Question 1

What is the annual stated interest rate on the bonds?

Accepted Answer

A)  3.5%
B)  6%
C)  7%
D)  None of these is correct.This is the annual cash interest paid ($14,000) , divided by the maturity (face)  value of $200,000.E) C) and D)
F) A) and D)

Question 2

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:

Accepted Answer

A)  Not be required.
B)  Be for six months.
C)  Be for four months.
D)  Be for ten months.E) A) and D)
F) A) and C)

Question 3

On April 1, 2009, Austere Corporation issued $300,000 of 10% bonds at 105. Each $1,000 bond was sold with 25 detachable stock warrants, each permitting the investor to purchase one share of common stock for $17. On that date, the market value of the common stock was $15 per share and the market value of each warrant was $2. Austere should record what amount of the proceeds from the bond issue as an increase in liabilities?

Accepted Answer

A)  $285,000
B)  $300,000
C)  $315,000
D)  $0 300 25 = 7,5007,500 $2 = $15,000$300,000 1.05 = $315,000$315,000 15,000 = $300,000E) A) and C)
F) None of the above

Question 4

At January 1, 2009, TD owed First Bank $300,000, under an 11% note with 3 years remaining to maturity. Due to financial difficulties, TD was unable to pay the previous year's interest. First Bank agreed to settle TD's debt in exchange for land having a fair value of $225,000. TD purchased the land in 2005 for $162,000.
Required:
Prepare the journal entry(s) to record the restructuring of the debt by TD.

Accepted Answer

The answer of At January 1, 2009, TD owed First...

Question 5

On January 1, 2009, Ouachita Airlines issued $400,000 of its 20-year, 8% bonds. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Ouachita Airlines 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 $335,000 as determined by their fair value in the over-the-counter market.
Required:
1. Determine the price of the bonds at January 1, 2009, and prepare the journal entry to record their issuance. Show calculations.
2. Prepare the journal entry to record interest on June 30, 2009 (the first interest payment). Show calculations.
3. Prepare the journal entry to record interest on December 31, 2009 (the second interest payment). Show calculations.
4. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2009, balance sheet. Show calculations.

Accepted Answer

The answer of On January 1, 2009, Ouachita Airlines issued...

Question 6

Required: What is the annual effective interest rate in the market when the bonds were issued?

Accepted Answer

7%
PV/FV = $3,050,10...

Exam 14: Bonds and Long-Term Notes

Correct Answer
verified

Correct Answer
verified

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:

Correct Answer
verified

Correct Answer
verified

Required: What is the annual effective interest rate in the market when the bonds were issued?

Correct Answer
verified
7%
PV/FV = $3,050,10...
View Answer

What is the annual stated interest rate on the bonds?

Correct Answer
verified

Exam 14: Bonds and Long-Term Notes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Required: What is the annual effective interest rate in the market when the bonds were issued?

Correct Answerverified7%PV/FV = $3,050,10...View AnswerShow Answer

What is the annual stated interest rate on the bonds?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
7%
PV/FV = $3,050,10...
View Answer

Correct Answer
verified