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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 61

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Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

A) debentures
B) callable bonds.
C) early retirement bonds.
D) options.

E) All of the above
F) A) and D)

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Question 62

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Bonds are sold at face value when the contract rate is equal to the market rate of interest.

A) True
B) False

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Question 63

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To determine the six month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond.

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

The unamortized Discount on Bonds Payable account is a contra-liability account.

The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.

If $2,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue. The amounts set aside are kept separate from other assets in a special fund called a(n)

If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty, $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%.

Bondholders are creditors of the issuing corporation.

The higher the times interest earned ratio, the better the creditors' protection.

On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions for the current year:

Sinking Fund Cash would be classified on the balance sheet as

One potential advantage of financing corporations through the use of bonds rather than common stock is

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

If bonds are issued at a discount, it means that the

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?