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Exam 14: Bonds and Long-Term Notes

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Question 61

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On January 1, 2013, Ozark Minerals issued $20 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Ozark's no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99. Ozark applies International Financial Reporting Standards (IFRS) . Upon issuance, Ozark should:

A) Credit bonds payable $18,800,000.
B) Credit premium on bonds payable $200,000.
C) Credit equity $200,000.
D) Credit bonds payable $20,200,000.

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

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Question 62

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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:

A) Equal to $500,000.
B) More than $500,000.
C) Less than $500,000.
D) The answer cannot be determined from the information provideD.When the market rate of interest is higher than the bonds' stated rate, the bonds will sell at a discount.

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

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Question 63

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

When the interest payment dates are March 1 and September 1, and notes are issued on July 1, the amount of interest expense to be accrued at December 31 of the year of issue would:

What is the carrying value of the bonds as of December 31, 2014?

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

Which of the following indicates the margin of safety provided to creditors?

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?

Required: Suppose that half of the bondholders had converted them into Health Foods' stock at the end of the 2013 fiscal year when the stock price is $90 per share. What gain or loss from this conversion would Health Foods have recorded on the transaction using the book value method? The market value method?

On January 1, 2013, Field Company purchased 12% bonds, dated January 1, 2013, with a face amount of $20 million. The bonds mature in 2022 (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, 2013. 2. Prepare the journal entry to record the bond purchase by Field on January 1, 2013. 3. Prepare the journal entry to record interest on June 30, 2013, using the straight-line method. 4. Prepare the journal entry to record interest on December 31, 2013, using the straight-line method.

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

When bonds are sold at a discount, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of discount is:

Patrick Roch International issued 5% bonds convertible into shares of the company's common stock. Roch applies U.S. GAAP. Upon issuance, Patrick Roch International should record:

When a company issues bonds between interest dates, the entry to record the issuance of the bonds will:

When bonds are retired prior to their maturity date:

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest:

Tru Fashions has bonds outstanding during a year in which the market rate of interest has declined. If Tru has elected the fair value option for the bonds, will it report a gain or a loss on the bonds for the year? Explain.

On January 1, 2013, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2013, in the amount of:

Bonds were issued at a discount. In the bond amortization schedule:

Bonds will sell for a premium when the market rate of interest exceeds their stated rate.