Accurate Answer A COMPANY HAS A $1,200,000 BONDISSUEOUTSTANDINGWITH ANUNAMORTIZED PREMIUM OF $15,500AND UNAMORTIZED ISSUANCE COSTOF $7,800. WHAT IS THE BOOK VALUEOF ITS LIABILITY?

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Answered: A COMPANY HAS A $1,200,000 BOND ISSUE…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

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What kind of account is the Discount on Bonds Payable? What kind of account is the Premium on Bonds Payable?
The premium on bonds payable account is shown on the balance sheet as A contra asset. A reduction of an expense. An addition to a long-term liability. A subtraction from a long-term liability.
Starmount Inc. sold bonds with a $50,000 face value, 12% interest, and 10-year term at $48,000. What is the total amount of interest expense over the life of the bonds?
The principal of a bond is ________. A. the person who sold the bond for the company B. the person who bought the bond C. the interest rate printed on the front of the bond D. the face amount of the bond that will be paid back at maturity
OShea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________. A. more than 6% B. less than 6% C. equal to 6% D. cannot be determined from the information given.
Irving Inc. sold bonds with a $50,000, 10% interest, and 10-year term at $52,000. What is the total amount of interest expense over the life of the bonds?
One way for a corporation to accomplish long-term financing is through the issuance of long-term debt instruments in the form of bonds. Required: 1. Explain how to account for the proceeds from bonds issued with detachable stock purchase warrants. 2. Contrast a serial bond with a term (straight) bond. 3. For a 5-year term bond issued at a premium, why is the amortization in the first year of the life of the bond different using the interest method of amortization as opposed to the straight-line method? Include in your discussion whether the amount of amortization in the first year of the life of the bond is higher or lower using the interest method as opposed to the straight-line method. 4. When a company sells a bond issue between interest dates at a discount, what journal entry does it make, and how is the subsequent amortization of bond discount affected? Include in your discussion an explanation of how the amounts of each debit and credit are determined. 5. Explain how to account for and classify the gain or loss from the reacquisition of a long-term bond prior to its maturity.
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
A debenture is ________. A. the interest paid on a bond B. a type of bond that can be sold back to the issuing company whenever the bondholder wishes C. a bond with only the companys word that they will pay it back D. a bond with assets such as land to back their word that they will pay it back
The cash interest payment a corporation makes to its bondholders is based on ________. A. the market rate times the carrying value B. the stated rate times the principal C. the stated rate times the carrying value D. the market rate times the principal
Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.

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A COMPANY HAS A $1,200,000 BOND ISSUE OUTSTANDING WITH AN UNAMORTIZED PREMIUM OF $15,500 AND UNAMORTIZED ISSUANCE COST OF $7,800. WHAT IS THE BOOK VALUE OF ITS LIABILITY?