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Exam 14: Bonds and Long-Term Notes

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Question 21

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Bond X and bond Y both are issued by the same company.Each of the bonds has a maturity value of $100,000 and each pays interest at 8%.The current market rate of interest is 8% for each.Bond X matures in 7 years while bond Y matures in 10 years.Which of the following is correct?

A) Both bonds sell for the same amount.
B) Both bonds sell for more than $100,000.
C) Bond X sells for more than bond Y.
D) Bond Y sells for more than bond X.

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

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Question 22

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Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

A) True
B) False

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Question 23

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Required: How much interest will Morton Sales Co.pay on these bonds in 2016?

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to accounting for convertible debt?

Assuming that Auerbach issued the bonds for $255,369,000,what interest expense would it recognize in its 2016 income statement?

How should bond issue costs be accounted for on the books of the issuing corporation?

How much cash interest does Auerbach pay on March 31,2017?

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

On January 1,2016,an investor paid $291,000 for bonds with a face amount of $300,000.The contract rate of interest is 8% while the current market rate of interest is 10%.Using the effective interest method,how much interest income is recognized by the investor in 2017 (assume annual interest payments and amortization) ?

The rate of return on assets indicates:

What would be the total interest expense recognized for the bond issue over its full term?

A zero-coupon bond pays no interest.Explain.

The rate of interest that actually is incurred on a bond payable is called the:

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1.Bond interest expense for the year ended December 31,2016,is for a period of:

When bonds are sold at a premium and the effective interest method is used,at each interest payment date,the interest expense:

AMC issues a note with no stated interest rate in exchange for a machine.In accounting for the transaction:

An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.

On January 1,2011,F Corp.issued 2,000 of its 10%,$1,000 bonds for $2,080,000.These bonds were to mature on January 1,2021,but were callable at 101 any time after December 31,2014.Interest was payable semiannually on July 1 and January 1.On July 1,2016,F called all of the bonds and retired them.The bond premium was amortized on a straight-line basis.Before income taxes,F Corp.'s gain or loss in 2016 on this early extinguishment of debt was:

When an equipment dealer receives a long-term note in exchange for equipment,and the stated rate of interest is indicative of the market rate of interest at the time of the transaction,the present value of the future cash flows received on the notes:

What is the interest expense on the bonds in 2017?