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Exam 10: Reporting and Interpreting Bond Securities

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Question 1

Multiple Choice

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Which of the following is the title of a regulatory document with regard to a bond offering?

A) Certificate
B) Covenant
C) Indenture
D) Prospectus

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

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Question 2

Multiple Choice

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On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method. - Rounding calculations to the nearest whole dollar,which of the following journal entries correctly records the 2019 interest expense?

A)
B)
C)
D)

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

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Question 3

Multiple Choice

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If a bond is issued at 101,the coupon rate was:

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used. -What is the book value of the bond liability as of June 30,2019 (to the nearest dollar) ?

If a company calls bonds with a $1,000,000 maturity value for $1,020,000 when the book value is $950,000,a loss of $20,000 will be reported.

On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization. -What is the net amount of the bond liability to be reported on the December 31,2019 balance sheet?

Which of the following statements correctly describes the accounting for bonds that were issued at a premium?

On January 1,2019,Laramie Company issued $500,000,4%,five-year bonds payable at 92.The market rate at the date of issue is 6%.Interest is payable semiannually at each June 30 and December 31.Laramie has a December 31 year-end and uses the effective interest method of amortization. A.Prepare the journal entry to record the issuance of the bonds on January 1,2019. B.Prepare the journal entry to record the first interest payment and interest expense at June 30,2019.No entries have yet been made for interest on these bonds. C.Prepare the journal entry to record the second interest payment and interest expense at December 31,2019.No entries have been made for these bonds since June 30,2019. D.What would the carrying value of the bonds be on December 31,2019?

A company retired $200,000 of bonds,which have an unamortized premium of $8,000,by purchasing them on the open market for $210,000.What is the amount of the gain or loss on the retirement of the bonds?

Which of the following statements is correct?

On January 1,2019,Jaspo,Inc.issued a $1,000,5%,five-year bond for $1,092 when the market rate was 3%.The bond was dated on January 1,2019,and interest is payable each December 31.Jaspo,Inc.has a December 31 year-end and uses the effective interest method of amortization.Jaspo does not use a discount or a premium account for bonds in its accounting records. A.Prepare the journal entry required on January 1,2019. B.Prepare the journal entry required on December 31,2019.Round the entry items to whole dollar amounts. C.Was the bond issued at par,at a premium,or at a discount? D.What is the carrying value (book value)of the bond at December 31,2019? Round your answer to a whole dollar amount. E.Where in the financial statements does the carrying value of the bond appear? (Be specific). F.On what date does the bond issue mature?

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $449,849 based on a 10% market interest rate.The effective-interest method of amortization is used. -The book value of the bond liability at the end of December 31,2019 is closest to:

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 10%.Which of the following statements is incorrect?

On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method. - The interest expense on the income statement for the year ended December 31,2019 is closest to:

On July 1,2019,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2019,and semiannual interest will be paid each December 31 and June 30.Garden Works Inc.uses the straight-line method of amortization. - What is the amount of the semiannual interest expense?

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used. -Rounding all calculations to the nearest whole dollar,what is the interest expense for the six-month period ending June 30,2019?

Which of the following statements correctly describes the accounting for bonds that were issued at a discount?

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.

Increases in the market rate of interest subsequent to a bond issue increase the discount on the bond.

A company prepared the following journal entry: Which of the following statements is correct?