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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) B) and C)
F) None of the above

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On February 1, 2009, Sanford & Son issued 10% bonds dated February 1, 2009, with a face amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Sanford & Son'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 straight-line method 3. Prepare the necessary journal entry on December 31, 2009. 4. Prepare the necessary journal entry on January 31, 2010.

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The unamortized balance of discount on bonds payable is reported in the balance sheet as:


A) A prepaid expense.
B) An expense account.
C) A current liability.
D) A contra-liability.

E) C) and D)
F) None of the above

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Required: What total interest expense will Morton Sales Co. report over the 10-year life of these bonds?

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$2,949,900 (Maturity...

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How are bonds and notes the same? How do they differ?

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Bonds and notes are similar in that both...

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On January 1, 2008, Slug Corporation issued $6 million of 8%, 10-year convertible bonds at 102. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of $1 par common stock. Fuzz Company purchased 20% of the issue as an investment. On July 1, 2012, Fuzz converted all of its bonds into common stock of Slug. The market price per share for Slug was $32 at the time of the conversion. Both companies use the straight-line method for amortization. Required: 1. Prepare journal entries for the issuance of the bonds on the issuer and the investor books. 2. Prepare the journal entries for the conversion on the books of the issuer and the investor.

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The rate of return on assets indicates


A) the margin of safety provided to creditors.
B) the extent of "trading on the equity" or financial leverage.
C) profitability without regard to how resources are financed .
D) the effectiveness of employing resources provided by owners.

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

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Required: Why did the carrying amount of the debentures increase during fiscal year 2009?

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These are zero coupon debentur...

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Distinguish between: (a) Convertible and callable bonds. (b) Serial and term bonds.

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(a) Convertible bonds may be exchanged f...

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When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:


A) The invoice price.
B) The wholesale price.
C) The present value of cash outflows discounted at the stated rate.
D) The present value of the note payments discounted at the market rate.

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

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Required: Suppose that half of the bondholders had converted them into Health Foods' stock at the end of the 2009 fiscal year when the stock price is $90 per share. What gain or loss from this conversion would Whole Foods have recorded on the transaction using the book value method? The market value method?

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(A) Under the book value method?
None. U...

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


A) 3%.
B) 4%.
C) 6%.
D) 8%.($344,632 / $11,487,747) 2 = 6%

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

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Straight-line amortization of bond discount or premium:


A) Can be used for amortization of discount or premium in all cases and circumstances.
B) Provides the same amount of interest expense each period as does the effective interest method.
C) Is appropriate for deep discount bonds.
D) Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.

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

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

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Convertible debt securities are attracti...

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The times interest earned ratio indicates


A) the margin of safety provided to creditors.
B) the extent of "trading on the equity" or financial leverage.
C) profitability without regard to how resources are financed.
D) the effectiveness of employing resources provided by owners.

E) C) and D)
F) None of the above

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List at least three ways that bonds may be taken off the market prior to maturity.

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(1.) Bonds may be converted into common ...

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How much cash interest does Auerbach pay on March 31, 2010?


A) $ 6.0 million
B) $12.0 million
C) $ 9.0 million
D) $18.0 million This is $300 million 4% 6/12.

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

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When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:


A) Is treated as a current liability at the exchange date.
B) Is recorded as interest revenue at the exchange date.
C) Is recorded as interest receivable at the exchange date.
D) Is credited to sales revenue at the exchange date.

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

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On March 31, 2009, MDS, Inc.'s bondholders exchanged their convertible bonds for common stock. The carrying amount of these bonds on Ashley's books was less than the fair value but greater than the par value of the common stock issued. If Ashley used the book value method of accounting for the conversion, which of the following statements correctly states an effect of this conversion?


A) Shareholders' equity is increased.
B) Additional paid-in capital is decreased.
C) Retained earnings is increased.
D) An extraordinary loss is recognized Under the book value approach, the book value of the bonds in transferred to shareholders' equity.There is no gain or loss.

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

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Assuming that Auerbach issued the bonds for $255,369,000, what interest expense would it recognize in its 2009 income statement?


A) $0
B) $3,830,535
C) $5,107,380
D) $7,661,070 This is the issue price of $255,369,000 6% effective rate 3 mos./ 12 mos.

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

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