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Exam 22: Long-Term Bonds

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Question 21

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The board of directors of the Costmore Corporation authorized the issuance of $1,200,000 face value of 5-year, 8 percent bonds dated March 1, 2013, and maturing on March 1, 2015. Interest is payable semiannually on September 1 and March 1. Record the following bond transactions on page 6 of a general journal. Omit descriptions. 2013 March 1 Issued $\$ 500,000$ of bonds at face value Sept. 1 Paid the semiannual interest on the bonds issued Dec. 31 Recorded the adjusting entry for the accrued bond interest 31 Closed the Bond Interest Expense account into the Income Summary account 2014 Jan. 1 Reversed the adjusting entry for accrued bond interest March 1 Paid the semiannual interest on the bonds issued 1 Issued $\$ 700,000$ of bonds at face value Sept. 1 Paid the semiannual interest on the bonds issued Dec. 31 Recorded the adjusting entry for the accrued bond interest 31 Closed the Bond Interest Expense account into the Income Summary account

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Question 22

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Morris Corporation has 10-year, 12% bonds Payable of $100,000 that were sold on January 2, 2013 at a discount of $15,000. Amortization on the discount is recorded at the end of each year. Determine the Balance Sheet presentation of these bonds at December 31, 2014. (Present only the section of the Balance Sheet in which the bonds appear.)

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Question 23

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

Match the following definitions with the proper terms.

A corporation paid $104,000 to retire bonds with a face value of $100,000 and an unamortized premium balance of $3,000. The entry to record the early retirement of the bonds will include the recognition of a loss of

Bonds on which a corporation has pledged property to guarantee payment to the bondholders are known as ____________________ bonds.

Using borrowed funds to earn a profit higher than the interest charged for borrowing is called

When bonds are issued at a price below face value, the Discount on Bonds Payable account is ____________________ for the difference between the issue price and the face value.

Bonds issued at a premium are

The adjusting entry for Barstow Corporation on September 30, 2013 (the end of the fiscal year) to accrue three months of bond interest due is as follows. Interest is paid on June 30 and December 31. Make the entry to reverse this accrual. Include the proper date for the entry.

If bonds with a face value of $100,000 and a carrying value of $103,000 are retired early by paying a price of $101,000, an extraordinary ____________________ will be reported on the income statement for the period.

If the market rate of interest on the day that bonds are issued is lower than the face rate of interest, the bonds will sell at a discount.

The entry to record the issuance of bonds at face value includes

Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a debit to the Cash account for

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. Prepare the journal entries recorded by Trog Industries.

In the interest formula I = Prt, the P stands for

In the case of liquidation, bondholders and other creditors must be paid in full before stockholders can receive anything.

Retained earnings are often appropriated while the bonds are outstanding. Which of the following is a reason for the appropriation?

Compare convertible and callable bonds by listing their characteristics in the following format. Convertible Bonds $\quad$$\quad$$\quad$$\quad$ Callable Bonds

Bonds payable and mortgage loans are both long-term debt instruments. (a) How do bonds payable differ from notes payable? (b) Define bonds payable. (Include in your definition several characteristics and types of bonds payable.)