Accounting Chapter 10 A company holds $150,000 par value of bonds with

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204) A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest

is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290

based on an annual market rate of 8%. The company uses the effective interest method of

amortization.

(1) Prepare an amortization table for the first two semiannual payment periods using the format

shown below.

Semiannual

Interest

Period

Cash

Interest

Paid

Bond

Interest

Expense

Premium

Amortization

Unamortized

Premium

Carrying

Value

(2) Prepare the journal entry to record the first semiannual interest payment.

205) A company holds $150,000 par value of bonds with a carrying value of $147,950. The

company calls the bonds at $151,000. Prepare the journal entry to record the retirement of the

bonds.

206) A company has 10%, 20-year bonds outstanding with a par value of $500,000. The

company calls the bonds at $480,000 when the unamortized discount is $24,500. Calculate the

gain or loss on the retirement of these bonds.

207) Mandarin Company has 9%, 20-year bonds outstanding with a par value of $500,000 and a

carrying value of $475,000. The company calls the bonds at $482,000. Calculate the gain or loss

on the retirement of these bonds.

208) A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium. On

the current year’s interest date, after the bond interest was paid and after 40% of the total

premium had been amortized, the company calls the bonds at $1,960,000. Prepare the journal

entry to record the retirement of these bonds on January 1 of the current year.

209) On January 1, Year 1 a company borrowed $70,000 cash by signing a 9% installment note

that is to be repaid with 4 annual year-end payments of $21,607, the first of which is due on

December 31, Year 1.

(a) Prepare the company’s journal entry to record the note’s issuance.

(b) Prepare the journal entries to record the first and second installment payments.

210) On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to

be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December

31. Prepare the journal entries to record the first and second installment payments.

211) On January 1, Year 1 Cleaver Company borrowed $85,000 cash by signing a 7%

installment note that is to be repaid with 4 annual year-end payments of $25,094, the first of

which is due on December 31, Year 1.

(a) Prepare the company’s journal entry to record the note’s issuance.

(b) Prepare the journal entries to record the first installment payment.

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212) A company purchased two new delivery vans for a total of $250,000 on January 1, Year 1.

The company paid $40,000 cash and signed a $210,000, 3-year, 8% note for the remaining

balance. The note is to be paid in three annual end-of-year payments of $81,487 each, with the

first payment on December 31, Year 1. Each payment includes interest on the unpaid balance

plus principal.

(1) Prepare a note amortization table using the format below:

Period Ending

Date

Beginning

Balance

Debit

Interest

Expense

Debit

Notes

Payable

Credit

Cash

Ending

Balance

12/31/Yr 1

12/31/Yr 2

12/31/Yr 3

(2) Prepare the journal entries to record the purchase of the vans on January 1, Year 1 and the

second annual installment payment on December 31, Year 2.

213) ________ bonds have specific assets of the issuing company pledged as collateral.

214) ________ bonds are bonds that are scheduled for maturity on one specified date.

215) ________ bonds are bonds that mature at more than one date, often in a series, and thus are

usually repaid over a number of periods.

216) ________ bonds reduce a bondholder’s risk by requiring the issuer to create a fund of assets

set aside as specified amounts and dates to repay the bonds.

217) Bonds payable to whoever holds them are called ________ bonds.

218) ________ bonds can be exchanged for a fixed number of shares of the issuing corporation’s

common stock.

219) ________ bonds have an option exercisable by the issuer to retire them at a stated dollar

amount prior to maturity.

220) The legal document identifying the rights and obligations of both the bondholders and the

issuer is called the ________.

221) An ________ is an obligation requiring a series of payments to the lender.

222) When applying equal total payments to a note, with each payment the amount applied to the

note principal ________ while the interest expense for the note ________.

223) The ________ concept is the idea that cash paid (or received) in the future has less value

now than the same amount of cash paid (or received) today.

224) The issue price of bonds is the ________ of the bonds’ cash payments, discounted at the

bonds’ market rate.

225) A ________ is a contractual agreement between an employer and its employees for the

employer to provide benefits (payments) to employees after they retire.

226) ________ leases are long-term leases that do not meet any of the five criteria for finance

leases.

227) ________ leases are long-term or noncancelable leases by which the lessor transfers

substantially all risks and rewards of ownership to the lessee.

228) Return on equity increases when the expected rate of return from the acquired assets is

________than the rate of interest on the bonds used to finance the asset acquisition.

229) Bonds issued in the names and addresses of their holders are ________ bonds.

230) The ________ ratio is used to assess the risk of a company’s financing structure.

231) The rate of interest that borrowers are willing to pay and lenders are willing to accept for a

particular bond and its risk level is the ________ of interest.

232) The ________ method of amortizing a bond discount allocates an equal portion of the total

bond interest expense to each interest period.