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Exam 10: Reporting and Interpreting Bond Securities

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Question 71

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Which of the following statements best describes callable bonds?

A) They can be turned in for early retirement at the option of the bondholder.
B) They can be converted to common stock at the option of the bondholder.
C) They can be called for early retirement at the option of the issuer.
D) They can be called for early retirement at the option of the lien holder.

E) None of the above
F) All of the above

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Question 72

Multiple Choice

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Which of the following statements correctly describes the accounting for bonds that were issued at a premium?

A) The interest expense over the life of the bond is less than the total cash interest payments.
B) The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
C) The amortization of the premium on bonds payable account decreases as the bonds mature when the effective interest method is used.
D) The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is useD.When bonds are issued at a premium, interest expense over the life of the bonds equals the total payments for interest minus the premium on bonds payable at the issue date.

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

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Question 73

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Which of the following types of bonds has specific assets pledged to guarantee repayment?

On January 1, 2016, Broker Corp. issued $3,000,000 par value 12%, 10-year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.)

On January 1, 2016, Tonika Company issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Tonika uses the effective-interest amortization method. The December 31, 2017 book value after the December 31, 2017 interest payment was made is closest to:

Steamboat Company issued the following ten-year bonds on January 1, 2016: $100,000 maturity value, 6% interest payable annually on each December 31. The bonds were dated January 1, 2016 and the accounting period ends December 31. The bonds were issued for $93,000. Steamboat uses the effective-interest method for amortization. The amortization for 2016 was $510. Required: A. B.Assuming instead that the accounting period ends on June 30, prepare the adjusting entry related to interest expense and the interest accrual at June 30.No adjusting entries have been made during the year.

On November 1, 2015, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2015, and interest is payable each November 1 and May 1. Davis uses the straight-line method of amortization. How much is the amount of discount amortization on each semi-annual interest date?

The journal entry to record the issue of a bond when the coupon interest rate exceeds the market rate of interest debits premium on bonds payable.