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Exam 22: Long-Term Bonds

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Question 1

Multiple Choice

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A bond sinking fund investment is started on January 5,2016,by transferring $10,000 in cash to the fund.This $10,000 is invested and earns $1,100 during 2016.The entry to record the earnings made on the sinking fund investment includes

A) a debit to Cash for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
B) a debit to Cash for $1,100 and a credit to Bond Sinking Fund Investment for $1,100.
C) a debit to Bond Sinking Fund Investment for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
D) a debit to Cash for $1,100 and a credit to Interest Income for $1,100.

E) A) and D)
F) A) and C)

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Question 2

Multiple Choice

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If a bond is a registered bond,it can NOT be a ___________ bond.

A) discount
B) callable
C) convertible
D) coupon

E) A) and B)
F) None of the above

Correct Answer

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D

Question 3

True/False

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A corporation pays only the face value of its bonds if they are retired prior to the maturity date.

The Bonds Payable account would be credited for $104,000 to record the issuance of $100,000 par value,10 percent bonds at a market price of 104.

Trog Industries pays and records the semiannual interest on its $500,000,10-year,6% bonds outstanding on July 1,2013.On the same date,amortization of the premium of $5,000 received on $100,000 of those bonds is recorded.Prepare the journal entries recorded by Trog Industries.

Ten-year bonds with a face value of $500,000 were issued at 96.The carrying value of the bond after the second year of interest payments is:

Bonds issued at a premium are

When a corporation pays bond interest,Bond Interest Expense is debited.

On April 1,2015,Flummery Corporation purchased on the open market $100,000 of its 10-year 7% (interest paid semiannually)bonds and retired them.They are purchased at $102,000.These bonds were originally sold at their $100,000 face value on January 2,2013.Prepare the journal entries necessary for this transaction.

If bonds are issued for a price below their face value,the bond discount should be

On September 1,2014,a corporation paid $620,000 to retire bonds with a face value of $600,000 and an unamortized bond premium of $10,000.Record the transaction on page 8 of a general journal.Omit the description.

The balance of the Bonds Payable account plus the balance of the Premium on Bonds Payable account or minus the balance of the Discount on Bonds Payable account is called the ____________________ value of the bonds.

A bond is ____________________ if the issuing corporation has the right to require the owner to surrender the bond for payment before the maturity date.

When bonds are sold by a company,the company assumes debt.The principal of which is the amount of the face value of the bonds sold.Cash to pay this debt must be available when the bonds become due.Discuss things a company can do in order to have the funds available to pay the bond debt on the due date.

Bonds are often issued as a means of raising capital to pay off short-term debt.

Why would a company include a call feature in its bond indenture? At what time would they consider exercising this option? Include an example of when it is advantageous for a company to call its bonds and the entry to do so.

A company issues 8%,20-year bonds with a par value of $400,000.The current market rate of interest is 9%.The amount of interest owed to the bondholders for each semiannual interest payment is:

The adjusting entry to record accrued bond interest is reversed on the first day of the following period.

Compare convertible and callable bonds by listing their characteristics in the following format.

The Mammoth Corporation issued $800,000 face value of 10-year,12 percent bonds dated April 1,2013,and maturing on April 1,2023.Interest is payable semiannually on April 1 and October 1.The bonds were issued at a price of 98.Record the transactions to issue the bonds on April 1,2013,and to pay interest and amortize the bond discount on October 1,on page 9 of a general journal.Omit descriptions.