ch10

ch10 Student: ___________________________________________________________________________

1.

An advantage of issuing a bond relative to stock is that the bond interest payments are tax deductible. True

2.

Issuing bonds dilutes the voting power of the common shareholders because bonds have preferential voting rights. True

3.

False

When the market rate of interest is greater than the stated interest rate, the bond will sell at a discount. True

9.

False

The issuance price of a bond is the present value of both the principal plus the cash interest to be received over the life of the bond discounted by the stated (coupon) rate. True

8.

False

The issuing company and the bond underwriter determine the selling price of a bond. True

7.

False

A convertible bond can be called for early retirement at the option of the issuing company. True

6.

False

A bond's interest payments are determined by multiplying the bond's principal amount by the stated interest rate. True

5.

False

The major disadvantages of issuing a bond are the risk of bankruptcy and the negative impact on cash flow because debt must be repaid at a specified date in the future. True

4.

False

False

A bond will sell for a premium when the market rate of interest is greater than the stated rate of interest. True

False

10. The proceeds received from a bond issue will be greater than the bond maturity value when the stated interest rate exceeds the market rate of interest. True

False

11. Increases in the market rate of interest subsequent to a bond issue increase the discount on the bond. True

False

12. A bond will sell at its par value when the market rate of interest equals the stated rate of interest. True

False

13. A company has a December 31 fiscal year-end. If the interest is paid annually on December 31, the bond interest expense on the income statement is the amount of the interest cash payment when the bond initially sells at par value. True

False

14. The payment of bond interest on the interest payment date, for bonds issued at par value, reduces both the bond liability and assets, assuming that interest expense is recorded at the time of the cash payment. True

False

15. Amortization of discount on bonds payable will make the amount of interest expense reported on the income statement less than the cash paid for that year. True

False

16. Amortization of a discount on a bond payable will result in an increase in the book value of the bond liability on the balance sheet. True

False

17. A bond issued at a discount will pay total cash payments for interest that is more than the total interest expense recognized over the life of the bond. True

False

18. The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability. True

False

19. Either straight-line or effective-interest amortization may be used for bond premiums or discounts regardless of the amounts involved. True

False

20. The journal entry to record the interest cash payment for a bond issued at a premium results in a decrease in the bond. True

False

21. A bond issued at a premium will pay cash interest in excess of the amount of interest expense recognized for accounting purposes. True

False

22. Interest expense decreases over time when a bond is initially issued at a premium and the effective-interest method is used. True

False

23. The journal entry to record the issue of a bond when the stated interest rate exceeds the market rate of interest debits premium on bonds payable. True

False

24. The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity. True

False

25. The debt-to-equity ratio assesses the amount of capital provided by creditors relative to stockholders' equity. True

False

26. Issuing bonds rather than stock will result in an increase in the debt-to-equity ratio. True

False

27. If a company repurchases bonds with a $1,000,000 maturity value for $1,020,000 when their book value is $950,000, a loss of $20,000 will be reported. True

False

28. When a company purchases and retires their outstanding bonds payable for an amount less than their book value, an increase in stockholders' equity results. True

False

29. Issues of bonds in exchange for cash are reported as a cash flow from financing activities on the statement of cash flows. True

False

30. The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows. True

False

31. When a company prepares a bond indenture, certain provisions of the bonds are included. Which of the following is/are not specified in the indenture? A. B. C. D.

Dates of each interest payment. The stated interest rate. The maturity date. The market rate of interest.

32. Which of the following bonds does not have specific assets pledged to guarantee repayment? A. B. C. D.

Debenture bond Callable bond Discount bond Convertible bond

33. Which of the following is not a reason that a corporation would want to issue bonds instead of stock? A. B. C. D.

Interest payments can be deducted for income tax purposes. Stockholders maintain control. The impact on earnings may be positive. There is less risk associated with a bond issue.

34. The annual interest rate specified within a bond indenture is called which of the following? A. B. C. D.

The stated rate of interest. The market rate of interest. The effective rate of interest. The actual rate of interest.

35. Which of the following statements best describes callable bonds? A. B. C. D.

They can be turned in for early retirement at the option of the bondholder. They can be converted to common stock at the option of the bondholder. They can be called for early retirement at the option of the issuer. They can be called for early retirement at the option of the lien holder.

36. Which of the following statements best describes convertible bonds? A. B. C. D.

They can be turned in for early retirement at the option of the bondholder. They can be converted to common stock at the option of the bondholder. They can be called for early retirement at the option of the issuer. They can be converted to common stock at the option of the issuer.

37. Which of the following is not an advantage of issuing bonds versus issuing stock to finance expansion? A. Stockholders remain in control as bondholders cannot vote or share in the company's earnings. B. Interest expense is tax deductible but dividends are not. C. Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets. D. The fixed payment dates for the interest and maturity value. 38. Which of the following statements is not correct? A. B. C. D.

The bond principal is the amount due at the maturity date of the bond. The stated interest rate is used to determine the cash interest payments. The bond principal is used to determine the cash interest payments. The market rate of interest is used to determine the cash interest payments.

39. Which of the following statements is correct? A. B. C. D.

A secured bond has specific assets pledged as collateral to secure it. An unsecured bond can be paid at the option of the issuer. A bond trustee is appointed to represent the issuing company. The bond indenture specifies the market rate of interest the investors will earn.

40. Halverson's times interest earned ratio was 2.98 in 2010, 2.79 in 2009, and 2.31 in 2008. Which of the following statements about their ratio is possibly correct? A. Their increasing ratio indicates decreasing levels of debt on which interest is incurred. BTheir increasing ratio indicates their strategy of pursuing growth by investment in other companies which . has increased debt but their profits have not yet increased from those investments. C. The increasing ratio implies increased long-term debt financing. D. Their increasing ratio would be considered by creditors to be an indicator of higher risk. 41. Which of the following statements doesn't correctly describe the accounting for bonds that were issued at their maturity value? A. B. C. D.

The market rate of interest equals the stated interest rate. The interest expense over the life of the bonds will equal the cash interest payments. The present value of the bonds' future cash flows equals the bonds' maturity value. The book value of the bond liability decreases when interest payments are made on the due dates.

42. The journal entry to record the sale of bonds at their par value results in which of the following? A. An increase in assets and liabilities equal to the par value of the bonds. B. An increase in assets and liabilities equal to the par value of the bonds and their associated interest payments. C. An increase in assets equal to the par value of the bonds and an increase in liabilities equal to the bonds' future cash flows. D. An increase in assets and liabilities equal to the bonds' future cash flows. 43. Assuming no adjusting journal entries have been made, the journal entry to record the cash interest payment on the due date for bonds issued at their par value results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and a decrease in assets. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

44. Which of the following statements correctly describes the accounting for bonds that were issued at a discount? A. B. C. D.

The market rate of interest is less than the stated interest rate. The interest expense over the life of the bonds will be less than the cash interest payments. The present value of the bonds' future cash flows is greater than the bonds' maturity value. The book value of the bond liability increases when interest payments are made on the due dates.

45. Which of the following statements doesn't correctly describe the accounting for bonds that were issued at a discount? A. The interest expense over the life of the bond exceeds the cash interest payments. B. The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used. C.The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used. D The book value of the bond liability increases when interest payments are made on the due dates when . the effective interest method of amortization is used.

46. Assuming no adjusting journal entries have been made, the journal entry to record the cash interest payment on the due date for bonds issued at a discount results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and an increase in liabilities. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

47. On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the amount of straight-line discount amortization on each semi-annual interest date? A. B. C. D.

$90 $45 $900 $450

48. On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the semiannual interest expense when the straight-line method is utilized? A. B. C. D.

$2,010 $2,190 $1,095 $2,055

49. On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the book value of the bonds after the November 1, 2010 interest payment was recorded, assuming the straight-line method of amortization is utilized? A. B. C. D.

$29,010 $29,100 $29,190 $29,280

50. On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. Which of the following is incorrect assuming the straight-line method of amortization is utilized? A. B. C. D.

The market rate of interest exceeded the stated rate of interest when the bonds were issued. The semi-annual interest expense is $1,095. The book value of the bonds increases $45 every six months. The semi-annual interest expense is less than the semi-annual cash interest payment.

51. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, how much is the interest expense on the income statement for the year ended December 31, 2010 (to the nearest dollar)? A. B. C. D.

$677 $883 $773 $700

52. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, which of the following journal entries correctly records the 2010 interest expense (to the nearest dollar)? A. B. C. D.

53. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the book value of the bonds as of December 31, 2010 (to the nearest dollar)? A. B. C. D.

$8,968 $9,945 $9,641 $9,741

54. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the 2011 interest expense (to the nearest dollar)? A. B. C. D.

$779 $796 $677 $700

55. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the December 31, 2011 book value after the December 31, 2011 interest payment was made (to the nearest dollar)? A. B. C. D.

$9,662 $9,820 $9,668 $9,723

56. On January 1, 2010, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.) A. B. C. D.

$3,339,084 $2,843,172 $3,000,000 $2,686,896

57. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

What was the issuance price of the bonds if the market rate of interest was 8%? A. B. C. D.

$5,000,000 $5,670,000 $5,387,500 $5,712,500

58. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

Calculate the issuance price if the market rate of interest is 12%. A. B. C. D.

$4,427,500 $4,477,500 $4,435,000 $5,000,000

59. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

Calculate the issuance price if the market rate of interest was 10%. A. B. C. D.

$5,427,000 $4,477,000 $4,435,000 $5,000,000

60. Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. How much is the annual interest expense? A. B. C. D.

$4,700 $4,300 $4,500 $4,680

61. Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. Which of the following statements is incorrect? A. B. C. D.

The market rate of interest exceeded the stated rate of interest when the bonds were issued. The annual interest expense exceeds the annual cash interest payment by $200. The annual increase in the bond book value is $200. The annual interest expense is $4,300.

62. Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium? A. B. C. D.

The market rate of interest is less than the stated interest rate. The interest expense over the life of the bonds will be less than the cash interest payments. The present value of the bonds' future cash flows is less than the bonds' maturity value. The book value of the bond liability decreases when interest payments are made on the due dates.

63. Which of the following statements correctly describes the accounting for bonds that were issued at a premium? A. The interest expense over the life of the bond is less than the cash interest payments. B. The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used. C.The amortization of the premium on bonds payable account decreases as the bonds mature when the effective interest method is used. D The book value of the bond liability increases when interest payments are made on the due dates when . the effective interest method of amortization is used. 64. Assuming no adjusting journal entries have been made during the year, the journal entry to record the cash interest payment on the due date for bonds issued at a premium results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and an increase in liabilities. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

65. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. How much is the semi-annual interest expense? A. B. C. D.

$14,000 $14,150 $10,350 $11,000

66. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2010 balance sheet? A. B. C. D.

$300,000 $302,850 $302,700 $303,000

67. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2011 balance sheet? A. B. C. D.

$300,000 $302,550 $302,700 $303,000

68. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. Which of the following statements is incorrect? A. The market rate of interest was less than the stated rate of interest on July 1, 2010. B. The interest expense during the life of the bonds is $3,000 less than the cash interest payments during the life of the bonds. C. The book value of the bond liability decreases by $300 per year. D. The semi-annual interest expense is $300 less than the semi-annual interest payment. 69. Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2009, for $102,360 on April 1, 2009. The bonds pay interest annually on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2010 for the first interest payment?

A. B. C. D.

Option A Option B Option C Option D

70. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the six-month period ending June 30, 2010 (to the nearest dollar)? A. B. C. D.

$24,000 $24,789 $20,000 $20,658

71. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability as of June 30, 2010 (to the nearest dollar)? A. B. C. D.

$400,000 $416,495 $409,811 $403,342

72. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153. Assuming the effective-interest method of amortization is used, which of the following statements is incorrect? A. B. C. D.

The market rate of interest on the sale date was less than the stated rate of interest. The book value of the bond will decrease as the bond matures. The interest expense will decrease as the bond matures. The amortization of the premium on bonds payable will decrease as the bond matures.

73. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the sixmonth period ending December 31, 2010 (to the nearest dollar)? A. B. C. D.

$24,000 $20,491 $20,000 $20,825

74. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability on December 31, 2010 (to the nearest dollar)? A. B. C. D.

$400,000 $413,320 $406,302 $407,432

75. Which of the following statements regarding the effective-interest method of amortization is incorrect? A. The amount of interest expense is different each period. B. The amount of discount or premium that is amortized increases each period. C. It is one of the options according to generally accepted accounting principles. D. The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization.

76. Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2010. On December 31, 2010 the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest? A. B. C. D.

The market rate increased. The market rate decreased. The market rate stayed the same. The change in the market rate can't be determined.

77. Straight-line amortization of a premium related to a bond issuance would result in which of the following? A. Interest expense to be calculated by multiplying the market interest rate times the book value of the bonds. B. Higher premium amortization in the early years and lower interest expense over the life of the bonds. C.Calculating the constant amount of premium to be amortized and then deducting it from cash interest to calculate interest expense. D. Lower premium amortization in the early years and higher interest expense over the life of the bonds. 78. Eaton Company issued $5 million of bonds. The stated rate of interest was 10% and the market rate was 11%. Which of the following statements is correct? A. B. C. D.

The bonds were issued at a premium. Annual interest expense will exceed the company's actual cash payments for interest. Annual interest expense will be $500,000. The book value of the bond will decrease as the bond matures.

79. A company issued bonds when the stated rate of interest was 10% and the market rate was 8%. Which of the following statements is incorrect? A. B. C. D.

The bonds were issued at a premium. Annual interest expense will be less than the company's annual cash payments for interest. The book value of the bonds will decrease as the bond matures. The annual interest expense will increase if the effective-interest method of amortization was used.

80. A company issued bonds when the stated rate of interest was 10% and the market rate was 10%. Which of the following statements is incorrect? A. The bonds were issued at par. B. Annual interest expense will equal the company's annual cash payments for interest. C. The book value of the bonds will decrease as cash interest payments are made. D. Annual interest expense is the same regardless of whether the effective- interest or straight-line method of amortization is used. 81. A company prepared the following journal entry: Interest expense Discount on bonds payable Cash Which of the following statements correctly describes the effect of this journal entry on the financial statements? A. B. C. D.

The bonds payable book value increases by the amount of the credit to discount on bonds payable. The bonds payable book value decreases by the amount of the credit to cash. Stockholders' equity decreases by the amount of the credit to cash. The cash payment is reported as a cash flow from financing activities.

82. A company prepared the following journal entry: Interest expense Premium on bonds payable Cash Which of the following statements incorrectly describes the effect of this journal entry on the financial statements? A. B. C. D.

The bonds payable book value decreases by the amount of the debit to premium on bonds payable. Assets decrease by the amount of the credit to cash. Stockholders' equity decreases by the amount of the debit to interest expense. The cash payment is reported as a cash flow from financing activities.

83. A company prepared the following journal entry: Cash Discount on bonds payable Bonds payable Which of the following statements incorrectly describes the effect of this journal entry on the financial statements? A. B. C. D.

Total liabilities increase by the amount of the credit to bonds payable. Discount on bonds payable is reported on the balance sheet as a contra-liability account. Assets increase by the amount of the debit to cash. The cash inflow (debit) is reported as a cash flow from financing activities.

84. A company prepared the following journal entry: Cash Premium on bonds payable Bonds payable Which of the following statements correctly describes the effect of this journal entry on the financial statements? A. B. C. D.

Total liabilities increase by the amount of the debit to cash. Premium on bonds payable is reported on the balance sheet as a contra-liability account. Total liabilities increase by the amount of the credit to bonds payable. The credit to bonds payable is the amount reported as a cash flow from financing activities.

85. During 2010, Patty's Pizza reported net income of $4,212 million, interest expense of $167 million and income tax expense of $1,372 million. During 2009, they reported net income of $3,568 million, interest expense of $163 million and income tax expense of $1,424 million. What was the times interest earned ratio for 2010 and 2009 respectively? A. B. C. D.

32.2 and 29.4 times 28.4 and 23.8 times 34.4 and 31.6 times 34.1 and 26.6 times

86. When a bond payable is issued at a discount, subsequent amortization of the discount doesn't do which of the following? A. Increase interest expense. B. Increase the book value of the bonds. C. Increase in amount amortized for each year the bond gets older when the effective-interest method is used. D. Increase the amount reported as a cash flow from operating activities.

87. Which of the following is correct when using the effective-interest method of amortizing the discount on bonds payable? A. B. C. D.

Interest expense is computed by adding the portion of amortized discount to the cash interest paid. The amount of interest expense recognized each period increases over time. The amount of discount amortized each period decreases over time. The book value of the bonds payable liability decreases.

88. When a bond payable is issued at a premium, subsequent amortization of the premium does which of the following? A. Increase interest expense. B. Decrease the book value of the bonds. C. Decrease in amount amortized for each year the bond gets older when the effective-interest method is used. D. Decrease the amount reported as a cash flow from operating activities. 89. If a bond is issued at 101, the stated rate of interest was A. B. C. D.

higher than the market rate of interest. lower than the market rate of interest. equal to the market rate of interest. not related to the market rate of interest.

90. If a bond is issued at 98, the stated rate of interest was A. B. C. D.

higher than the market rate of interest. lower than the market rate of interest. equal to the market rate of interest. not related to the market rate of interest.

91. Which of the following statements regarding the debt to equity ratio is correct? A. B. C. D.

A high ratio means that the company is primarily financed through stockholder investments. A higher ratio is preferred. It is a measure of a company's ability to pay its debt. It is a measure of investor and creditor risk.

92. On July 1, 2011, immediately after recording interest payments, Salsa, Inc. retired one fifth of its $500,000 of bonds payable for $97,500. The bonds were originally issued at par value in 2006. Which of the following statements is correct? A. B. C. D.

Stockholders' equity is not affected by the bond retirement. A gain of $2,500 will be reported on the income statement. A loss of $2,500 will be reported on the income statement. A gain of $402,500 will be reported on the income statement.

93. A company prepared the following journal entry: Bonds payable Premium on bonds payable Loss on bond retirement Cash Which of the following statements is correct? A. The book value of the bonds was less than the cash payment. B. The increase in stockholders' equity equals the loss on the bond retirement. C. The decrease in assets is greater than the decrease in liabilities, therefore stockholders' equity decreases. D. The net cash flow from financing activities decreases by the bonds payable book value. 94. A company prepared the following journal entry: Bonds payable Premium on bonds payable Gain on bond retirement Cash Which of the following statements is incorrect? A. B. C. D.

The book value of the bonds was less than the cash payment. The increase in stockholders' equity equals the gain on the bond retirement. The decrease in assets is less than the decrease in liabilities. The net cash flow from financing activities decreases by the cash payment.

95. On March 31, 2010, Bundy Corporation retired $10,000,000 of bonds which have an unamortized premium of $500,000, by repurchasing them for $9,850,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

$150,000 loss $150,000 gain $650,000 gain $350,000 loss

96. A corporation retired $500,000 of bonds which have an unamortized discount of $10,000, by repurchasing them for $500,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was no gain or loss. There was a $10,000 loss. There was a $10,000 gain. There was a $500,000 loss.

97. A corporation retired $900,000 of bonds which have an unamortized discount of $30,000, by repurchasing them for $920,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was a $50,000 loss. There was a $10,000 loss. There was a $10,000 gain. There was a $20,000 loss.

98. A corporation retired $200,000 of bonds which have an unamortized premium of $8,000, by repurchasing them for $210,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was a $10,000 loss. There was a $2,000 loss. There was a $10,000 gain. There was an $18,000 loss.

99. Which of the following statements is correct? A. An outflow of cash for interest payments is reported as a cash flow from financing activities. B. The conversion of bonds to stock is reported as a cash flow from financing activities. C. An outflow of cash when callable bonds are recalled by the issuer is reported as a cash flow from financing activities. D. Amortization of discounts and premiums on bonds payable are reported as a cash flow from financing activities. 100.Which of the following statements is incorrect? A It is common for companies to both retire debt and issue new bonds in the same year as a way to replace . higher interest rate debt with lower interest rate issuances. B. The cash payment of interest is reported as a cash flow from operating activities. C. Repurchasing bonds with cash creates a cash flow from investing activities when the issuing corporation buys back the bonds. D. The cash payment to call an outstanding bond issue is reported as a cash flow from financing activities. 101.On March 1, 2010, Halbur Corporation, issued $500,000 of 8%, five-year bonds at par. The bonds were dated March 1, 2010, and the first annual interest payment will be on February 28, 2011. The accounting period ends December 31. Assuming no adjusting entries have been made during the year. Complete the journal entry grid for each of the following dates (round to the nearest dollar):

102.The following information was taken from the income statement of Tommy Toys for the years 2009 through 2011 (in millions):

A. Compute Tommy Toys times interest earned ratio for all three years: B. Briefly interpret their times interest earned ratio for the three years.

103.The following information is available for Sell-for-Less for the years 2009 - 2011(in millions):

A. Compute the Sell-for-Less times interest earned ratio for 2011, 2010 and 2009. B. Briefly interpret their times interest earned ratio for the three years.

104.On January 1, 2010, Clintwood Corporation issued a $1,000, ten-year, 10% bond payable (interest payable each December 31). For the three assumptions below, complete the following schedule if the fiscal year end is December 31, and straight-line amortization is used:

105.On October 1, 2009, Jack Company issued a $5,000, 6%, bond payable. The interest is payable annually each September 30 and the bond matures in five years. The annual accounting period for the company ends December 31. Complete the following entries at the date specified under three different assumptions as to the issue price. Use straight-line amortization. Assume no adjusting entries have been made during the year.

106.Ridgetop Company issued the following ten-year bonds on January 1, 2009: $100,000 maturity value, 5% interest payable annually on each December 31. The bonds were dated January 1, 2009 and the accounting period ends December 31. The bonds were issued for $98,000. Requirements:

107.On January 1, 2010, Mendez Corporation issued 400 of its $1,000, ten-year, 9% bonds. The bonds were dated January 1, 2010, and interest is paid annually each December 31. The bonds were issued at 99. Requirements: Part A: Prepare the entry to record the issuance of the bonds on January 1, 2010: Part B: Were the bonds issued at par, at a premium, or at a discount? How did you arrive at your answer?

108.Consider the following statement: "Issuing bonds at a discount is bad for the issuing corporation." Discuss the statement and comment on its validity.

109.On January 1, 2011, Schultz Corporation issued $100,000 of its ten-year, 6% bonds payable at $98,000. The bonds were dated January 1, 2011, and interest is paid each December 31. Requirements: A. Give the entry for the sale of the bonds. B. Give the entry to record the first interest payment. Assume straight-line amortization and no adjusting journal entries were made during the year.

110.Houston Company authorized a $1,000,000, 10-year, 6% bond issue dated July 1, 2010, with annual interest to be paid each December 31. On July 1, 2010, the bonds were issued for $886,500. Houston Company has a December 31 year-end. Requirements: A. Prepare the journal entry to record the sale of the bonds. B. Prepare the required journal entry on December 31, 2010 to record amortization (use straight-line.) No adjusting journal entries were made during the year. C. Was the bond issued at par, at a discount, or at a premium? D. Will interest expense be greater than or less than the cash payments for interest?

111.On March 1, 2010, Jose, Inc. issued a $1,000, 8%, five-year bond for $1,060. The bond was dated on March 1, 2010, and interest is payable each February 28. Jose, Inc. has a December 31 year-end. Requirements: A. Prepare the journal entry required on March 1, 2010. B. Prepare the journal entry required on December 31, 2010. No adjusting journal entries were made during the year. C. Prepare the entry required on February 28, 2011. D. Was the bond issued at par, at a premium, or at a discount? E. What is the carrying value or book value of the bond on December 31, 2010? F. Where in the financial statements does the carrying value of the bond appear? (Be specific). G. On what date does the bond issue mature?

112.Northridge Company prepared a bond issue dated January 1, 2010. On January 1, 2010, the company issued $100,000 of its par value bonds for $103,000. The bonds mature in thirty years and have a stated rate of interest of 8% per year. Interest is payable annually on December 31. Straight-line amortization is used (round to the nearest dollar). A. Prepare the journal entry to record the sale of bonds on January 1, 2010. B. Prepare the journal entry to record interest expense at December 31, 2010 (end of the annual accounting period). No adjusting journal entries have been made during the year. C. Show how the bonds would be reported on the balance sheet of Northridge Company dated December 31, 2012.

113.On January 1, 2010, Lauren Corporation issued $40,000, 9%, ten-year bonds payable at 108. Interest is payable each December 31. Requirements: A. Prepare the journal entry to record the issuance of the bonds on January 1, 2010. B. Prepare the journal entry to record the first interest payment on December 31, 2010. Use straight-line amortization. No adjusting journal entries have been made during the year. C. What would the carrying value of the bonds be on December 31, 2011?

114.Newton Corporation issued its $1,000,000, 7%, ten-year bonds to the public on January 1, 2010. The bonds pay interest annually, beginning on December 31, 2010. Newton Corporation received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were issued was 5%. Newton Corporation has a December 31 year-end. Assume that no adjusting journal entries have been made during the year. A. Compute the amount of the premium that Newton Corporation should amortize on December 31, 2010, assuming the "effective-interest" method is used. B. Compute the amount of the premium that Newton Corporation should amortize on December 31, 2010, assuming the "straight-line" method is used. C. Which method above is theoretically the better to use for amortizing a bond premium?

115.Grand Company authorized $150,000 of 5-year bonds dated January 1, 2011. The stated rate of interest was 14%, payable annually each December 31. The bonds were issued on January 1, 2009, when the market interest rate was 12%. Assume effective-interest amortization. (The present value factor for $1 at 6% for 10 periods is 0.5584, for $1 at 7% for 10 periods is 0.5083, for $1 at 14% for 5 periods is 0.5194, and for $1 at 12% for 5 periods is 0.5674. The present value of an annuity of $1 for 10 periods at 6% is 7.3601, for 10 periods at 7% is 7.0236, for 5 periods at 6% is 4.2124, for 5 periods at 7% is 4.1002, and for 5 periods at 12% is 3.6048). Round to the nearest dollar. Requirements: A. What would be the amount of premium amortization for December 31, 2011? No adjusting journal entries have been made during the year. B. What would be the amount of the interest payment on December 31, 2011?

116.On March 31, 2011 Ridgetop Corp. retired bonds early by repurchasing them in the market for $9,700,000. The total face value of the bonds retired equaled $10 million and there was $450,000 of unamortized discount on these bonds. Record the journal entry to retire the bonds.

117.TreeTop Corporation had issued $5,000,000 of 10-year bonds with a 12% stated rate and interest to be paid annually. They were issued on January 1, 2004 at 96 and have been amortized using the straight-line method through December 31, 2010. On June 30, 2011, TreeTop retired all the bonds by exercising the call feature. The call price was 101. Record the journal entry for the call of the bonds on June 30, 2011. (Remember to amortize the discount and update the book value of the bonds for the half-year prior to retirement).

118.Fence Company reported the following information for 2011 (in millions). Identify where these items would be classified on the statement of cash flows, (operating, investing, or financing) and whether they would be added or deducted in those sections.

119.In a recent year, Tommy Toys reported the following amounts (in millions). Identify where these items would be classified on the statement of cash flows (operating, investing or financing)? Also, indicate whether each amount would be added or deducted.

120.Rock Company issued a $1,000,000 bond on January 1, 2010. The bond was dated January 1, 2010, had an 8% stated rate, pays interest annually on December 31, and sold for $924,184 at a time when the market rate of interest was 10%. Rock uses the effective-interest method to account for its bonds. Prepare the necessary journal entry for each of the following dates (assuming that no adjusting journal entries have been made during the year): January 1, 2010 December 31, 2010 December 31, 2010

121.Stone Company issued a $1,000,000 bond on January 1, 2010. The bond was dated January 1, 2010, had an 8% stated rate, pays interest annually on December 31, and sold for $1,084,249 at a time when the market rate of interest was 6%. Stone uses the effective-interest method to account for its bonds. Prepare the necessary journal entry for each of the following dates: January 1, 2010 December 31, 2010 December 31, 2010

ch10 Key 1.

An advantage of issuing a bond relative to stock is that the bond interest payments are tax deductible. TRUE Bond interest payments are tax deductible whereas cash dividend payments are not. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #1 Topic Area: Characteristics Of Bonds Payable

2.

Issuing bonds dilutes the voting power of the common shareholders because bonds have preferential voting rights. FALSE Bondholders do not have voting rights. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #2 Topic Area: Characteristics Of Bonds Payable

3.

The major disadvantages of issuing a bond are the risk of bankruptcy and the negative impact on cash flow because debt must be repaid at a specified date in the future. TRUE Bond interest payments are fixed charges that must be paid at specified dates. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #3 Topic Area: Characteristics Of Bonds Payable

4.

A bond's interest payments are determined by multiplying the bond's principal amount by the stated interest rate. TRUE Bond interest payments are determined by multiplying the bond's principal amount by the stated rate of interest. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #4 Topic Area: Characteristics Of Bonds Payable

5.

A convertible bond can be called for early retirement at the option of the issuing company. FALSE A callable bond can be called for early retirement at the option of the issuing company. A convertible bond is convertible into common stock at the option of the investor. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Medium Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #5 Topic Area: Characteristics Of Bonds Payable

6.

The issuing company and the bond underwriter determine the selling price of a bond. FALSE The selling price of a bond is determined by the market rate of interest at the time of issue. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #6 Topic Area: Reporting Bond Transactions

7.

The issuance price of a bond is the present value of both the principal plus the cash interest to be received over the life of the bond discounted by the stated (coupon) rate. FALSE The selling price of a bond is determined by the market rate of interest at the time of issue, not the stated rate. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #7 Topic Area: Reporting Bond Transactions

8.

When the market rate of interest is greater than the stated interest rate, the bond will sell at a discount. TRUE The selling price of a bond is determined by the market rate of interest at the time of issue. When the market rate exceeds the stated rate, the bond will sell at a discount. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #8 Topic Area: Reporting Bond Transactions

9.

A bond will sell for a premium when the market rate of interest is greater than the stated rate of interest. FALSE The selling price of a bond is determined by the market rate of interest at the time of issue. When the market rate exceeds the stated rate, the bond will sell at a discount. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #9 Topic Area: Reporting Bond Transactions

10.

The proceeds received from a bond issue will be greater than the bond maturity value when the stated interest rate exceeds the market rate of interest. TRUE The selling price of a bond is determined by the market rate of interest at the time of issue. When the stated rate exceeds the market rate, the bond will sell at a premium. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #10 Topic Area: Reporting Bond Transactions

11.

Increases in the market rate of interest subsequent to a bond issue increase the discount on the bond. FALSE The selling price of a bond is determined by the market rate of interest at the time of issue; subsequent changes in the market rate of interest do not impact a bond discount or premium. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #11 Topic Area: Reporting Bond Transactions

12.

A bond will sell at its par value when the market rate of interest equals the stated rate of interest. TRUE The selling price of a bond is determined by the market rate of interest at the time of issue; the present value of a bond's cash flows equal its par value when the stated rate and market rate are the same. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #12 Topic Area: Reporting Bond Transactions

13.

A company has a December 31 fiscal year-end. If the interest is paid annually on December 31, the bond interest expense on the income statement is the amount of the interest cash payment when the bond initially sells at par value. TRUE Bond interest expense equals the cash payment for interest when the bond initially sells for par value. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #13 Topic Area: Reporting Bond Transactions

14.

The payment of bond interest on the interest payment date, for bonds issued at par value, reduces both the bond liability and assets, assuming that interest expense is recorded at the time of the cash payment. FALSE The payment of bond interest increases interest expense and decreases assets. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #14 Topic Area: Reporting Bond Transactions

15.

Amortization of discount on bonds payable will make the amount of interest expense reported on the income statement less than the cash paid for that year. FALSE When a bond is sold at a discount, the interest expense on the income statement exceeds the cash payment by the amortization of the bond discount. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Remember Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #15 Topic Area: Reporting Bond Transactions

16.

Amortization of a discount on a bond payable will result in an increase in the book value of the bond liability on the balance sheet. TRUE When a bond is sold at a discount, the subsequent amortization of the discount results in an increase in the book value of the bond because the discount on bonds payable is a contra-liability account. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #16 Topic Area: Reporting Bond Transactions

17.

A bond issued at a discount will pay total cash payments for interest that is more than the total interest expense recognized over the life of the bond. FALSE When a bond initially sells at a discount, the interest expense over the life of the bond equals the cash interest payments plus the initial amount of discount on bonds payable. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #17 Topic Area: Reporting Bond Transactions

18.

The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability. TRUE The discount on bonds payable is a contra-liability account; amortization of the discount on bonds payable account therefore increases the book value of the bond. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #18 Topic Area: Reporting Bond Transactions

19.

Either straight-line or effective-interest amortization may be used for bond premiums or discounts regardless of the amounts involved. FALSE The straight-line method can only be used when the amounts involved aren't material. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #19 Topic Area: Reporting Bond Transactions

20.

The journal entry to record the interest cash payment for a bond issued at a premium results in a decrease in the bond. TRUE Premium on bonds payable is an adjunct-liability account; amortization of the premium on bonds payable account therefore decreases the bond. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #20 Topic Area: Reporting Bond Transactions

21.

A bond issued at a premium will pay cash interest in excess of the amount of interest expense recognized for accounting purposes. TRUE When a bond initially sells at a premium, the interest expense over the life of the bond equals the cash interest payments minus the initial amount of premium on bonds payable. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #21 Topic Area: Reporting Bond Transactions

22.

Interest expense decreases over time when a bond is initially issued at a premium and the effectiveinterest method is used. TRUE When a bond initially sells at a premium, the interest expense decreases over time because the book value decreases due to amortization of the premium on bonds payable. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Remember Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #22 Topic Area: Reporting Bond Transactions

23.

The journal entry to record the issue of a bond when the stated interest rate exceeds the market rate of interest debits premium on bonds payable. FALSE When a bond sells at a premium, the premium on bonds payable account is credited. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Remember Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #23 Topic Area: Reporting Bond Transactions

24.

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity. FALSE The debt-to-equity ratio is calculated by dividing total liabilities by stockholders' equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-05 Analyze the debt-to-equity ratio. Libby - Chapter 10 #24 Topic Area: Reporting Bond Transactions

25.

The debt-to-equity ratio assesses the amount of capital provided by creditors relative to stockholders' equity. TRUE The debt-to-equity ratio is calculated by dividing total liabilities by stockholders' equity and assesses the amount of debt relative to equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 10-05 Analyze the debt-to-equity ratio. Libby - Chapter 10 #25 Topic Area: Reporting Bond Transactions

26.

Issuing bonds rather than stock will result in an increase in the debt-to-equity ratio. TRUE The debt-to-equity ratio is calculated by dividing total liabilities by stockholders' equity; issuing bonds increases liabilities and therefore the debt-to-equity ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Understand Difficulty: Easy Learning Objective: 10-05 Analyze the debt-to-equity ratio. Libby - Chapter 10 #26 Topic Area: Reporting Bond Transactions

27.

If a company repurchases bonds with a $1,000,000 maturity value for $1,020,000 when their book value is $950,000, a loss of $20,000 will be reported. FALSE The loss on the bond retirement ($70,000) is the difference between the amount paid for the bond ($1,020,000) and the book value of the bond ($950,000). A loss occurs when the payment exceeds the bond's book value. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #27 Topic Area: Reporting Bond Transactions

28.

When a company purchases and retires their outstanding bonds payable for an amount less than their book value, an increase in stockholders' equity results. TRUE When a company purchases their bonds for an amount less than book value, a gain results, which increases net income and therefore stockholders' equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #28 Topic Area: Reporting Bond Transactions

29.

Issues of bonds in exchange for cash are reported as a cash flow from financing activities on the statement of cash flows. TRUE The financing classification reports those cash flows related to the issuance and retirement of debt and equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Easy Learning Objective: 10-07 Libby - Chapter 10 #29 Topic Area: Reporting Bond Transactions

30.

The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows. FALSE Cash interest payments are reported on the statement of cash flows as cash flows from operating activities. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-07 Libby - Chapter 10 #30 Topic Area: Reporting Bond Transactions

31.

When a company prepares a bond indenture, certain provisions of the bonds are included. Which of the following is/are not specified in the indenture? A. B. C. D.

Dates of each interest payment. The stated interest rate. The maturity date. The market rate of interest.

The market rate of interest is determined at the time of the bond issue and is not specified in the bond indenture. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #31 Topic Area: Characteristics Of Bonds Payable

32.

Which of the following bonds does not have specific assets pledged to guarantee repayment? A. B. C. D.

Debenture bond Callable bond Discount bond Convertible bond

An unsecured (debenture) bond does not have any assets pledged to secure it. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #32 Topic Area: Characteristics Of Bonds Payable

33.

Which of the following is not a reason that a corporation would want to issue bonds instead of stock? A. B. C. D.

Interest payments can be deducted for income tax purposes. Stockholders maintain control. The impact on earnings may be positive. There is less risk associated with a bond issue.

Bond issues are more risky because of the fixed dates for payment of interest and principal. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #33 Topic Area: Characteristics Of Bonds Payable

34.

The annual interest rate specified within a bond indenture is called which of the following? A. B. C. D.

The stated rate of interest. The market rate of interest. The effective rate of interest. The actual rate of interest.

The stated interest rate is specified in the bond indenture. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #34 Topic Area: Characteristics Of Bonds Payable

35.

Which of the following statements best describes callable bonds? A. B. C. D.

They can be turned in for early retirement at the option of the bondholder. They can be converted to common stock at the option of the bondholder. They can be called for early retirement at the option of the issuer. They can be called for early retirement at the option of the lien holder.

A callable bond may be retired early by the issuer. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #35 Topic Area: Characteristics Of Bonds Payable

36.

Which of the following statements best describes convertible bonds? A. B. C. D.

They can be turned in for early retirement at the option of the bondholder. They can be converted to common stock at the option of the bondholder. They can be called for early retirement at the option of the issuer. They can be converted to common stock at the option of the issuer.

A convertible bond may be converted into common stock at the option of the bondholder. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Easy Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #36 Topic Area: Characteristics Of Bonds Payable

37.

Which of the following is not an advantage of issuing bonds versus issuing stock to finance expansion? A. B. C. D.

Stockholders remain in control as bondholders cannot vote or share in the company's earnings. Interest expense is tax deductible but dividends are not. Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets. The fixed payment dates for the interest and maturity value.

The fixed payment dates create inflexibility and therefore increases bankruptcy risk. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Medium Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #37 Topic Area: Characteristics Of Bonds Payable

38.

Which of the following statements is not correct? A. B. C. D.

The bond principal is the amount due at the maturity date of the bond. The stated interest rate is used to determine the cash interest payments. The bond principal is used to determine the cash interest payments. The market rate of interest is used to determine the cash interest payments.

The market rate of interest is used to determine the selling price of the bond, not the cash interest payments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Remember Difficulty: Medium Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #38 Topic Area: Characteristics Of Bonds Payable

39.

Which of the following statements is correct? A. B. C. D.

A secured bond has specific assets pledged as collateral to secure it. An unsecured bond can be paid at the option of the issuer. A bond trustee is appointed to represent the issuing company. The bond indenture specifies the market rate of interest the investors will earn.

A secured bond is secured by specific pledged assets. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Remember Difficulty: Medium Learning Objective: 10-01 Describe the characteristics of bonds. Libby - Chapter 10 #39 Topic Area: Characteristics Of Bonds Payable

40.

Halverson's times interest earned ratio was 2.98 in 2010, 2.79 in 2009, and 2.31 in 2008. Which of the following statements about their ratio is possibly correct? A. Their increasing ratio indicates decreasing levels of debt on which interest is incurred. B Their increasing ratio indicates their strategy of pursuing growth by investment in other companies . which has increased debt but their profits have not yet increased from those investments. C. The increasing ratio implies increased long-term debt financing. D. Their increasing ratio would be considered by creditors to be an indicator of higher risk. A decreasing level of debt will decrease interest expense and therefore increase the times interest earned ratio. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #40 Topic Area: Reporting Bond Transactions

41.

Which of the following statements doesn't correctly describe the accounting for bonds that were issued at their maturity value? A. B. C. D.

The market rate of interest equals the stated interest rate. The interest expense over the life of the bonds will equal the cash interest payments. The present value of the bonds' future cash flows equals the bonds' maturity value. The book value of the bond liability decreases when interest payments are made on the due dates.

The payment of interest expense on the due date results in a decrease in assets and an increase in interest expense. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #41 Topic Area: Reporting Bond Transactions

42.

The journal entry to record the sale of bonds at their par value results in which of the following? A. An increase in assets and liabilities equal to the par value of the bonds. B. An increase in assets and liabilities equal to the par value of the bonds and their associated interest payments. C. An increase in assets equal to the par value of the bonds and an increase in liabilities equal to the bonds' future cash flows. D. An increase in assets and liabilities equal to the bonds' future cash flows. When a bond sells at par value, the cash proceeds and bond liability equals the par value of the bond. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #42 Topic Area: Reporting Bond Transactions

43.

Assuming no adjusting journal entries have been made, the journal entry to record the cash interest payment on the due date for bonds issued at their par value results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and a decrease in assets. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

When a bond sells for par value, the cash interest payments result in an increase in interest expense and a decrease in assets (cash). AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #43 Topic Area: Reporting Bond Transactions

44.

Which of the following statements correctly describes the accounting for bonds that were issued at a discount? A. B. C. D.

The market rate of interest is less than the stated interest rate. The interest expense over the life of the bonds will be less than the cash interest payments. The present value of the bonds' future cash flows is greater than the bonds' maturity value. The book value of the bond liability increases when interest payments are made on the due dates.

The payment of interest expense on the due date results in amortization of the discount on bonds payable account, a contra-liability account. Amortizing (reducing) a contra-liability account increases the book value of the bond liability. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #44 Topic Area: Reporting Bond Transactions

45.

Which of the following statements doesn't correctly describe the accounting for bonds that were issued at a discount? A. The interest expense over the life of the bond exceeds the cash interest payments. B. The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used. C.The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used. D The book value of the bond liability increases when interest payments are made on the due dates . when the effective interest method of amortization is used. When bonds are issued at a discount, their book value increases over time and eventually reach the bonds' maturity value. Interest expense increases because the book value increases. The amortization of discount on bonds payable is the difference between the increasing interest expense and the constant cash interest payment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #45 Topic Area: Reporting Bond Transactions

46.

Assuming no adjusting journal entries have been made, the journal entry to record the cash interest payment on the due date for bonds issued at a discount results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and an increase in liabilities. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

The journal entry to record the cash payment of interest on the due date increases interest expense and decreases the discount on bonds payable account, a contra-liability account. Decreasing a contraliability account increases the book value of the bonds. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #46 Topic Area: Reporting Bond Transactions

47.

On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the amount of straight-line discount amortization on each semi-annual interest date? A. B. C. D.

$90 $45 $900 $450

The straight-line discount amortization ($45) = Discount on bonds payable ($30,000 - $29,100) ÷ 20 semi-annual interest payments. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Easy Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #47 Topic Area: Reporting Bond Transactions

48.

On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the semi-annual interest expense when the straight-line method is utilized? A. B. C. D.

$2,010 $2,190 $1,095 $2,055

The straight-line discount amortization ($45) = Discount on bonds payable ($30,000 - $29,100) ÷ 20 semi-annual interest payments. Semi-annual interest expense ($1,095) = Semi-annual cash payment ($30,000 × .07 × 6/12) + Discount on bonds payable amortization ($45). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #48 Topic Area: Reporting Bond Transactions

49.

On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. How much is the book value of the bonds after the November 1, 2010 interest payment was recorded, assuming the straight-line method of amortization is utilized? A. B. C. D.

$29,010 $29,100 $29,190 $29,280

The straight-line discount amortization ($45) = Discount on bonds payable ($30,000 - $29,100) ÷ 20 semi-annual interest payments. The November 1, 2010 book value ($29,190) = The initial issue price ($29,100) + Two periods of discount amortization (2 × $45). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #49 Topic Area: Reporting Bond Transactions

50.

On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. Which of the following is incorrect assuming the straight-line method of amortization is utilized? A. B. C. D.

The market rate of interest exceeded the stated rate of interest when the bonds were issued. The semi-annual interest expense is $1,095. The book value of the bonds increases $45 every six months. The semi-annual interest expense is less than the semi-annual cash interest payment.

The straight-line discount amortization ($45) = Discount on bonds payable ($30,000 - $29,100) ÷ 20 semi-annual interest payments. Semi-annual interest expense ($1,095) = Semi-annual cash payment ($30,000 × .07 × 6/12) + Discount on bonds payable amortization ($45). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #50 Topic Area: Reporting Bond Transactions

51.

On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, how much is the interest expense on the income statement for the year ended December 31, 2010 (to the nearest dollar)? A. B. C. D.

$677 $883 $773 $700

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) × Market (effective) interest rate (.08). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #51 Topic Area: Reporting Bond Transactions

52.

On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, which of the following journal entries correctly records the 2010 interest expense (to the nearest dollar)? A. B. C. D.

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) × Market (effective) interest rate (.08). Cash interest payment ($700) = Maturity value of the bond ($10,000) × Stated interest rate (.07) Discount on bonds payable amortization ($73) = Interest expense ($773) - Interest cash payment ($700). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #52 Topic Area: Reporting Bond Transactions

53.

On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the book value of the bonds as of December 31, 2010 (to the nearest dollar)? A. B. C. D.

$8,968 $9,945 $9,641 $9,741

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) × Market (effective) interest rate (.08). Cash interest payment ($700) = Maturity value of the bond ($10,000) × Stated interest rate (.07) Discount on bonds payable amortization ($73) = Interest expense ($773) - Interest cash payment ($700). December 31, 2010 book value ($9,741) = January 1, 2010 book value ($9,668) + Discount on bonds payable amortization ($73). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #53 Topic Area: Reporting Bond Transactions

54.

On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the 2011 interest expense (to the nearest dollar)? A. B. C. D.

$779 $796 $677 $700

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) × Market (effective) interest rate (.08). Cash interest payment ($700) = Maturity value of the bond ($10,000) × Stated interest rate (.07) Discount on bonds payable amortization ($73) = Interest expense ($773) - Interest cash payment ($700). December 31, 2010 book value ($9,741) = January 1, 2010 book value ($9,668) + Discount on bonds payable amortization ($73). 2011 interest expense ($779) = 12/31/2010 book value ($9,741) × Market (effective) interest rate (.08). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #54 Topic Area: Reporting Bond Transactions

55.

On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the December 31, 2011 book value after the December 31, 2011 interest payment was made (to the nearest dollar)? A. B. C. D.

$9,662 $9,820 $9,668 $9,723

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) × Market (effective) interest rate (.08). Cash interest payment ($700) = Maturity value of the bond ($10,000) × Stated interest rate (.07) Discount on bonds payable amortization ($73) = Interest expense ($773) - Interest cash payment ($700). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #55 Topic Area: Reporting Bond Transactions

56.

On January 1, 2010, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.) A. B. C. D.

$3,339,084 $2,843,172 $3,000,000 $2,686,896

Bond issue price ($2,686,896) = Present value of the bond maturity value ($3,000,000 × .2 697) + Present value of the bonds interest payments ($3,000,000 × .12) × 5.2161 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #56 Topic Area: Reporting Bond Transactions

57.

On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

What was the issuance price of the bonds if the market rate of interest was 8%? A. B. C. D.

$5,000,000 $5,670,000 $5,387,500 $5,712,500

Bond issue price ($5,670,000) = Present value of the bond maturity value ($5,000,000 × .463) + Present value of the bond interest payments ($5,000,000 × .10) × 6.710 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #57 Topic Area: Reporting Bond Transactions

58.

On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

Calculate the issuance price if the market rate of interest is 12%. A. B. C. D.

$4,427,500 $4,477,500 $4,435,000 $5,000,000

Bond issue price ($4,435,000) = Present value of the bond maturity value ($5,000,000 × .322) + Present value of the bond interest payments ($5,000,000 × .10) × 5.650 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #58 Topic Area: Reporting Bond Transactions

59.

On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:

Calculate the issuance price if the market rate of interest was 10%. A. B. C. D.

$5,427,000 $4,477,000 $4,435,000 $5,000,000

Bond issue price ($5,000,000) = Present value of the bond maturity value ($5,000,000 × .386) + Present value of the bond interest payments ($5,000,000 × .10) × 6.140 When the market rate equals the stated rate, the bond will always be issued at its maturity value. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #59 Topic Area: Reporting Bond Transactions

60.

Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. How much is the annual interest expense? A. B. C. D.

$4,700 $4,300 $4,500 $4,680

The straight-line discount amortization ($200) = Discount on bonds payable ($50,000 - $48,000) ÷ 10 annual interest payments. Annual interest expense ($4,700) = Annual cash payment ($50,000 × .09) + Discount on bonds payable amortization ($200). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #60 Topic Area: Reporting Bond Transactions

61.

Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. Which of the following statements is incorrect? A. B. C. D.

The market rate of interest exceeded the stated rate of interest when the bonds were issued. The annual interest expense exceeds the annual cash interest payment by $200. The annual increase in the bond book value is $200. The annual interest expense is $4,300.

The straight-line discount amortization ($200) = Discount on bonds payable ($50,000 - $48,000) ÷ 10 annual interest payments. Annual interest expense ($4,700) = Annual cash payment ($50,000 × .09) + Discount on bonds payable amortization ($200). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #61 Topic Area: Reporting Bond Transactions

62.

Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium? A. B. C. D.

The market rate of interest is less than the stated interest rate. The interest expense over the life of the bonds will be less than the cash interest payments. The present value of the bonds' future cash flows is less than the bonds' maturity value. The book value of the bond liability decreases when interest payments are made on the due dates.

When a bond sells at a premium, the issue price (present value of future cash flows) exceeds the bond maturity value. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #62 Topic Area: Reporting Bond Transactions

63.

Which of the following statements correctly describes the accounting for bonds that were issued at a premium? A. The interest expense over the life of the bond is less than the cash interest payments. B. The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used. C. The amortization of the premium on bonds payable account decreases as the bonds mature when the effective interest method is used. D The book value of the bond liability increases when interest payments are made on the due dates . when the effective interest method of amortization is used. When bonds are issued at a premium, interest expense over the life of the bonds equals the total payments for interest minus the premium on bonds payable initial account balance. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #63 Topic Area: Reporting Bond Transactions

64.

Assuming no adjusting journal entries have been made during the year, the journal entry to record the cash interest payment on the due date for bonds issued at a premium results in which of the following? A. B. C. D.

An increase in expenses and a decrease in liabilities. An increase in expenses and an increase in liabilities. A decrease in both liabilities and stockholders' equity. A decrease in both assets and liabilities.

The journal entry to record the cash payment of interest on the due date increases interest expense and decreases the premium on bonds payable account, an adjunct-liability account. Decreasing an adjunctliability account decreases the book value of the bonds. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #64 Topic Area: Reporting Bond Transactions

65.

On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. How much is the semi-annual interest expense? A. B. C. D.

$14,000 $14,150 $10,350 $11,000

The straight-line premium amortization ($150) = Premium on bonds payable ($303,000 - $300,000) ÷ 20 semi-annual interest payments. Semi-annual interest expense ($10,350) = Semi-annual cash payment ($300,000 × .07 × 6/12) - Discount on bonds payable amortization ($150). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #65 Topic Area: Reporting Bond Transactions

66.

On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2010 balance sheet? A. B. C. D.

$300,000 $302,850 $302,700 $303,000

The straight-line premium amortization ($150) = Premium on bonds payable ($303,000 - $300,000) ÷ 20 semi-annual interest payments. December 31, 2010 bond liability ($302,850) = July 1, 2010 book value ($303,000) - December 31, 2010 premium on bond payable amortization ($150). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #66 Topic Area: Reporting Bond Transactions

67.

On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2011 balance sheet? A. B. C. D.

$300,000 $302,550 $302,700 $303,000

The straight-line premium amortization ($150) = Premium on bonds payable ($303,000 - $300,000) ÷ 20 semi-annual interest payments. December 31, 2011 bond liability ($302,550) = Initial issue price ($303,000) - Premium on bond payable amortization ($150 × 3). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #67 Topic Area: Reporting Bond Transactions

68.

On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. Which of the following statements is incorrect? A. The market rate of interest was less than the stated rate of interest on July 1, 2010. B. The interest expense during the life of the bonds is $3,000 less than the cash interest payments during the life of the bonds. C. The book value of the bond liability decreases by $300 per year. D. The semi-annual interest expense is $300 less than the semi-annual interest payment. The straight-line premium amortization ($150) = Premium on bonds payable ($303,000 - $300,000) ÷ 20 semi-annual interest payments. The semi-annual interest expense is therefore $150 less than the semiannual cash interest payment. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #68 Topic Area: Reporting Bond Transactions

69.

Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2009, for $102,360 on April 1, 2009. The bonds pay interest annually on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2010 for the first interest payment?

A. B. C. D.

Option A Option B Option C Option D

The straight-line premium amortization ($236) = Premium on bonds payable ($102,360 - $100,000) ÷ 10 annual interest payments. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #69 Topic Area: Reporting Bond Transactions

70.

On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the sixmonth period ending June 30, 2010 (to the nearest dollar)? A. B. C. D.

$24,000 $24,789 $20,000 $20,658

Interest expense ($20,658) = January 1, 2010 book value ($413,153) × Six-month market rate of interest (10% × 6/12) AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #70 Topic Area: Reporting Bond Transactions

71.

On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability as of June 30, 2010 (to the nearest dollar)? A. B. C. D.

$400,000 $416,495 $409,811 $403,342

June 30, 2010 interest expense ($20,658) = January 1, 2010 book value ($413,153) × Six-month market rate of interest (10% × 6/12) June 30, 2010 book value ($409,811) = January 1, 2010 book value ($413,153) - June 30, 2010 premium on bonds payable amortization [Interest expense ($20,658) - Cash interest payment ($400,000 × .12 × 6/ 12)] AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #71 Topic Area: Reporting Bond Transactions

72.

On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153. Assuming the effective-interest method of amortization is used, which of the following statements is incorrect? A. B. C. D.

The market rate of interest on the sale date was less than the stated rate of interest. The book value of the bond will decrease as the bond matures. The interest expense will decrease as the bond matures. The amortization of the premium on bonds payable will decrease as the bond matures.

The amortization of the premium on bonds payable increases over time because of the decreasing interest expense relative to the constant cash payment. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #72 Topic Area: Reporting Bond Transactions

73.

On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the six-month period ending December 31, 2010 (to the nearest dollar)? A. B. C. D.

$24,000 $20,491 $20,000 $20,825

June 30, 2010 interest expense ($20,658) = January 1, 2010 book value ($413,153) × Six-month market rate of interest (10% × 6/12). June 30, 2010 book value ($409,811) = January 1, 2010 book value ($413,153) - June 30, 2010 premium on bonds payable amortization [Interest expense ($20,658) - Cash interest payment ($400,000 × .12 × 6/ 12)]. December 31, 2010 interest expense ($20,491) = June 30, 2010 book value ($409,811) × Six-month market rate of interest (10% × 6/12). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #73 Topic Area: Reporting Bond Transactions

74.

On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability on December 31, 2010 (to the nearest dollar)? A. B. C. D.

$400,000 $413,320 $406,302 $407,432

June 30, 2010 interest expense ($20,658) = January 1, 2010 book value ($413,153) × Six-month market rate of interest (10% × 6/12). June 30, 2010 book value ($409,811) = January 1, 2010 book value ($413,153) - June 30, 2010 premium on bonds payable amortization [Interest expense ($20,658) - Cash interest payment ($400,000 × .12 × 6/ 12)]. December 31, 2010 interest expense ($20,491) = June 30, 2010 book value ($409,811) × Six-month market rate of interest (10% × 6/12). December 31, 2010 book value ($406,302) = June 30, 2010 book value ($409,811) - December 31, 2010 premium on bonds payable amortization [Interest expense ($20,491) - Cash interest payment ($400,000 × .12 × 6/12)]. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #74 Topic Area: Reporting Bond Transactions

75.

Which of the following statements regarding the effective-interest method of amortization is incorrect? A. The amount of interest expense is different each period. B. The amount of discount or premium that is amortized increases each period. C. It is one of the options according to generally accepted accounting principles. D. The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization. The effective-interest method of amortization is required by generally accepted accounting principles unless the amounts are immaterial. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #75 Topic Area: Reporting Bond Transactions

76.

Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2010. On December 31, 2010 the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest? A. B. C. D.

The market rate increased. The market rate decreased. The market rate stayed the same. The change in the market rate can't be determined.

Given that the bonds sold for par value on January 1, 2010, the stated interest rate equaled the market rate of interest. As of December 31, 2010, the bonds were selling at a premium, which means that the stated rate was greater than the market rate on December 31, 2010, therefore the market rate of interest decreased. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #76 Topic Area: Reporting Bond Transactions

77.

Straight-line amortization of a premium related to a bond issuance would result in which of the following? A. Interest expense to be calculated by multiplying the market interest rate times the book value of the bonds. B. Higher premium amortization in the early years and lower interest expense over the life of the bonds. C. Calculating the constant amount of premium to be amortized and then deducting it from cash interest to calculate interest expense. D. Lower premium amortization in the early years and higher interest expense over the life of the bonds. Interest expense = Cash interest payment - Equal premium amortization AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #77 Topic Area: Reporting Bond Transactions

78.

Eaton Company issued $5 million of bonds. The stated rate of interest was 10% and the market rate was 11%. Which of the following statements is correct? A. B. C. D.

The bonds were issued at a premium. Annual interest expense will exceed the company's actual cash payments for interest. Annual interest expense will be $500,000. The book value of the bond will decrease as the bond matures.

Given that the market rate of interest exceeded the stated rate of interest, the bonds sold at a discount. The annual interest expense exceeds the cash interest payments by the initial amount of discount on bonds payable. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #78 Topic Area: Reporting Bond Transactions

79.

A company issued bonds when the stated rate of interest was 10% and the market rate was 8%. Which of the following statements is incorrect? A. B. C. D.

The bonds were issued at a premium. Annual interest expense will be less than the company's annual cash payments for interest. The book value of the bonds will decrease as the bond matures. The annual interest expense will increase if the effective-interest method of amortization was used.

Given that the market rate of interest was less than the stated rate of interest, the bonds sold at a premium. Therefore, the book value decreases as the premium on bond payable account is amortized, as a result interest expense decreases. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #79 Topic Area: Reporting Bond Transactions

80.

A company issued bonds when the stated rate of interest was 10% and the market rate was 10%. Which of the following statements is incorrect? A. The bonds were issued at par. B. Annual interest expense will equal the company's annual cash payments for interest. C. The book value of the bonds will decrease as cash interest payments are made. D. Annual interest expense is the same regardless of whether the effective- interest or straight-line method of amortization is used. The cash payment of interest on the due date increases expenses and decreases assets. The payment does not affect the book value of the bond liability. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #80 Topic Area: Reporting Bond Transactions

81.

A company prepared the following journal entry: Interest expense Discount on bonds payable Cash Which of the following statements correctly describes the effect of this journal entry on the financial statements? A. B. C. D.

The bonds payable book value increases by the amount of the credit to discount on bonds payable. The bonds payable book value decreases by the amount of the credit to cash. Stockholders' equity decreases by the amount of the credit to cash. The cash payment is reported as a cash flow from financing activities.

The bond payable book value increases as the discount on bond payable account is amortized (credited). AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-07 Libby - Chapter 10 #81 Topic Area: Reporting Bond Transactions

82.

A company prepared the following journal entry: Interest expense Premium on bonds payable Cash Which of the following statements incorrectly describes the effect of this journal entry on the financial statements? A. B. C. D.

The bonds payable book value decreases by the amount of the debit to premium on bonds payable. Assets decrease by the amount of the credit to cash. Stockholders' equity decreases by the amount of the debit to interest expense. The cash payment is reported as a cash flow from financing activities.

The cash payment is reported as a cash flow from operating activities. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Learning Objective: 10-07 Libby - Chapter 10 #82 Topic Area: Reporting Bond Transactions

83.

A company prepared the following journal entry: Cash Discount on bonds payable Bonds payable Which of the following statements incorrectly describes the effect of this journal entry on the financial statements? A. B. C. D.

Total liabilities increase by the amount of the credit to bonds payable. Discount on bonds payable is reported on the balance sheet as a contra-liability account. Assets increase by the amount of the debit to cash. The cash inflow (debit) is reported as a cash flow from financing activities.

Total liabilities increase by the amount of the debit to cash. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-07 Libby - Chapter 10 #83 Topic Area: Reporting Bond Transactions

84.

A company prepared the following journal entry: Cash Premium on bonds payable Bonds payable Which of the following statements correctly describes the effect of this journal entry on the financial statements? A. B. C. D.

Total liabilities increase by the amount of the debit to cash. Premium on bonds payable is reported on the balance sheet as a contra-liability account. Total liabilities increase by the amount of the credit to bonds payable. The credit to bonds payable is the amount reported as a cash flow from financing activities.

Total liabilities increase by the amount of the debit to cash. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-07 Libby - Chapter 10 #84 Topic Area: Reporting Bond Transactions

85.

During 2010, Patty's Pizza reported net income of $4,212 million, interest expense of $167 million and income tax expense of $1,372 million. During 2009, they reported net income of $3,568 million, interest expense of $163 million and income tax expense of $1,424 million. What was the times interest earned ratio for 2010 and 2009 respectively? A. B. C. D.

32.2 and 29.4 times 28.4 and 23.8 times 34.4 and 31.6 times 34.1 and 26.6 times

Times interest earned = (Net income + Interest expense + Income tax expense) ÷ Interest expense 2010 times interest earned (34.4) = ($4,212 + $167 + $1,372) ÷ $167 2009 times interest earned (31.6) = ($3,568 + $163 + $1,424) ÷ $163 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #85 Topic Area: Reporting Bond Transactions

86.

When a bond payable is issued at a discount, subsequent amortization of the discount doesn't do which of the following? A. Increase interest expense. B. Increase the book value of the bonds. C. Increase in amount amortized for each year the bond gets older when the effective-interest method is used. D. Increase the amount reported as a cash flow from operating activities. The amount reported as a cash flow is the cash payment which is unaffected by amortization of the discount. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-07 Libby - Chapter 10 #86 Topic Area: Reporting Bond Transactions

87.

Which of the following is correct when using the effective-interest method of amortizing the discount on bonds payable? A. B. C. D.

Interest expense is computed by adding the portion of amortized discount to the cash interest paid. The amount of interest expense recognized each period increases over time. The amount of discount amortized each period decreases over time. The book value of the bonds payable liability decreases.

The bonds payable book value increases as the discount is amortized. As the book value increases, interest expense increases when the effective-interest method is used. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #87 Topic Area: Reporting Bond Transactions

88.

When a bond payable is issued at a premium, subsequent amortization of the premium does which of the following? A. Increase interest expense. B. Decrease the book value of the bonds. C. Decrease in amount amortized for each year the bond gets older when the effective-interest method is used. D. Decrease the amount reported as a cash flow from operating activities. Premium on bonds payable is an adjunct-liability account; amortization of the premium therefore decreases the bonds payable book value. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #88 Topic Area: Reporting Bond Transactions

89.

If a bond is issued at 101, the stated rate of interest was A. B. C. D.

higher than the market rate of interest. lower than the market rate of interest. equal to the market rate of interest. not related to the market rate of interest.

When a bond is issued at a premium, the stated rate of interest exceeds the market rate of interest. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #89 Topic Area: Reporting Bond Transactions

90.

If a bond is issued at 98, the stated rate of interest was A. B. C. D.

higher than the market rate of interest. lower than the market rate of interest. equal to the market rate of interest. not related to the market rate of interest.

When a bond is issued at a discount, the stated rate of interest is less than the market rate of interest. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #90 Topic Area: Reporting Bond Transactions

91.

Which of the following statements regarding the debt to equity ratio is correct? A. B. C. D.

A high ratio means that the company is primarily financed through stockholder investments. A higher ratio is preferred. It is a measure of a company's ability to pay its debt. It is a measure of investor and creditor risk.

The debt to equity ratio measures debt relative to equity and is an assessment of investor and creditor risk. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #91 Topic Area: Reporting Bond Transactions

92.

On July 1, 2011, immediately after recording interest payments, Salsa, Inc. retired one fifth of its $500,000 of bonds payable for $97,500. The bonds were originally issued at par value in 2006. Which of the following statements is correct? A. B. C. D.

Stockholders' equity is not affected by the bond retirement. A gain of $2,500 will be reported on the income statement. A loss of $2,500 will be reported on the income statement. A gain of $402,500 will be reported on the income statement.

The gain ($2,500) occurs because the cash payment ($97,500) is less than the bond payable book value ($100,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #92 Topic Area: Reporting Bond Transactions

93.

A company prepared the following journal entry: Bonds payable Premium on bonds payable Loss on bond retirement Cash Which of the following statements is correct? A. The book value of the bonds was less than the cash payment. B. The increase in stockholders' equity equals the loss on the bond retirement. C. The decrease in assets is greater than the decrease in liabilities, therefore stockholders' equity decreases. D. The net cash flow from financing activities decreases by the bonds payable book value. The decrease in stockholders' equity is the amount of the loss on bonds retirement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Learning Objective: 10-07 Libby - Chapter 10 #93 Topic Area: Reporting Bond Transactions

94.

A company prepared the following journal entry: Bonds payable Premium on bonds payable Gain on bond retirement Cash Which of the following statements is incorrect? A. B. C. D.

The book value of the bonds was less than the cash payment. The increase in stockholders' equity equals the gain on the bond retirement. The decrease in assets is less than the decrease in liabilities. The net cash flow from financing activities decreases by the cash payment.

Bond transactions are reported within the cash flow from financing activities section of a cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Learning Objective: 10-07 Libby - Chapter 10 #94 Topic Area: Reporting Bond Transactions

95.

On March 31, 2010, Bundy Corporation retired $10,000,000 of bonds which have an unamortized premium of $500,000, by repurchasing them for $9,850,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

$150,000 loss $150,000 gain $650,000 gain $350,000 loss

A gain on bond retirement ($650,000) occurs because the amount paid ($9,850,000) is less than the book value of the bonds ($10,000,000 + $500,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #95 Topic Area: Reporting Bond Transactions

96.

A corporation retired $500,000 of bonds which have an unamortized discount of $10,000, by repurchasing them for $500,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was no gain or loss. There was a $10,000 loss. There was a $10,000 gain. There was a $500,000 loss.

A loss on bond retirement ($10,000) occurs because the amount paid ($500,000) is greater than the book value of the bonds ($500,000 - $10,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #96 Topic Area: Reporting Bond Transactions

97.

A corporation retired $900,000 of bonds which have an unamortized discount of $30,000, by repurchasing them for $920,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was a $50,000 loss. There was a $10,000 loss. There was a $10,000 gain. There was a $20,000 loss.

A loss on bond retirement ($50,000) occurs because the amount paid ($920,000) is greater than the book value of the bonds ($900,000 - $30,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #97 Topic Area: Reporting Bond Transactions

98.

A corporation retired $200,000 of bonds which have an unamortized premium of $8,000, by repurchasing them for $210,000. How much was the gain or loss on the retirement of the bonds? A. B. C. D.

There was a $10,000 loss. There was a $2,000 loss. There was a $10,000 gain. There was an $18,000 loss.

A loss on bond retirement ($2,000) occurs because the amount paid ($210,000) is greater than the book value of the bonds ($200,000 + $8,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #98 Topic Area: Reporting Bond Transactions

99.

Which of the following statements is correct? A. An outflow of cash for interest payments is reported as a cash flow from financing activities. B. The conversion of bonds to stock is reported as a cash flow from financing activities. C. An outflow of cash when callable bonds are recalled by the issuer is reported as a cash flow from financing activities. D. Amortization of discounts and premiums on bonds payable are reported as a cash flow from financing activities. Bond transactions involving a cash flow are reported within the cash flow from financing activities section of a cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Learning Objective: 10-07 Libby - Chapter 10 #99 Topic Area: Reporting Bond Transactions

100.

Which of the following statements is incorrect? A It is common for companies to both retire debt and issue new bonds in the same year as a way to . replace higher interest rate debt with lower interest rate issuances. B. The cash payment of interest is reported as a cash flow from operating activities. C. Repurchasing bonds with cash creates a cash flow from investing activities when the issuing corporation buys back the bonds. D. The cash payment to call an outstanding bond issue is reported as a cash flow from financing activities. Bond transactions involving a cash flow are reported within the cash flow from financing activities section of a cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Learning Objective: 10-07 Libby - Chapter 10 #100 Topic Area: Reporting Bond Transactions

101.

On March 1, 2010, Halbur Corporation, issued $500,000 of 8%, five-year bonds at par. The bonds were dated March 1, 2010, and the first annual interest payment will be on February 28, 2011. The accounting period ends December 31. Assuming no adjusting entries have been made during the year. Complete the journal entry grid for each of the following dates (round to the nearest dollar):

Answers will vary

Feedback: Computations: Issued at par, $500,000 $500,000 x 8% x 10/12 = $33,333 Cash paid: $50,000 x 8% = $40,000 Interest payable (per b) = $33,333 Interest expense ($500,000 x 8% x 2/12) = $6,667 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Easy Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #101 Topic Area: Reporting Bond Transactions

102.

The following information was taken from the income statement of Tommy Toys for the years 2009 through 2011 (in millions):

A. Compute Tommy Toys times interest earned ratio for all three years: B. Briefly interpret their times interest earned ratio for the three years. Answers will vary Feedback: Times interest earned ratio = (Net income + Interest expense + Income Tax Expense) ÷ Interest expense

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #102 Topic Area: Reporting Bond Transactions

103.

The following information is available for Sell-for-Less for the years 2009 - 2011(in millions):

A. Compute the Sell-for-Less times interest earned ratio for 2011, 2010 and 2009. B. Briefly interpret their times interest earned ratio for the three years. Answers will vary Feedback: Times interest earned ratio = (Net income + Interest expense + Income Tax Expense) ÷ Interest expense

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Libby - Chapter 10 #103 Topic Area: Reporting Bond Transactions

104.

On January 1, 2010, Clintwood Corporation issued a $1,000, ten-year, 10% bond payable (interest payable each December 31). For the three assumptions below, complete the following schedule if the fiscal year end is December 31, and straight-line amortization is used:

Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #104 Topic Area: Reporting Bond Transactions

105.

On October 1, 2009, Jack Company issued a $5,000, 6%, bond payable. The interest is payable annually each September 30 and the bond matures in five years. The annual accounting period for the company ends December 31. Complete the following entries at the date specified under three different assumptions as to the issue price. Use straight-line amortization. Assume no adjusting entries have been made during the year.

Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #105 Topic Area: Reporting Bond Transactions

106.

Ridgetop Company issued the following ten-year bonds on January 1, 2009: $100,000 maturity value, 5% interest payable annually on each December 31. The bonds were dated January 1, 2009 and the accounting period ends December 31. The bonds were issued for $98,000. Requirements:

Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #106 Topic Area: Reporting Bond Transactions

107.

On January 1, 2010, Mendez Corporation issued 400 of its $1,000, ten-year, 9% bonds. The bonds were dated January 1, 2010, and interest is paid annually each December 31. The bonds were issued at 99. Requirements: Part A: Prepare the entry to record the issuance of the bonds on January 1, 2010: Part B: Were the bonds issued at par, at a premium, or at a discount? How did you arrive at your answer? Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Easy Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #107 Topic Area: Reporting Bond Transactions

108.

Consider the following statement: "Issuing bonds at a discount is bad for the issuing corporation." Discuss the statement and comment on its validity. Answers will vary Feedback: The issuance of bonds at a discount is not bad nor is the issuance of bonds at a premium good. Proceeds from a bond are determined based on prevailing rates of interest at the time the bonds are issued. When bonds are issued at a discount, the market rate exceeds the stated rate. When bonds are issued at a premium, the stated rate exceeds the market rate. The price at which bonds are issued simply adjusts the selling price to yield the market rate to the bondholders. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #108 Topic Area: Reporting Bond Transactions

109.

On January 1, 2011, Schultz Corporation issued $100,000 of its ten-year, 6% bonds payable at $98,000. The bonds were dated January 1, 2011, and interest is paid each December 31. Requirements: A. Give the entry for the sale of the bonds. B. Give the entry to record the first interest payment. Assume straight-line amortization and no adjusting journal entries were made during the year. Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #109 Topic Area: Reporting Bond Transactions

110.

Houston Company authorized a $1,000,000, 10-year, 6% bond issue dated July 1, 2010, with annual interest to be paid each December 31. On July 1, 2010, the bonds were issued for $886,500. Houston Company has a December 31 year-end. Requirements: A. Prepare the journal entry to record the sale of the bonds. B. Prepare the required journal entry on December 31, 2010 to record amortization (use straight-line.) No adjusting journal entries were made during the year. C. Was the bond issued at par, at a discount, or at a premium? D. Will interest expense be greater than or less than the cash payments for interest? Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #110 Topic Area: Reporting Bond Transactions

111.

On March 1, 2010, Jose, Inc. issued a $1,000, 8%, five-year bond for $1,060. The bond was dated on March 1, 2010, and interest is payable each February 28. Jose, Inc. has a December 31 year-end. Requirements: A. Prepare the journal entry required on March 1, 2010. B. Prepare the journal entry required on December 31, 2010. No adjusting journal entries were made during the year. C. Prepare the entry required on February 28, 2011. D. Was the bond issued at par, at a premium, or at a discount? E. What is the carrying value or book value of the bond on December 31, 2010? F. Where in the financial statements does the carrying value of the bond appear? (Be specific). G. On what date does the bond issue mature? Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #111 Topic Area: Reporting Bond Transactions

112.

Northridge Company prepared a bond issue dated January 1, 2010. On January 1, 2010, the company issued $100,000 of its par value bonds for $103,000. The bonds mature in thirty years and have a stated rate of interest of 8% per year. Interest is payable annually on December 31. Straight-line amortization is used (round to the nearest dollar). A. Prepare the journal entry to record the sale of bonds on January 1, 2010. B. Prepare the journal entry to record interest expense at December 31, 2010 (end of the annual accounting period). No adjusting journal entries have been made during the year. C. Show how the bonds would be reported on the balance sheet of Northridge Company dated December 31, 2012. Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #112 Topic Area: Reporting Bond Transactions

113.

On January 1, 2010, Lauren Corporation issued $40,000, 9%, ten-year bonds payable at 108. Interest is payable each December 31. Requirements: A. Prepare the journal entry to record the issuance of the bonds on January 1, 2010. B. Prepare the journal entry to record the first interest payment on December 31, 2010. Use straight-line amortization. No adjusting journal entries have been made during the year. C. What would the carrying value of the bonds be on December 31, 2011? Answers will vary

C. Carrying Value = $40,000 + ($3,200 - $320 - $320) = $42,560 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #113 Topic Area: Reporting Bond Transactions

114.

Newton Corporation issued its $1,000,000, 7%, ten-year bonds to the public on January 1, 2010. The bonds pay interest annually, beginning on December 31, 2010. Newton Corporation received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were issued was 5%. Newton Corporation has a December 31 year-end. Assume that no adjusting journal entries have been made during the year. A. Compute the amount of the premium that Newton Corporation should amortize on December 31, 2010, assuming the "effective-interest" method is used. B. Compute the amount of the premium that Newton Corporation should amortize on December 31, 2010, assuming the "straight-line" method is used. C. Which method above is theoretically the better to use for amortizing a bond premium? Answers will vary Feedback: A. ($1,000,000 x 7% = $70,000) - ($1,153,420 x 5% = $57,671) = $12,329 B. $153,420/10 = $15,342. C. Effective-interest method. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #114 Topic Area: Reporting Bond Transactions

115.

Grand Company authorized $150,000 of 5-year bonds dated January 1, 2011. The stated rate of interest was 14%, payable annually each December 31. The bonds were issued on January 1, 2009, when the market interest rate was 12%. Assume effective-interest amortization. (The present value factor for $1 at 6% for 10 periods is 0.5584, for $1 at 7% for 10 periods is 0.5083, for $1 at 14% for 5 periods is 0.5194, and for $1 at 12% for 5 periods is 0.5674. The present value of an annuity of $1 for 10 periods at 6% is 7.3601, for 10 periods at 7% is 7.0236, for 5 periods at 6% is 4.2124, for 5 periods at 7% is 4.1002, and for 5 periods at 12% is 3.6048). Round to the nearest dollar. Requirements: A. What would be the amount of premium amortization for December 31, 2011? No adjusting journal entries have been made during the year. B. What would be the amount of the interest payment on December 31, 2011? Answers will vary Feedback: A. $1,703 B. $21,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #115 Topic Area: Reporting Bond Transactions

116.

On March 31, 2011 Ridgetop Corp. retired bonds early by repurchasing them in the market for $9,700,000. The total face value of the bonds retired equaled $10 million and there was $450,000 of unamortized discount on these bonds. Record the journal entry to retire the bonds. Answers will vary

Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Medium Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #116 Topic Area: Reporting Bond Transactions

117.

TreeTop Corporation had issued $5,000,000 of 10-year bonds with a 12% stated rate and interest to be paid annually. They were issued on January 1, 2004 at 96 and have been amortized using the straightline method through December 31, 2010. On June 30, 2011, TreeTop retired all the bonds by exercising the call feature. The call price was 101. Record the journal entry for the call of the bonds on June 30, 2011. (Remember to amortize the discount and update the book value of the bonds for the half-year prior to retirement). Answers will vary

Feedback: $200,000/10 = $20,000 annual amortization of discount x 7.5 years = $150,000 of amortized discount through June 30, 2011. Face value of the bonds $5,000,000 minus the unamortized discount $50,000 = book value of $4,950,000 compared to the $5,050,000 cash paid generates a $100,000 loss. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-06 Report the early retirement of bonds. Libby - Chapter 10 #117 Topic Area: Reporting Bond Transactions

118.

Fence Company reported the following information for 2011 (in millions). Identify where these items would be classified on the statement of cash flows, (operating, investing, or financing) and whether they would be added or deducted in those sections.

Answers will vary

Feedback: AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Easy Learning Objective: 10-07 Libby - Chapter 10 #118 Topic Area: Reporting Bond Transactions

119.

In a recent year, Tommy Toys reported the following amounts (in millions). Identify where these items would be classified on the statement of cash flows (operating, investing or financing)? Also, indicate whether each amount would be added or deducted.

Answers will vary

Feedback: AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Understand Difficulty: Easy Learning Objective: 10-07 Libby - Chapter 10 #119 Topic Area: Reporting Bond Transactions

120.

Rock Company issued a $1,000,000 bond on January 1, 2010. The bond was dated January 1, 2010, had an 8% stated rate, pays interest annually on December 31, and sold for $924,184 at a time when the market rate of interest was 10%. Rock uses the effective-interest method to account for its bonds. Prepare the necessary journal entry for each of the following dates (assuming that no adjusting journal entries have been made during the year): January 1, 2010 December 31, 2010 December 31, 2010 Answers will vary Feedback: January 1, 2010 Cash 924,184 Discount on bonds payable 75,816 Bonds payable 1,000,000 December 31, 2010 Interest expense 92,418 ($924,184 × .10) Discount on bonds payable 12,418 Cash 80,000 ($1,000,000 × .08) December 31, 2011 Interest expense 93,660 ($924,184 + $12,418) × .10 Discount on bonds payable 13,660 Cash 80,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Libby - Chapter 10 #120 Topic Area: Reporting Bond Transactions

121.

Stone Company issued a $1,000,000 bond on January 1, 2010. The bond was dated January 1, 2010, had an 8% stated rate, pays interest annually on December 31, and sold for $1,084,249 at a time when the market rate of interest was 6%. Stone uses the effective-interest method to account for its bonds. Prepare the necessary journal entry for each of the following dates: January 1, 2010 December 31, 2010 December 31, 2010 Answers will vary Feedback: January 1, 2010 Cash 1,084,249 Premium on bonds payable 84,249 Bonds payable 1,000,000 December 31, 2010 Interest expense 65,055 ($1,084,249 × .06) Premium on bonds payable 14,945 Cash 80,000 ($1,000,000 × .08) December 31, 2011 Interest expense 64,158 ($1,084,249 - $14,945) × .06 Premium on bonds payable 15,842 Cash 80,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Bloom's: Apply Difficulty: Hard Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Libby - Chapter 10 #121 Topic Area: Reporting Bond Transactions

ch10 Summary Category AACSB: Analytic AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Reporting, Measurement AICPA FN: Risk Analysis Bloom's: Apply Bloom's: Remember Bloom's: Understand Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 10-01 Describe the characteristics of bonds. Learning Objective: 10-02 Report bonds payable and interest expense for bonds sold at par and analyze the times interest earned ratio. Learning Objective: 10-03 Report bonds payable and interest expense for bonds sold at a discount. Learning Objective: 10-04 Report bonds payable and interest expense for bonds sold at a premium. Learning Objective: 10-05 Analyze the debt-to-equity ratio. Learning Objective: 10-06 Report the early retirement of bonds. Learning Objective: 10-07 Libby - Chapter 10 Topic Area: Characteristics Of Bonds Payable Topic Area: Reporting Bond Transactions

# of Questions 48 73 121 22 15 75 9 61 28 32 24 14 83 14 18 41 35 3 12 13 121 14 107