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Exam 14: Bonds and Long-Term Notes

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Question 61

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TMC issued $50 million of its 12% bonds on April 1, 2018, at 98 plus accrued interest. The bonds are dated January 1, 2018, and mature on December 31, 2037. Interest is payable semiannually on June 30 and December 31. What amount did TMC receive from the bond issuance?

A) $50.5 million.
B) $51.5 million.
C) $49.0 million.
D) $49.5 million.

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

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Question 62

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Hillside Excursions issues bonds due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 6%. Using a financial calculator or Excel, calculate the issue price of the bonds.

A) $163,200.
B) $186,410.
C) $214,877.
D) $200,000.

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

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Question 63

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On January 1, 2018, CPS Co. borrowed $340,000 cash from iLend and issued a five-year, $340,000, 4% note. Interest was payable annually on December 31. Required: Prepare the journal entries for both firms to record interest at December 31, 2018.

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Balance times effective rate

On June 30, 2018, K Co. had outstanding 9%, $10,000,000 face value bonds maturing on June 30, 2023. Interest is payable semiannually every June 30 and December 31. On June 30, 2018, after amortization was recorded for the period, the unamortized bond premium was $60,000. On that date, K acquired all its outstanding bonds on the open market at 98 and retired them. At June 30, 2018, what amount should K Co. recognize as gain on redemption of bonds before income taxes?

Why do companies find the issuance of convertible bonds to be an attractive form of financing?

Interest expense is:

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Subordinated debenture

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?

Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1, 2018. The bonds sold for $300 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance, Heidi elected the option to report these bonds at their fair value. On June 30, 2018, the fair value of the bonds was $310 million as determined by their market value on the NASDAQ. Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the general (risk-free) interest rate, did the rate increase or decrease? If the change in fair value is attributable to a change in the general (risk-free) interest rate, is the gain or loss reported as part of net income? Explain.

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2018. LPC's accountant has projected the following amortization schedule from issuance until maturity: - What is the annual stated interest rate on the bonds?

On January 1, 2018, BBX issued $400,000 of its 8% bonds for $368,000. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. BBX records interest at the effective rate and elected the option to report these bonds at their fair value. On December 31, 2018, the fair value of the bonds was $370,000 as determined by their market value on the NYSE. $1,000 of the change in fair value was due to a change in the general (risk-free) rate of interest. Required: 1. Prepare the journal entry to record interest on June 30, 2018 (the first interest payment). 2. Prepare the journal entry to record interest on December 31, 2018 (the second interest payment). 3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet.

Patrick Rach International issued 5% bonds convertible into shares of the company's common stock. Rach applies International Financial Reporting Standards (IFRS) . Upon issuance, Patrick Rach International should record:

On June 30, 2018, L. N. Bean issued $10 million of its 8% bonds for $9 million. The bonds were priced to yield 10%. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, how much bond interest expense should the company report for the 6 months ended December 31, 2018?

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

Harrell's Barrels issued $100 million of 6% convertible bonds at 101. Each $1,000 bond is convertible into 45 shares of Harrell's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 98. -Harrell applies U.S. GAAP. Recording the issuance of the bonds would cause an increase in Harrell's:

Auerbach Inc. issued 4% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. The effective interest rate established by the market was 6%. - Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance after its first interest payment on March 31, 2019, rounded up to the nearest thousand?

Yellow Corp. issues 10% bonds. Not including any indirect effects on earnings, the issuance will immediately decrease Yellow's:

Listed below are several terms and phrases associated with long-term debt. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it. -Debt issue costs

On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $6 million for cash. The bonds mature in 10 years and were issued at a price of $3,050,100. -Required: What will Morton Sales Co. report on these bonds in its December 31, 2018, balance sheet?