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Exam 11: Liabilities: Bonds Payable

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Question 41

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If bonds are issued at a premium,the stated interest rate is

A) higher than the market rate of interest
B) lower than the market rate of interest
C) too low to attract investors
D) adjusted to a higher rate of interest

E) None of the above
F) C) and D)

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Question 42

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Match each description below to the appropriate term (a-g). -On the first day of the fiscal year,a company issues an $800,000,6%,5-year bond that pays semiannual interest of $24,000 ($800,000 × 6% × 1 / 2),receiving cash of $690,960.Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

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Question 43

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Using the following table,what is the present value of $40,000 to be received in 5 years,if the market rate is 7% compounded annually?

If bonds payable are not callable,the issuing corporation

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization,the effective interest rate method should be used.

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500.If the issuing corporation redeems the bonds at 98 1 / 2,what is the amount of gain or loss on redemption?

The Merchant Company issued 10-year bonds on January 1.The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1.The bonds were sold for $117,205 based on the market interest rate of 12%.Merchant uses the effective interest method to amortize bond discounts and premiums.On July 1 of the first year,Merchant should record interest expense (round to the nearest dollar) of

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000.Journalize the redemption of the bonds.

On the first day of the fiscal year,a company issues a $500,000,8%,10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1 / 2),receiving cash of $520,000.Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 103,what is the amount of gain or loss on redemption?

Using the following table,what is the present value of $15,000 to be received in 10 years,if the market rate is 5% compounded annually?

On January 1 of the current year,the Barton Corporation issued 10% bonds with a face value of $200,000.The bonds are sold for $191,000.The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31,five years from now.Barton records straight-line amortization of the bond discount.The bond interest expense for the year ended December 31 is

On January 1,the Elias Corporation issued 10% bonds with a face value of $50,000.The bonds are sold for $46,000.The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31,ten years from now.Elias records straight-line amortization of the bond discount.The bond interest expense for the year ended December 31 of the first year is

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

The balance in Discount on Bonds Payable

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

To determine the six-month interest payment amount on a bond,you would take one-half of the market rate times the face value of the bond.

If bonds are issued at a discount,it means that the

The times interest earned ratio is computed as