Question 1

On January 1,2014,Patterson Corporation issued $100,000,9%,5-year bonds with semiannual interest payments on June 30 and December 31.The bonds were issued at $96,149 yielding an effective-interest rate of 10%.Patterson uses the effective-interest method of amortization.The company's fiscal year ends on December 31.
Required:
Prepare the journal entries that Patterson would make on January 1,June 30 and December 31,2014.Round all amounts to the nearest dollar.Omit explanations.

Accepted Answer

The answer of On January 1,2014,Patterson Corporation issued $100,000,9%,5-year bonds...

Question 2

On January 1,2014,Fleming Corporation issued 9%,10-year bonds with a face value of $900,000 at 93.78.Interest is payable semiannually on January 1 and July 1.The effective-interest rate when the bonds were issued was 10%.Any discount or premium is amortized using the effective-interest method.
Required:
Prepare journal entries on:
1.January 1,2014
2.July 1,2014
3.December 31,2014,the fiscal year end
Omit explanations.

Accepted Answer

The answer of On January 1,2014,Fleming Corporation issued 9%,10-year bonds...

Question 3

Secured bonds are:
A)also called mortgage bonds.
B)also called serial bonds.
C)bonds that give the holder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.
D)A and C.

Accepted Answer

Secured bonds are also called mortgage bonds and they give the holder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.

Question 4

If bonds have been issued at a discount,the ________ over the life of the bonds.
A)carrying value of the bonds will decrease
B)interest payment will increase
C)interest expense will decrease
D)interest expense will increase

Accepted Answer

When bonds are issued at a discount, the interest expense will increase over the life of the bonds as the discount is amortized, leading to higher interest expense in later periods.

Question 5

Bonds that the issuer may pay off at a prearranged price whenever the issuer chooses before the maturity date are:
A)serial bonds.
B)callable bonds.
C)convertible bonds.
D)debenture bonds.

Accepted Answer

Callable bonds give the issuer the option to pay off the bonds at a prearranged price before the maturity date.

Question 6

Darla's Cookie Emporium borrowed money by issuing $200,000 of bonds at 96 on January 1,2014.The bonds pay interest on January 1 and July 1.The stated rate of interest is 5% and the bonds mature in 10 years.Any discount or premium is amortized using the straight-line method.
Required:
Prepare journal entries on the following dates:
1.January 1,2014
2.July 1,2014
3.December 31,2014,the fiscal year end
4.January 1,2015
5.January 1,2024
Omit explanations.

Accepted Answer

The answer of Darla's Cookie Emporium borrowed money by issuing...

Question 7

On January 1,2014,Paulsen Company issued $600,000,6%,5-year bonds at face value.Interest is payable semiannually on July 1 and January 1.
Required:
Prepare journal entries on:
1.January 1,2014
2.July 1,2014
3.December 31,2014,the fiscal year end
Omit explanations.

Accepted Answer

The answer of On January 1,2014,Paulsen Company issued $600,000,6%,5-year bonds...

Question 8

Immediately after the last interest payment,Henry Company converted $3,000,000 of its bonds into 300,000 shares of $10 par value common stock.The unamortized premium on the bonds at the date of the conversion was $870,000.As a result of this conversion:
A)liabilities decreased by $3,870,000 and stockholders' equity increased by $3,000,000.
B)liabilities decreased by $3,000,000 and stockholders' equity increased by $3,000,000.
C)liabilities decreased by $3,870,000 and stockholders' equity increased by $3,870,000.
D)liabilities decreased by $870,000 and stockholders' equity increased by $870,000.

Accepted Answer

The conversion of bonds into stock decreases liabilities by the carrying amount of the bonds, which includes the face value and the unamortized premium ($3,000,000 + $870,000 = $3,870,000). Stockholders' equity increases by the same amount, $3,870,000, reflecting the issuance of common stock.

Question 9

Bonds that mature on a single date are called ________.Bonds that mature on multiple dates are called ________.
A)mortgage bonds; serial bonds
B)serial bonds; mortgage bonds
C)debentures; special bonds
D)term bonds; serial bonds

Accepted Answer

Bonds that mature on a single date are called term bonds, while bonds that mature on multiple dates are called serial bonds. Therefore, option D is the correct answer.

Question 10

On January 1,2014,Always Corporation issues $3,000,000,5-year,10% bonds for $2,910,000.Interest is paid semiannually on January 1 and July 1.Always Corporation uses the straight-line method of amortization.The company's fiscal year ends on December 31.The amount of discount amortized on July 1,2014 is:
A)$4,500.
B)$9,000.
C)$18,000.
D)$90,000.

Accepted Answer

The discount on bond issue is $90,000 ($3,000,000 - $2,910,000). The bond has a 5-year term and the company uses the straight-line method, which means that $18,000 ($90,000/5) of the discount is amortized each year. Since interest is paid semiannually, the amount of discount amortized on July 1, 2014, will be half of the annual amortization, which is $9,000.

Question 11

Unsecured bonds are called ________.Secured bonds are called ________.
A)convertible bonds; callable bonds
B)term bonds; serial bonds
C)debentures; mortgage bonds
D)regular bonds; special bonds

Accepted Answer

Unsecured bonds are called debentures, while secured bonds are called mortgage bonds.

Question 12

On January 1,2015,Las Vegas Company issued 8%,20-year bonds with a face amount of $3,000,000 at 101.Interest is payable semiannually on June 30 and December 31.Las Vegas Company uses the straight-line method to amortize bond premium or discount.The company's fiscal year ends December 31.
Required:
Prepare the journal entries to record the issuance of the bonds and the first semiannual interest payment.Omit explanations.

Accepted Answer

The answer of On January 1,2015,Las Vegas Company issued 8%,20-year...

Question 13

The journal entry to record the conversion of bonds payable into common stock will include a:
A)debit to Bonds Payable and a credit to Common Stock.
B)debit to Bonds Payable and a credit to Cash.
C)debit to Cash and a credit to Common Stock.
D)debit to Cash and a credit to Paid-in Capital in Excess of Par.

Accepted Answer

When bonds payable are converted into common stock, the journal entry involves debiting the Bonds Payable account (which is being extinguished) and crediting the Common Stock account, which is being issued in exchange for the bonds. No cash transactions are involved in this type of conversion.

Question 14

Godwin Corporation retires its bonds at 106 on January 1,after the payment of interest.The face value of the bonds is $600,000.The carrying value of the bonds at retirement is $619,500.The entry to record the retirement will include a:
A)debit of $36,000 to Premium on Bonds Payable.
B)debit of $19,500 to Premium on Bonds Payable.
C)credit of $16,500 to Gain on Retirement of Bonds.
D)credit of $16,500 to Loss on Retirement of Bonds.

Accepted Answer

The carrying value of the bonds is $619,500, and they are retired at 106% of the face value, which is $636,000. The difference of $16,500 is a loss, not a gain, so the correct entry involves a debit to Premium on Bonds Payable to adjust the carrying value to the face value.

Question 15

On April 1,2015,Eiche Company issues $2,500,000 of 6%,5-year bonds,with interest payments made each October 1 and April 1.The bonds are issued at 98.Eiche Company amortizes any premium or discount using the straight-line method.
Required:
Prepare journal entries on the following dates:
1.April 1,2015.
2.October 1,2015.
3.December 31,2015,the fiscal year end.
Omit explanations.

Accepted Answer

The answer of On April 1,2015,Eiche Company issues $2,500,000 of...

Question 16

If bonds with a face value of $200,000 are converted into common stock when the carrying value of the bonds is $155,000,the entry to record the conversion would include a debit to:
A)Bonds Payable for $155,000.
B)Bonds Payable for $200,000.
C)Discount on Bonds Payable for $45,000.
D)Cash for $45,000.

Accepted Answer

When bonds are converted into common stock, the carrying value of the bonds is transferred to the common stock account. In this case, the carrying value of the bonds is $155,000, which is less than the face value of $200,000. Therefore, the entry to record the conversion would include a debit to Bonds Payable for the face value of $200,000. There is no need for a debit to Discount on Bonds Payable or Cash in this scenario.

Question 17

Lloyd Corporation has $2,400,000 of bonds outstanding with an unamortized premium of $120,000 immediately following the last interest payment.At that time,the bonds were converted into 250,000 shares of $10 par value common stock.As a result of this conversion:
A)liabilities decreased by $2,280,000 and stockholders' equity increased by $2,280,000.
B)liabilities decreased by $2,400,000 and stockholders' equity increased by $2,400,000.
C)liabilities decreased by $2,520,000 and stockholders' equity increased by $2,520,000.
D)liabilities increased by $2,280,000 and stockholders' equity increased by $2,280,000.

Accepted Answer

The bonds' book value is $2,400,000 + $120,000 = $2,520,000. Upon conversion, liabilities decrease by this amount, and stockholders' equity increases by the same amount.

Question 18

When a company retires bonds early,the gain or loss on the retirement is the difference between the cash paid and the:
A)face value of the bonds.
B)original selling price of the bonds.
C)maturity value of the bonds.
D)carrying value of the bonds.

Accepted Answer

The carrying value of the bonds represents the amount at which the bonds are recorded on the company's balance sheet. When a company retires bonds early, the gain or loss on the retirement is the difference between the cash paid and the carrying value of the bonds. This is because the carrying value reflects the company's accounting for the bonds and takes into account any premium or discount on the bonds at issuance. The face value, original selling price, and maturity value of the bonds are all relevant factors in determining the carrying value, but they are not the direct basis for calculating the gain or loss on early retirement.

Question 19

Marshall Corporation has $30,000 of bonds outstanding with a carrying value of $38,400.The bonds are converted into 15,000 shares of $1 par value common stock immediately after the last interest payment.The common stock had a market value of $5 per share on the date of conversion.The entry to record the conversion would include a credit to:
A)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $8,400.
B)Bonds Payable for $30,000 and credit to Premium on Bonds Payable for $8,400.
C)Cash for $38,400.
D)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $23,400.

Accepted Answer

The carrying value of the bonds (which includes any premium or discount) is $38,400, and since the bonds are being converted into common stock, the credit would go to Common Stock. The par value of the common stock is $1 per share, so 15,000 shares at $1 per share would be $15,000. The difference between the carrying value of the bonds and the value of the common stock is $23,400, which would be credited to Paid-in Capital in Excess of Par. Therefore, the entry to record the conversion would be a credit to Common Stock for $15,000 and a credit to Paid-in Capital in Excess of Par for $23,400.

Question 20

Miller Corporation has $2,000,000 of bonds outstanding.The unamortized premium is $57,000.If the company retired the bonds at 101,what would be the gain or loss on the retirement? Ignore any interest due.
A)$20,000 gain
B)$20,000 loss
C)$37,000 gain
D)$57,000 gain

Accepted Answer

The answer of Miller Corporation has $2,000,000 of bonds outstanding.The...

Quiz 9: Liabilities

Secured bonds are:

If bonds have been issued at a discount,the ________ over the life of the bonds.

Bonds that the issuer may pay off at a prearranged price whenever the issuer chooses before the maturity date are:

On January 1,2014,Paulsen Company issued $600,000,6%,5-year bonds at face value.Interest is payable semiannually on July 1 and January 1. Required: Prepare journal entries on: 1.January 1,2014 2.July 1,2014 3.December 31,2014,the fiscal year end Omit explanations.

Immediately after the last interest payment,Henry Company converted $3,000,000 of its bonds into 300,000 shares of $10 par value common stock.The unamortized premium on the bonds at the date of the conversion was $870,000.As a result of this conversion:

Bonds that mature on a single date are called .Bonds that mature on multiple dates are called .

Unsecured bonds are called .Secured bonds are called .

The journal entry to record the conversion of bonds payable into common stock will include a:

Godwin Corporation retires its bonds at 106 on January 1,after the payment of interest.The face value of the bonds is $600,000.The carrying value of the bonds at retirement is $619,500.The entry to record the retirement will include a:

If bonds with a face value of $200,000 are converted into common stock when the carrying value of the bonds is $155,000,the entry to record the conversion would include a debit to:

Lloyd Corporation has $2,400,000 of bonds outstanding with an unamortized premium of $120,000 immediately following the last interest payment.At that time,the bonds were converted into 250,000 shares of $10 par value common stock.As a result of this conversion:

When a company retires bonds early,the gain or loss on the retirement is the difference between the cash paid and the:

Miller Corporation has $2,000,000 of bonds outstanding.The unamortized premium is $57,000.If the company retired the bonds at 101,what would be the gain or loss on the retirement? Ignore any interest due.