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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 71

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Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

A) True
B) False

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Question 72

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One reason a dollar today is worth more than a dollar one year from today is the time value of money.

A) True
B) False

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Question 73

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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.

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

The higher the times interest earned ratio, the better the creditors' protection.

Given the following data, prepare the journal entry to record interest expense and any related amortization on December 31 of the first year using the effective interest rate method. Assume interest is paid annually on January 1. The bonds were issued on January 1 for $7,411,233.? Bonds payable, maturing in 10 years = $8,000,000Contract interest rate = 5%Market (effective) interest rate = 6%?Round answers to nearest dollar.

Match each description below to the appropriate term (a-g) . -The entire principal of the bond is paid back on maturity date

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

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

The prices of bonds are quoted as a percentage of the bonds' market value.

On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 3 carrying amount in the amortization table for this installment note will be equal to

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

Match each description below to the appropriate term (a-g) . -Allows the issuer to redeem bonds before maturity date

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

If Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is

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

Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to