Bonds Payable

PRACTICAL ACCOUNTING – Part 1

BONDS PAYABLE TYPES OF BONDS Term Bonds 1. Blue Corp.'s December 31, 2000 balance sheet contained the following items in the long-term liabilities section: 9.25% registered debentures, callable in 11 years, due in 16 years $700,000 9.25% collateral trust bonds, convertible into common stock beginning in 2009, due in 19 years 600,000 10% subordinated debentures ($30,000 maturing annually beginning in 2006) 300,000 What is the total amount of Blue's term bonds? (E) A. $600,000 C. $1,000,000 B. $700,000 D. $1,300,000 AICPA 1192 2. York Corp.’s December 31, 2001 balance sheet contained the following items in the long-term liabilities section: 9¾% registered debentures, callable in 2012, due in 2017 $1,400,000 9½% collateral trust bonds, convertible into common stock beginning in 2010, due in 2020 1,200,000 10% subordinated debentures ($60,000 maturing annually beginning in 2007) 600,000 What is the total amount of York’s term bonds? (E) A. $1,200,000 C. $2,000,000 B. $1,400,000 D. $2,600,000 AICPA 1192 Debenture Bonds 50. Littleton Corp. had the following long-term debt at December 31: Collateral trust bonds, having securities of unrelated corporations as security $250,000 Bonds unsecured as to principal 150,000 The debenture bonds amounted to (E) A. $0. C. $250,000. B. $150,000. D. $400,000. S, S & S RPCPA, AICPA, CMA & CIA Examination Questions

Serial Bonds 3. Glen Corporation had the following long-term debt: Sinking fund bonds, maturing in installments Industrial revenue bonds, maturing in installments Subordinated bonds, maturing on a single date The total of the serial bonds amounted to A: $1,500,000 C: $2,400,000 B: $2,000,000 D: $3,500,000

51. Miller Enterprises had the following long-term debt: Sinking fund bonds, maturing in installments .......... Industrial revenue bonds, maturing in installments .... Subordinated bonds, maturing on a single date ......... The total of the serial bonds amounted to (E) A. $900,000. C. $2,000,000. B. $1,500,000. D. $2,400,000.

Bonds Payable

$1,100,000 900,000 1,500,000

Wiley 11

$1,100,000 900,000 1,500,000

S, S & S

Issue of Bonds at a Premium Issue Price Semi-annual interest payment 41. The market price of a $400,000, ten-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is (M) A. $449,156. C. $453,308. B. $449,850. D. $748,944. K, W & W

63. White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds? (M) A. $175,078 C. $215,902 B. $211,283 D. $227,183 S, S & S

4. Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1, 2010. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? A. $5,000,000 C. $5,218,809 B. $5,216,494 D. $5,217,308 KW&W 1e

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PRACTICAL ACCOUNTING – Part 1 5. Everhart Company issues $10,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1, 2010. The bonds pays interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? A. $10,000,000 C. $10,437,618 B. $10,432,988 D. $10,434,616 KW&W 1e 6. Moore Industries manufactures exercise equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% bonds on March 1, 2010, due on March 1, 2025, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. What is the selling price of the bonds? (M1**) A. $1,269,776 C. $2,153,730 B. $1,690,970 D. $2,220,000 Kieso 13e Bond Premium Selling Price Given 10. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization method. What is the amount of the bond premium associated with the issue? (E) A. 12% of $800,000 D. $80,000 B. 12% of $880,000 E. $8,000 C. $880,000 Flamholtz & Diamond Issue of Bonds at a Discount Discount 6. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. What is the amount of the bond discount associated with Mondray’s issue? (E) A. 14% of $900,000 D. $36,000 B. 14% of $864,000 E. $3,600 C. $864,000 Flamholtz & Diamond 48. A $300,000, ten-year, 6% bond issue was sold to yield 7% interest payable annually. Actuarial information for 10 periods is as follows: 6% 7% RPCPA, AICPA, CMA & CIA Examination Questions

Present value of 1 .558 Present value of an annuity of 1 7.360 The discount at the date of bond issuance would be (E) A. $ 0 C. $ 6,180 B. $ 96 D. $21,168

Bonds Payable

.508 7.024

NB&J 11e

Issue Price Quoted Price Given 7. On June 30, 2001, Huff Corp. issued 1,000 of its 8%, $1,000 bonds at 99. The bonds were issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30, 2001, Huff should report the bond liability at (E) A. $955,000 C. $1,000,000 B. $990,000 D. $1,025,000 AICPA 1190

Issue of Bonds at Face Value in between Interest Dates Accrued Interest on Date of Issuance 80. RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2006, with interest payable on January 1 and July 1 of each year. If the bonds were issued on April 1, 2006, the amount of accrued interest on the date of sale is A. $2,500. C. $10,000. B. $5,000. D. $20,000. S, S & S

Proceeds 1 month after interest payment date 8. A company issues 10-year bonds with a face value of $1,000,000, dated January 1, 2001 and bearing interest at an annual rate of 12% payable semiannually on January 1 and July 1. The full interest amount will be paid each due date. The market rate of interest on bonds of similar risk and maturity, with the same schedule of interest payments, is also 12%. If the bonds are issued on February 1, 2001, the amount the issuing company receives from the buyers of the bonds on that date is (E) A. $990,000 C. $1,010,000 B. $1,000,000 D. $1,020,000 CIA 0595 IV-19

2 months after interest payment date 9. On March 1, 2010, Harbour Corporation issued 10% debentures dated January 1, 2010, in the face amount of $1,000,000, with interest payable on January 1 and July 1. The debentures were sold at par and accrued interest. How much should Harbour debit to cash on March 1, 2010?

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PRACTICAL ACCOUNTING – Part 1 A: $ 966,667 B: $ 983,333

C: $1,016,667 D: $1,033,333 Wiley 11

Proceeds & interest expense 10. On June 1, Year One, Braxton Company issues $100,000 in bonds payable with a stated annual interest rate of 9 percent at face value plus accrued interest. These bonds pay interest every February 1 and August 1. What amount does Braxton receive and what interest expense is recognized for Year One? A Braxton receives $101,500 and interest expense for Year One is recognized as $5,250 B Braxton receives $101,500 and interest expense for Year One is recognized as $8,250 C Braxton receives $103,000 and interest expense for Year One is recognized as $5,250 D Braxton receives $103,000 and interest expense for Year One is recognized as $8,250 Issue of Bonds at a Premium in between Interest Dates Accrued Interest on Date of Issuance 23. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest semiannually every June 30 and December 31. The premium is to be amortized using the straight-line method over the period during which the bonds are outstanding. Bond issue costs totaled P50,000. Accrued interest on bond issuance date is A. C. B. P10,000 D. RPCPA 0593 Initial Carrying Amount Quoted price given 24. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest semiannually every June 30 and December 31. The premium is to be amortized using the straight-line method over the period during which the bonds are outstanding. Bond issue costs totaled P50,000. Carrying value of bonds on issuance date is (E) A. P1.02M C. B. D. RPCPA 0593 Proceeds given 38. On January 1, 2009, Stice Company issued 5,000 of its 12%, P1,000 face value bonds for P5,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on October 1, 2018 and pay interest annually on October 1. The bonds were issued through an underwriter to whom Stice paid bond issue cost of P150,000. On January 1 2009, what RPCPA, AICPA, CMA & CIA Examination Questions

should Stice report as bonds payable? A. 5,150,000 B. 5,300,000

C. 5,450,000 D. 5,600,000

Bonds Payable

Siy

39. On January 1, 2009, Tamera Company issued 8,000 of its 12%, P1,000 face value bonds for P8,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on October 1, 2018 and pay interest annually on October 1. The bonds were issued through an underwriter to whom Tamera paid bond issue cost of P150,000. On January 1 2009, what should Tamera report as bonds payable? A. 8,000,000 C. 8,300,000 B. 8,210,000 D. 8,450,000 Siy

Proceeds, no bond issue costs 1-month after 79. If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive? (E) A. $992.50 C. $1,030.00 B. $1,007.50 D. $1,037.50 S, S & S

Proceeds, with bond issue costs 2-months after 11 . Alfred issued 9%, ten-year bonds dated January 1, 2010, with a face value of $100,000 at 102 plus accrued interest on March 1, 2010. Alfred amortizes premiums and discounts using the straight-line method. Expenses connected with the issue totaled $5,000 and were deducted in arriving at the net proceeds. The entry to record the issue would include a debit to Cash for A. $ 97,000 C. $102,000 B. $ 98,500 D. $103,500 NB&J 11e

12. On March 1, 2010, Cain Corp. issued at 103 plus accrued interest 200 of its 9%, $1,000 bonds. The bonds are dated January 1, 2010, and mature on January 1, 2020. Interest is payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain should realize net cash receipts from the bond issuance of A: $199,000 C: $209,000 B: $206,000 D: $216,000 AICPA 1190

18. On March 1, 1983, Melon Corp. issued at 103 plus accrued interest, one hundred of its 15%, P1,000 bonds. The bonds are dated January 1, 1983 and mature on January 1, 1993. Interest is payable semi-annually on January 1 and July 1. Melon paid bond issue costs of

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PRACTICAL ACCOUNTING – Part 1 P6,000. Melon would realize net cash receipts from the bond issuance of (M) A. P99,500 C. P105,500 B. P103,000 D. P109,500 RPCPA 1084

3-months after 13. On February 1, 2009, Artistry Company issued 5,000 of its P1,000 face value bonds at 110 plus accrued interest. Artistry Company paid bond issue cost of P200,000. The bonds were dated November 1, 2008, mature on November 1, 2018, and bear interest at 10% payable semiannually on November 1 and May 1. What is the net amount received by Artistry from the bond issuance? (M) A. 5,300,000 C. 5,500,000 B. 5,425,000 D. 5,625,000 Siy 4-months after 14. On March 1, 2012, Eavesdropper Company issued 5,000 of its P1,000 face value bonds at 110 plus accrued interest. The entity paid bond issue cost of P300,000. The bonds were dated November 1, 2011, mature on November 1, 2021, and bear interest at 12% payable semiannually on May 1 and November 1. What net amount was received from the bond issuance on March 1, 2012? (M) A. 5,200,000 C. 5,500,000 B. 5,400,000 D. 5,700,000 CPAR 1012 10-months after Issue of Bonds at a Discount in between Interest Dates Initial carrying amount 40. On December 31, 2008, Trina Company issued at 98, five thousand of 10%, P1,000 face value bond. The interest is payable semiannually on June 30 and December 31. The bonds were issued through an underwriter to whom Trina paid bond issue cost of P200,000. On December 31, 2008, Trina Company should report bond liability at (E) A. 4,700,000 C. 5,000,000 B. 4,900,000 D. 5,100,000 Siy 35. Nazzi, Inc. sold $400,000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010, for $393,000 plus accrued interest. Interest is paid on January 1 and July 1 and straight-line amortization is used. The net liability for the bonds after recording the sale would be (E) A. $393,000 C. $407,700 B. $400,000 D. $408,000 NB&J 11e RPCPA, AICPA, CMA & CIA Examination Questions

Bonds Payable

Proceeds, with bond issue costs 15. On March 1, 2003, Luuk Company issued 8,000 of its P1,000 face value bonds at 95 plus accrued interest. Luuk Company paid bond issue cost of P500,000. The bonds were dated November 1, 2002, mature on November 1, 2012, and bear interest at 12% payable semiannually on November 1 and May 1. What amount did Luuk receive from the bond issuance? (E**) A. 7,420,000 C. 7,920,000 B. 7,600,000 D. 7,100,000 CPAR 4143

1. On March 1, 2011, Tiaong Company issued 10,000 of its P1,000 face value bonds at 95 plus accrued interest. Tiaong Company paid bond issue cost of P1,000,000. The bonds were dated November 1, 2010, mature on November 1, 2020, and bear interest at 12% payable semiannually on November 1 and May 1. The net amount that Tiaong receive from the bond issuance is A. P8,500,000 C. P9,500,000 B. P8,900,000 D. P9,900,000 Cabarles

Cash

Effective Interest

Decrease in Balance

S, S & T

Outstanding Balance 11,487,747 11,432,379 11,375,350 11,316,611

AMORTIZATION TABLE Nominal Interest Rate Issued at a premium 16. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2003. They have a tenyear term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. Payment

1 400,000 344,632 55,368 2 400,000 342,971 57,029 3 400,000 341,261 58,739 4 400,000 What is the stated annual rate of interest on the bonds? (E) A. 3%. C. 6%. B. 4%. D. 8%.

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PRACTICAL ACCOUNTING – Part 1 Total Interest Expense Issued at a Discount 66. The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be (E) A. $190,000. C. $200,000. B. $195,000. D. $210,000. S, S & S 65. The total interest expense on a $300,000, 10 percent, 10-year bond issued at 95 would be (D) A. $290,000. C. $300,000. B. $295,000. D. $315,000. S&S 18e Interest Payable Issued on interest date 3 months outstanding 17. On December 31, 2010, Wall Corp. issued $100,000 maturity value, 10% bonds for $100,000 cash. The bonds are dated December 31, 2010, and mature on December 31, 2020. Interest will be paid semiannually on June 30 and December 31. In Wall’s September 30, 2011 balance sheet, the amount of accrued interest expense should be A: $ 2,500 C: $ 7,500 B: $ 5,000 D: $10,000 AICPA 1189 18. On January 31, 2011, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2010, and mature on December 31, 2020. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2011, balance sheet? (M) A. $18,000. C. $48,000. B. $36,000. D. $54,000. S&S 6e 31. On January 31, 1997, Margan Corp. issued P600,000 maturity value, 12% bond for P600,000 cash. The bonds are dated December 31, 1996, and mature on December 31, 2006. Interest will be paid semi-annually on June 30 and December 31. What amount of accrued interest payable should Margan report in its September 30, 1997 balance sheet? A. P18,000 C. P40,000 B. P36,000 D. P54,000 RPCPA 0597 Issued between interest dates 3 months outstanding 19. On January 31, 2001, Beau Corp. issued $300,000 maturity value, 12% bonds for $300,000 cash. The bonds are dated December 31, 2000 and mature in ten years. Interest will be paid RPCPA, AICPA, CMA & CIA Examination Questions

Bonds Payable

semiannually on June 30 and December 31. What amount of accrued interest payable should Beau report in its September 30, 2001 balance sheet? (M1*) A. $9,000 C. $24,000 B. $18,000 D. $27,000 AICPA 1193

57. On November 1, 2012, Jevilyn Company issued P800,000 of its ten-year, 8% term bonds dated October 1, 2012. The bonds were sold to yield 10%, with total proceeds of P700.000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should be reported for interest payable on December 31,2012? (M1*) A. 10,667 C. 16,000 B. 11,667 D. 17,500 CPAR 1012

20. On November 1, 2003, Emmanuela Company issued P20,000,000 of its 10-year, 8% term bonds dated October 1, 2003. The bonds were sold to yield 10%, with total proceeds of P18,000,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Emmanuela report for interest payable in its December 31, 2003 balance sheet? (M1*) A. 360,000 C. 450,000 B. 400,000 D. 500,000 CPAR

21. On November 1, 2003, Mason Corp. issued $800,000 of its ten-year, 8% term bonds dated October 1, 2003. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31, 2003 balance sheet? (M1*) A. $10,667 C. $16,000 B. $11,667 D. $17,500 AICPA 1192

Interest Payment Bonds Issued at a Premium 11. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization method. How much cash will the bondholders receive on July 1, 1986? (E) A. $2,000 D. $48,000 B. $42,000 E. $50,000 C. $46,000 Flamholtz & Diamond

Bonds Issued at a Discount Annual payment 22. On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, that

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PRACTICAL ACCOUNTING – Part 1 mature in five years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest on the bonds is payable annually on December 31. What is the amount of interest to be paid at the end of the first year? A. $8,659. C. $9,621. B. $9,000. D. $10,000. 68. On January 1, 2006, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much cash was paid for interest in 2006? (E) A. $44,250 C. $53,100 B. $50,000 D. $60,000 S, S & S Semi-annual payment 7. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. How much cash will the bondholders receive on July 1, 1986? (E) A. $1,500 D. $64,500 B. $61,500 E. $129,000 C. $63,000 Flamholtz & Diamond 23. Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of September 30, 2021 and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2012. The effective interest rate established by the market was 6%. How much cash interest does Auerbach pay on March 31, 2012? (M) A. $6.0 million C. $12.0 million B. $9.0 million D. $18.0 million S&S 6e STRAIGHT-LINE METHOD OF AMORTIZATION Interest expense, without bond issue cost Bonds Issued at a Premium First three months 24. Cramer Company sold 5-year, 8% bonds on October 1, 2011. The face amount of the bonds was $100,000, while the issue price was $102,000. Interest is payable on April 1 of each year. The fiscal year of Cramer Company ends on December 31. How much interest expense will Cramer Company report in its December 31, 2011, income statement (assume straight-line amortization)? (E) A. $1,778. C. $2,000. RPCPA, AICPA, CMA & CIA Examination Questions

B. $1,900.

D. $2,040.

Bonds Payable

S&S 6e

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