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Exam 20: Corporations and Bonds Payable

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Question 61

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One reason a corporation might issue bonds rather than selling stock is that:

A) bond interest is a tax-deductible expense.
B) interest rates are high.
C) dividends will lower the amount of tax due.
D) bondholders have claims at liquidation.

E) B) and D)
F) A) and C)

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Question 62

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The straight-line method amortizes an equal amount of discount to Bonds Interest Expense each period.

A) True
B) False

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Question 63

Multiple Choice

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The entry to record the issuance of a bond between interest payment dates will include a:

On October 1, Allan Company issued 8%, 10-year, $300,000 bonds at 105. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:

Dividends paid to stockholders are:

The carrying value for bonds sold at a discount:

When bonds are retired, the Bonds Payable account is credited for face value even if the bonds were originally sold at a premium.

On January 1, Auctions Online issued $300,000, 9%, 10-year bonds to lenders at the contract rate. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries: a. Issued the bonds. b. Paid first semiannual interest payment. c. Retired the bonds at maturity.

Which of the following statements is true?

Monies set aside to pay off bondholders at maturity are called:

Using the following accounts: Indicate the account(s)to be debited and credited to record the following transactions. -Recorded the interest earned on the bond sinking fund. Debit ________ & ________ & ________ Credit ________ & ________ & ________

The interest rate specified in the bond indenture is called the:

Bailey Corporation has decided to issue bonds pledging specific assets. What type of bonds is it offering?

Davis Corporation sells $100,000, 12%, 10-year bonds for 103 on January 1. Compute the semi-annual interest expense recorded on July 1 using the interest method. The market rate is 8%.

Island Corporation issued $500,000 of 6%, 10-year bonds at 104 on May 1, 2009. Interest is paid semi-annually on October 31 and April 30. Journalize the entries for the issuance of the bond on May 1, the first interest payment on October 31 using straight-line method, and the adjusting entry on December 31.

On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 102. What is the adjusting entry on December 31 using straight-line method?

The contract rate for a bond is:

Using the following accounts: Indicate the account(s)to be debited and credited to record the following transactions. -Retired bonds plus interest previously accrued when the retirement value was above the cost of retirement, cash was paid. Debit ________ & ________ & ________ Credit ________ & ________ & ________

Describe bond refunding and explain why it might be advantageous for a company.

If a corporation issues serial bonds, each bond will have the same maturity date.