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Exam 6: Bonds and Long-Term Notes Payable

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Question 31

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Over the life of a bond,the maturity value and carrying value converge

A) True
B) False

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Question 32

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Abloy Inc issued $100,000,8%,5-year bonds.The current market rate was 7.5%.Cheryl received $101,136.80 for the bonds.Using the effective interest method of amortizing bond premium or discount,the amount of interest expense for the first semiannual payment was

A) $3,500.00
B) $3,136.32
C) $3,386,32
D) $3,792.63
E) $4,250.00

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

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Question 33

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Bonds with a par value of $100,000,which pay 9% annual interest and pay interest on June 30 and December 31,were sold on July 31 at par value.The issuer will receive $100,750 cash for the sale of the bond.

Aflac Corporation leased machinery under a finance lease arrangement with its lessee.At January 1,2021,the first day of the lease,the asset and lease obligation were recorded for $68,000.The first lease payment of $13,276 was due December 31,2021 and the interest rate they used in their calculations was 7%.The lease term was 10 years.Which of the following best describes what would be reported on Aflac's statement of income for the year ending December 31,2021?

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n)

When graphing the amount of interest paid over time and the amount of interest expensed over time,the lines are parallel if the effective interest amortization method is used.

On January 1, 2021, Freshbooks Industries signed an 18-year lease for heavy equipment. The lease is accounted for by Freshbooks as a finance lease. The lease required annual payments of $19,000 beginning December 31, 2021. The heavy equipment has an estimated useful life of 20 years, with $2,000 residual value. Freshbooks uses straight-line depreciation for all its plant assets. The lease payments have a present value of $159,000, based on a 10% interest rate -How much interest expense should Freshbooks report for the lease on its 2021 income statement?

Over the life of a note payable,the amount of interest expense allocated to each period is calculated by

An advantage of bond financing is that interest does not have to be paid.

When graphing the carrying value of a premium bond vs the par value of a premium bond,the lines intersect at the maturity date of the bond.

A corporation must buy back its callable bonds through open market transactions.

On January 1,2019,Zend Corporation issued $500,000,8% bonds,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation purchased the entire issue on the open market at 98 and retired the issue.Prepare the journal entry to record the retirement. $\begin{array}{|l|l|r|r|}\hline \text { Jan-01 } & \text { Bonds Payable } &500,000 & \\\hline & \text { Premium on Bonds Payable* } &12,000 & \\\hline & \text { Cash** } & &490,000\\\hline & \text { Gain on Retirement of Bonds } & & 22,000 \\\hline\end{array}$

An annuity is a series of varying payments occurring at different time intervals throughout a bond's life.

Ratheon Corporation issued $800,000,9%,3-year bonds when the market rate was 10%,and received $731,891.49 in proceeds.The bonds pay annual interest.Prepare the journal entry to record the issuance of the bonds.

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes

Lojack Corporation issued $85,000,4%,10-year bonds,with interest payable semiannually at the end of the period.The market rate on the issue date was 5%.Calculate the issue price for the bond.

For a note requiring equal payments,each payment will consist of increasing amounts of principal and decreasing amounts of interest.

On December 31,2019,when the market rate was 12%,Ricken Corp issued $2,000,000,14%,5-year bonds.Interest is payable semiannually on June 30 and December 31.The bonds were issued for $2,147,214,and the corporation uses the effective interest method of amortizing bond premium or discount.Prepare the journal entries to record the issuance of the bonds and the first interest payment.

A discount on bonds payable arises when a corporation issues bonds with an issue price less than par value.

A&M Records Corporation issued $1,000,000,8% bonds,receiving a $30,000 premium.On the interest payment date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation purchased the entire issue on the open market at 95 and retired the issue.As a result,the gain on retirement was