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Exam 14: Bonds and Long-Term Notes

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Question 31

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On January 31, 2009, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2008, and mature on December 31, 2018. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2009, balance sheet?

A) $18,000.
B) $36,000.
C) $54,000.
D) $48,000.The interest payable at September 30, 2009, will be for the three month's interest that has accrued since the last interest was paid on June 30, 2009 ($600,000 12% 3/12 = $18,000) .

E) A) and B)
F) None of the above

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Question 32

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

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Question 33

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When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?

Required: Determine the gain or loss that Health Foods would have reported in its 2009 income statement if it had repurchased (and retired) the debentures at fair value at the end of the fiscal year.

Required: What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2010?

The December 31, 2008, balance sheet of Ming Inc. included 12% bonds with a face amount of $100 million. The bonds were issued in 1998 and had a remaining discount of $3,400,000 at December 31, 2008. On January 1, 2009, Ming called the bonds at a price of 102. Required: Prepare the journal entry by Ming to record the retirement of the bonds on January 1, 2009.

A $500,000 bond issue sold for 98. Therefore, the bonds:

What is the stated annual rate of interest on the bonds?

On February 1, 2009, Lagune & Sons issued 9% bonds dated February 1, 2009, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Lagune's fiscal year is the calendar year. Required: 1. Prepare the journal entry to record the bond issuance on February 1, 2009. 2. Prepare the entry to record interest on July 31, 2009, using the effective interest method. 3. Prepare the necessary journal entry on December 31, 2009. 4. Prepare the necessary journal entry on January 31, 2010.

On January 1, 2009, Whittington Stoves issued $800 million of its 8% bonds for $736 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Whittington records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2009, the fair value of the bonds was $752 million as determined by their market value on the NYSE. Required: 1. Prepare the journal entry to record interest on June 30, 2009 (the first interest payment). 2. Prepare the journal entry to record interest on December 31, 2009 (the second interest payment). 3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2009, balance sheet.

What would be the total interest cost of the bonds over their full term?

Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

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, 2009, is for a period of:

On January 1, 2009, Mania Enterprises issued 12% bonds dated January 1, 2009, with a face amount of $20 million. The bonds mature in 2018 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2009. 2. Prepare the journal entry to record the bond issuance by Mania on January 1, 2009. 3. Prepare the journal entry to record interest on June 30, 2009, using the effective interest method. 4. Prepare the journal entry to record interest on December 31, 2009, using the effective interest method.

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is:

On January 1, 2009, Club Company purchased 10% bonds, dated January 1, 2009, with a face amount of $20 million. The bonds mature in 2018 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2009. 2. Prepare the journal entry to record the bond purchase by Club on January 1, 2009. 3. Prepare the journal entry to record interest on June 30, 2009, using the straight-line method. 4. Prepare the journal entry to record interest on December 31, 2009, using the straight-line method.

Bonds usually sell at their:

The rate of return on shareholders' equity indicates

Determine the price of a $200,000 bond issue under each of the following independent assumptions: $\begin{array} { c l c c } \text { Maturity } & \text { Interest Paid } & \text { Stated Rate } & \text { Effective Rate } \\\text { 1. 10 years } & \text { annually } & 10 \% & 12 \% \\\text { 2. 10 years } & \text { semiannually } & 10 \% & 12 \% \\\text { 3. 20 years } & \text { semiannually } & 12 \% & 12 \%\end{array}$

On January 1, 2004, F Corp. issued 2,000 of its 10%, $1,000 bonds for $2,080,000. These bonds were to mature on January 1, 2014, but were callable at 101 any time after December 31, 2007. Interest was payable semiannually on July 1 and January 1. On July 1, 2009, F called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, F's gain or loss in 2009 on this early extinguishment of debt was: