Questions -
Q1. Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
a. $19,400,000 b. $20,450,000 c. $19,700,000 d. $19,100,000
Q2. Farmer Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
a. $9,700,000 b. $10,225,000 c. $9,850,000 d. $9,550,000
Q3. A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2009. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2011?
a. $19,670,231 b. $19,940,622 c. $19,633,834 d. $19,663,523
Q4. At December 31, 2010 the following balances existed on the books of Foxworth Corporation: Bonds Payable $2,000,000 Discount on Bonds Payable 160,000 Interest Payable 50,000 Unamortized Bond Issue Costs 120,000 83. 84. 85. 86. 87. Long-Term Liabilities 14 - 19 If the bonds are retired on January 1, 2011, at 102, what will Foxworth report as a loss on redemption?
a. $370,000 b. $320,000 c. $270,000 d. $200,000
Q5. At December 31, 2010 the following balances existed on the books of Rentro Corporation: Bonds Payable $1,500,000 Discount on Bonds Payable 120,000 Interest Payable 37,000 Unamortized Bond Issue Costs 90,000 If the bonds are retired on January 1, 2011, at 102, what will Rentro report as a loss on redemption?
a. $150,000 b. $202,500 c. $240,000 d. $277,500
Q6. The December 31, 2010, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2019 Unamortized premium on bonds payable $1,000,000 27,000 The bonds were issued on December 31, 2009, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2011, Hess retired $400,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes.
a. $18,800. b. $10,800. c. $18,600. d. $20,000.
Q7. On January 1, 2004, Hernandez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2010, when the fair market value of the bonds was 96, Hernandez repurchased $1,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2010. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as
a. a loss of $49,000. b. a gain of $49,000. c. a loss of $61,000. d. a gain of $61,000.
Q8. The 10% bonds payable of Nixon Company had a net carrying amount of $570,000 on December 31, 2010. The bonds, which had a face value of $600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2011, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2011 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2011? Ignore taxes.
a. $12,000. b. $37,800. c. $33,600. d. $42,000.
Q9. A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $300,000. To extinguish this debt, the company had to pay a call premium of $100,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?
a. Amortize $400,000 over four years. b. Charge $400,000 to a loss in the year of extinguishment. c. Charge $100,000 to a loss in the year of extinguishment and amortize $300,000 over four years. d. Either amortize $400,000 over four years or charge $400,000 to a loss immediately, whichever management selects