141.
On January 1, a company issues bonds dated January 1 with a par value of $300,000. The
bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The
journal entry to record the first interest payment using straight-line amortization is:
142.
On January 1, a company issues bonds dated January 1 with a par value of $300,000. The
bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The
journal entry to record the first interest payment using the effective interest method of
amortization is:
143.
Marwick Corporation issues 8%, 5 year bonds with a par value of $1,000,000 and
semiannual interest payments. On the issue date, the annual market rate for these bonds
is 6%. What is the bond’s issue (selling) price, assuming the Present Value of $1 factor for
3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the
same rate and period is 8.5302?
144.
Sharmer Company issues 5%, 5 year bonds with a par value of $1,000,000 and semiannual
interest payments. On the issue date, the annual market rate for these bonds is 6%. What
is the bond’s issue (selling) price, assuming the Present Value of $1 factor for 3% and 10
semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate
and period is 8.5302?
145.
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The
bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The
journal entry to record the issuance of the bond is:
146.
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The
bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The
journal entry to record the first interest payment using straight-line amortization is:
147.
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The
bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The
amount of the semi-annual cash payments of interest is:
148.
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The
bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The
amount of interest expense each semi-annual period using straight-line amortization is:
149.
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The
bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on
June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The
journal entry to record the first interest payment using the effective interest method of
amortization is:
150.
All of the following statements regarding accounting treatments for liabilities under U.S.
GAAP and IFRS are true
except
:
151.
On January 1, $300,000 of par value bonds with a carrying value of $310,000 is converted
to 50,000 shares of $5 par value common stock. The entry to record the conversion of the
bonds includes all of the following entries
except
:
152.
On January 1, a company issues 8%, 5 year, $300,000 bonds that pay interest
semiannually. On the issue date, the annual market rate of interest is 6%. The following
information is taken from present value tables:
Present value of an annuity for 10 periods
at 3%
8.5302
Present value of an annuity for 10 periods
at 4%
8.1109
Present value of 1 due in 10 periods at
3%
0.7441
Present value of 1 due in 10 periods at
4%
0.6756
What is the issue (selling) price of the bond?
153.
On January 1, a company issues 8%. 8 year, $500,000 bonds that pay interest
semiannually. On the issue date, the annual market rate of interest is 10%. The following
information is taken from present value tables:
Present value of an annuity for 10 periods at 4%
8.1109
Present value of an annuity for 10 periods at 5%
7.7217
Present value of 1 due in 10 periods at 4%
0.6756
Present value of 1 due in 10 periods at 5%
0.6139
What is the issue (selling) price of the bond, rounded to the nearest whole dollar?
154.
On January 1, the Forman Group leased some equipment on a 5-year lease, paying
$15,000 per year each December 31. The lease is considered to be an operating lease. The
general journal entry to record the first lease payment on December 31 should be:
155.
On January 1, Duncan Corporation leased a delivery van, agreeing to pay $10,575 every
December 31 for the six-year life of the lease. The present value of the lease payments, at
6% interest, is $52,000. The lease is considered a capital lease. The general journal entry
to record the acquisition of the delivery van is:
10–95
156.
Mercy Hospital issued $1,000,000 of 5% 20-year bonds on January 1 that pay interest
semiannually each June 30 and December 31. The market interest rate at the time of issue
was 5%. The journal entry Mercy Hospital records for the issuance of the bonds is:
Matching Questions
10–96
157.
Match each of the following terms with the appropriate definitions.
1. Debt-to–
The amount by which the bond par value
2. Discount on
Bonds that give the issuer an option of
retiring them at a stated dollar amount prior to
3. Premium on
A series of equal payments at equal time
4. Sinking fund
The ratio of total liabilities to total
5. Contract
Bonds that require the issuer to create a
fund of assets at specified amounts and dates
6. Carrying
Bonds that have specific assets of the
7. Secured
The net amount at which bonds are reported
The amount by which the bond issue
9. Bond
The contract between the bond issuer and
the bondholder(s) that identifies the rights and
10. Callable
The interest rate specified in the bond
158.
Match each of the following terms with the appropriate definitions.
1. Unsecured
Bonds that are scheduled for maturity on
2. Installment
Bonds with interest coupons attached to
coupons when they mature and present
them to a bank or broker for collection.
3. Convertible
The interest rate that borrowers are
willing to pay and lenders are willing to
4. Bond
The contract between the bond issuer
and the bondholders; it identifies the rights
Bonds that can be exchanged by the
bondholders for a fixed number shares of the
Bonds that are payable to whoever holds
An obligation requiring a series of
8. Effective
interest rate
Bonds that are backed by the issuer’s
Bonds that mature at more than one date
and are usually paid over a number of
10. Coupon
An accounting method that allocates
interest expense over the bonds’ life in a way
Short Answer Questions
159.
What is a bond? Identify and discuss the different characteristics and features bonds may
possess.
160.
Describe installment notes and the nature of the typical payment pattern.
161.
On January 1, a company borrowed $70,000 cash by signing a 9% installment note that is
to be repaid with 4 equal year-end payments of $21,607. The amount borrowed is $70,000
and 4 years of interest on $70,000 at 9% equals $25,200, for a total of $95,200, yet the
total payments on the note amount to only $86,428. Explain.
162.
Explain the present value concept as it applies to long term liabilities.