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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 1

True/False

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A bond is simply a form of an interest bearing note.

A) True
B) False

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Question 2

Multiple Choice

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When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

A) a premium
B) their face value
C) their maturity value
D) a discount

E) A) and C)
F) A) and B)

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Question 3

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Ulmer Company is considering the following alternative financing plans: Income tax is estimated at 35% of income. Dividends of $1 per share were declared and paid on the preferred stock. Required: Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000.

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

Dennis Corp. issued $2,500,000 of 20-year, 9% callable bonds on July 1, 2007, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

When callable bonds are redeemed below carrying value

Numbers of times interest charges earned is computed as

A bond is usually divided into a number of individual bonds of $500 each.

An unsecured bond is the same as a

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

If bonds payable are not callable, the issuing corporation

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

(a) Prepare the joumal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500,000 bonds which sold for $515.000

When the effective-interest method is used, the amortization of the bond premium

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.

The adjusting entry to record the amortization of a discount on bonds payable is

On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds, dated June 30, for $1,540,000. Present entries to record the following transactions:

The issue price of zero-coupon bonds is the present value of their face amount.