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Exam 14: Bonds and Long-Term Notes

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Question 31

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What is meant by the "market rate" of interest, the "effective rate" of interest, and the "yield rate" of interest?

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These rates are the same when bonds are ...

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Question 32

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Required: What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2014?

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$7,939,550 Interest expense = ...

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Question 33

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Bonds usually sell at their:

Liberty Company issued 10-year bonds at 105 during the current year. In the year-end financial statements, the premium should be:

The carrying value of zero-coupon bonds increases by the periodic amount of interest recognized.

On January 1, 2013, Cool Universe issued 10% bonds dated January 1, 2013, with a face amount of $20 million. The bonds mature in 2022 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2013. 2. Prepare the journal entry to record the bond issuance by Cool on January 1, 2013. 3. Prepare the journal entry to record interest on June 30, 2013, using the straight-line method. 4. Prepare the journal entry to record interest on December 31, 2013, using the straight-line method.

What is the interest expense on the bonds in 2014?

Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

On September 1, 2013, Sam's Shoe Co. issued $350,000 of 8% bonds. The bonds pay interest semiannually on January 1 and July 1 of each year. The bonds were sold at the face amount. How much cash did Sam's receive upon sale of the bonds?

Pierce Company issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2013. The bonds sold for $739,816 and mature in 2032 (20 years) . For bonds of similar risk and maturity the market yield was 12%. Interest is paid semiannually on June 30 and December 31. Pierce determines interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2013, the fair value of the bonds was $730,000. Pierce's earnings for the year will include:

Most corporate bonds are:

On January 1, 2013, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2023. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:

How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to debt and equity for preferred stock?

DCL Industries purchased a supply of mechanical components from E Corporation on November 1, 2013. In payment for the $48,000 purchase, DCL issued a one-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Required: 1. Prepare the journal entry for DCL's purchase of the components on November 1, 2013. 2. Prepare the journal entry for the first installment payment on November 30, 2013. 3. What is the amount of interest expense that DCL will report in its income statement for the year ended December 31, 2013?

Nickel Inc. bought $100,000 of 3-year, 6% bonds as an investment on December 31, 2012 for $106,000. Nickel uses straight-line amortization. On May 1, 2013, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, most likely results from this redemption?

On June 30, 2013, Blair Industries had outstanding $80 million of 8% convertible bonds that mature on June 30, 2014. Interest is payable each year on June 30 and December 31. The bonds are convertible into 6 million shares of $10 par common stock. At June 30, 2013, the unamortized balance in the discount on bonds payable account was $4 million. On June 30, 2013, half the bonds were converted when Blair's common stock had a market price of $30 per share. When recording the conversion, Blair should credit paid-in capital-excess of par:

When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported in the December 31 income statement for the year of issue would be for:

Auerbach issued the bonds:

Griggs Co. failed to amortize the premium on an outstanding five-year bond issue. What is the resulting effect on interest expense and the bond carrying value, respectively?

The specific provisions of a bond issue are described in a document called a bond indenture.