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Exam 12: Debt Financing

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Question 1

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The issuance price of a bond does not depend on the

A) face value of the bond.
B) riskiness of the bond.
C) method used to amortize the bond discount or premium.
D) effective interest rate.

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

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Question 2

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Accrued interest on bonds that are sold between interest dates

A) is ignored by both the seller and the buyer.
B) increases the amount a buyer must pay to acquire the bonds.
C) is recorded as a loss on the sale of the bonds.
D) decreases the amount a buyer must pay to acquire the bonds.

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

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Question 3

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On July 1,2014,Chelsea Company purchased as a long-term investment Soho Company's ten-year,9 percent bonds,with a face value of $100,000 for $95,200.Interest is payable semiannually on January 1 and July 1.The bonds mature on July 1,2018.Chelsea uses the straight-line method of amortization.What is the amount of interest revenue that Chelsea should report in its income statement for the year ended December 31,2014?

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

Outstanding bonds payable are converted into common stock.Under either the book value or market value method,the same amount would be debited to Bonds Premium on Payable Bonds Payable

On January 1,2014,Marco Hospital issued a $250,000,10 percent,5-year bond for $231,601.Interest is payable on June 30 and December 31.Marco uses the effective-interest method to amortize all premiums and discounts.Assuming an effective interest rate of 12 percent,approximately how much discount will be amortized on December 31,2014?

To compute the price to pay for a bond,you use

Gunnison County issued a $500,000,10 percent,10-year bond on January 1,2014,for 113.6 when the effective interest rate was 8 percent.Interest is payable on June 30 and December 31.Gunnison uses the effective-interest method to amortize all premiums and discounts. -How much interest expense should Gunnison record on December 31,2014?

Freddy,Inc.had outstanding 10 percent,$1,000,000 face value,convertible bonds maturing on December 31,2017.Interest is paid December 31 and June 30.After amortization through June 30,2014,the unamortized balance in the bond premium account was $30,000.On that date,bonds with a face amount of $500,000 were converted into 20,000 shares of $20 par common stock.Recording the conversion by using the carrying value of the bonds,Freddy should credit Additional Paid-In Capital for

A variable interest in a variable interest entity (VIE) may arise from all of the following except

The December 31,2014,balance sheet of Far Imports includes the following items: The bonds were issued on December 31,2013,at 97,with interest payable on June 30 and December 31 of each year.The straight-line method is used for discount amortization. On March 1,2015,Far Imports retired $400,000 of these bonds at 98 plus accrued interest.Prepare the journal entries to record retirement of the bonds,including accrual of interest since the last payment and amortization of the discount.

The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the

Tarpon Corp.had the following long-term debt at December 31: The debenture bonds amounted to

On July 1,2014,Saunter issued 2,000 of its 8 percent,$1,000 bonds for $1,752,000.The bonds were issued to yield 10 percent.The bonds are dated July 1,2014,and mature on July 1,2024.Interest is payable semiannually on January 1 and July 1.Using the effective-interest method,how much of the bond discount should be amortized for the six months ended December 31,2014?

Romer Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year. -If the bonds were issued at 97 on April 1,2014,plus accrued interest,the amount of cash received by Romer Corporation would be

Gunnison County issued a $500,000,10 percent,10-year bond on January 1,2014,for 113.6 when the effective interest rate was 8 percent.Interest is payable on June 30 and December 31.Gunnison uses the effective-interest method to amortize all premiums and discounts. -How much premium or discount should be amortized on June 30,2014?

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

In an effort to increase sales,Sharpy Razor Blade Company inaugurated a sales promotion campaign on June 30,2014,whereby Sharpy placed a coupon in each package of razor blades sold,the coupons being redeemable for a premium.Each premium costs Sharpy $0.75,and five coupons must be presented by a customer to receive a premium.Sharpy estimated that only 60 percent of the coupons issued will be redeemed.For the six months ended December 31,2014,the following information is available: What is the estimated liability for premium claims outstanding at December 31,2014?

In theory (disregarding any other marketplace variables) ,the proceeds from the sale of a bond will be equal to the

During the year,Franklin Corporation incurred the following costs in connection with the issuance of bonds: The amount recorded as a deferred charge to be amortized over the term of the bonds is