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Exam 22: Long-Term Bonds

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Question 61

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When bonds are sold by a company, the company assumes debt. The principal of which is the amount of the face value of the bonds sold. Cash to pay this debt must be available when the bonds become due. Discuss things a company can do in order to have the funds available to pay the bond debt on the due date.

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Bond Sinking Fund A corporation c...

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Question 62

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If retained earnings are appropriated for bond retirement, a bond retirement sinking fund must be established.

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Question 63

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In the interest formula I = Prt, the P stands for

The board of directors of the Lawrence Corporation authorized the issuance of $600,000 face value of 10-year, 9 percent bonds dated May 1, 2019, and maturing on May 1, 2029. Interest is payable semiannually on May 1 and November 1. Record the following bond transactions on page 5 of a general journal. Omit descriptions. 2019 May 1 Issued $60,000 of bonds at face value Nov. 1 Paid the semiannual interest on the bonds issued Dec. 31 Recorded the adjusting entry for the accrued bond interest 31 Closed the Bond Interest Expense account into the Income Summary account 2020 Jan. 1 Reversed the adjusting entry for accrued bond interest May 1 Paid the semiannual interest on the bonds issued 1 Issued $50,000 of bonds at face value Nov. 1 Paid the semiannual interest on the bonds issued Dec. 31 Recorded the adjusting entry for the accrued bond interest 31 Closed the Bond Interest Expense account into the Income Summary account

Warren Company issued $900,000 of 8%, 5-year bonds dated January 1, 2019, for $891,000. Interest is paid on January 1 and July 1. What is the total amount of interest expense for the bonds for 2019, using the straight-line method of amortization?

When the issuing corporation has the right to require the owners to surrender the bonds for payment before the maturity date of the bonds, the bonds are referred to as

A corporation will pay the face value of its bonds if they are retired prior to the maturity date.

Bonds with a face value of $450,000 were issued at 97. The entry to record the issuance will include a debit to the Discount on Bonds Payable account for

In the interest formula (I = Prt)the Prt stands for---------- .

A planned fund established to accumulate assets to pay off bonds when they mature is called a bond------------ fund investment.

The Mammoth Corporation issued $950,000 face value of 10-year, 10 percent bonds dated April 1, 2019, and maturing on April 1, 2029. Interest is payable semiannually on April 1 and October 1. The bonds were issued at 98. Record the transactions to issue the bonds on April 1, 2019, and to pay interest and amortize the bond discount on October 1, on page 9 of a general journal. Omit descriptions.

The Bond Interest Expense account is usually listed under Operating Expenses on the income statement.

Why would a company include a call feature in its bond indenture? At what time would they consider exercising this option? Include an example of when it is advantageous for a company to call its bonds and the entry to do so.

To systematically accumulate cash for the retirement of bonds at maturity, a corporation may set up a bond sinking fund investment.