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Exam 10: Reporting and Interpreting Bond Securities

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Question 71

True/False

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

A) True
B) False

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Question 72

Multiple Choice

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When a bond payable is issued at a discount,which of the following would not occur as the bond is amortized each year?

A) Interest expense would increase.
B) The book value of the bonds would increase.
C) When the effective-interest method is used,the discount amortization for each year the bond approaches maturity would increase.
D) The amount of amortization would be subtracted from net income to arrive at cash flows from operating activities.

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

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Question 73

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

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

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

On March 1,2019,Halbur Company,issued $500,000 of 6%,five-year bonds at par.The bonds were dated March 1,2019,and the first annual interest payment will be on February 28,2020.The accounting period ends December 31.Assume no adjusting entries have been made during the year. Complete the journal entry grid for each of the following dates:

On January 1,2019,Jason Company issued $5 million of 10-year bonds at a 10% coupon 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%.