 31, 2018. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $4,200,000 note payable in three equal annual installments of $1,400,000 at a 10% rate of interest is $3,481,800. What is the amount of interest income that should be recognized by Jacobs in 2018, using the effective-interest method? a. $0. b. $140,000. c. $348,180. d. $420,000.
c
Putnam Company's 2018financial statements contain the following selected data: Income taxes $40,000 Interest expense 25,000 Net income 60,000 Putnam's times interest earned for 2018 is a. 2.4times b. 3.4times. c. 4.0times. d. 5.0times.
d
On January 2, 2017, a calendar-year corporation sold 8% bonds with a face value of $3,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,768,000 to yield 10%. Using the effective interest method of computing interest, how much should be charged to interest expense in 2017? a. $240,000. b. $276,800. c. $277,720. d. $300,000.
c
On October 1, 2017 Bartley Corporation issued 5%, 10-year bonds with a face value of $8,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 80. Bond interest expense reported on the December 31, 2017 income statement of Bartley Corporation would be a. $108,000 b. $184,000 c. $92,000 d. $100,000
c
The December 31, 2017, balance sheet of HessCorporation includes the following items: 9% bonds payable due December 31,2026 $5,000,000 Unamortized premium on bonds payable 135,000 The bonds were issued on December 31, 2016, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2018, Hess retired $2,000,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $94,000. b. $54,000. c. $93,000. d. $100,000.
c
The debt to assets ratio is computed by dividing a. current liabilities by total assets. b. long-term liabilities by total assets. c. total liabilities by total assets. d. total assets by total liabilities.
c
The times interest earned is computed by dividing a. net income by interest expense. b. income before taxes by interest expense. c. income before income taxes and interest expense by interest expense. d. net income and interest expense by interest expense.
c
When a company enters into what is referred to as off-balance-sheet financing, the company a. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. b. wishes to confine all information related to the debt to the income statement and the statement of cash flow. c. can enhance the quality of the balance sheet and permits credit to be obtained more readily and at less cost. d. is in violation of generally accepted accounting principles
c
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018? a. $14,752,672 b. $14,955,466 c. $14,725,374 d. $14,747,642
d
A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108.What is interest expense for 2018, using straight-line amortization? a. $1,540,208 b. $1,170,000 c. $1,176,894 d. $1,184,845
d
A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018? a. $24,587,790 b. $24,925,780 c. $24,545,290 d. $24,579,403
d
A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180.What is interest expense for 2018, using straight-line amortization? a. $1,925,260 b. $1,950,000 c. $1,961,490 d. $1,974,741
d
A troubled debt restructuring will generally result in a a. loss by the debtor and a gain by the creditor. b. loss by both the debtor and the creditor. c. gain by both the debtor and the creditor. d. gain by the debtor and a loss by the creditor.
d
An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date. d. All of these answers are correct
d
Bonds that pay no interest unless the issuing company is profitable are called a. collateral trust bonds. b. debenture bonds. c. revenue bonds. d. income bonds
d
Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. 29. One step in calculating the issue price of the bonds is to multiply the face value by the table value for a. 10 periods and 10% from the present value of 1 table. b. 20 periods and 5% from the present value of 1 table. c. 10 periods and 8% from the present value of 1 table. d. 20 periods and 4% from the present value of 1 table.
d
Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. 30. Another step in calculating the issue price of the bonds is to a. multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. b. multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. c. multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. d. None of these answers is correct
d
Long-term debt that matures within one year and is to be converted into stock should be reported a. as a current liability. b. in a special section between liabilities and stockholders' equity. c. as noncurrent. d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation
d
Note disclosures for long-term debt generally include all of the following except a. assets pledged as security. b. call provisions and conversion privileges. c. restrictions imposed by the creditor. d. names of specific creditors.
d
On December 31, 2015, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2018, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year Nolte should recognize a gain on the partial settlement and restructure of the debt of a. $0. b. $75,000. c. $275,000. d. $375,000
d
On October 1, 2017 Macklin Corporation issued 5%, 10-year bonds with a face value of $6,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 77. The entry to record the issuance of the bonds would include a credit of a. $150,000 toInterest Payable. b. $240,000 to Discount on Bonds Payable. c. $5,760,000 to Bonds Payable. d. $240,000 to Premium on Bonds Payable.
d
Premium on bonds payable is a. a contra account. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds. d. an adjunct account
d
The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2018, contained the following accounts. 5-year Bonds Payable 8% $3,000,000 Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 months.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries andWages Payable 18,000 IncomeTaxes Payable (due 3/15 of 2019) 25,000 The total long-term liabilities reported on the balance sheet are a. $3,365,000. b. $3,350,000. c. $3,465,000. d. $3,450,000.
d
The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as a. an adjustment to the cost basis of the asset obtained by the debt issue. b. 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. c. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. d. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.
d
The interest rate written in the terms of the bond indenture is known as the a. coupon rate. b. nominal rate. c. stated rate. d. coupon rate, nominal rate, or stated rate.
d
The rate of interest actually earned by bondholders is called the a. stated rate. b. coupon rate. c. nominal rate. d. effective rate.
d
Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the market rate of interest multiplied by the face value of the bonds. c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.
d
When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless a. no interest rate is stated. b. the stated interest rate is unreasonable. c. 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. d. any of these answers are correct.
d
When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase only if the bonds were issued at a discount. b. decrease only if the bonds were issued at a premium. c. increase only if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium
d
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. decreased by accrued interest from June 1 to November 1. b. decreased by accrued interest from May 1 to June 1. c. increased by accrued interest from June 1 to November 1. d. increased by accrued interest from May 1 to June 1.
d
Which of the following arguments is presented by FASB to explain why a gain is recorded by a company when its creditworthiness is becoming worse? a. The shareholders' loss is the debtholders' gain. b. The income of the company will increase as the amount of interest payment will reduce. c. The decrease in market rate will increase the value of equity shares. d. The debtholders'loss is the shareholders'gain
d
Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements? a. The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. b. The present value of scheduled interest payments on long-term debt during each of the next five years. c. The amount of scheduled interest payments on long-term debt during each of the next five years. d. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.
d