ACCT 302 Read & Interact Spiceland, Nelson, & Thomas Chapter 14 solutions complete answers

ACCT 302 Read & Interact Spiceland, Nelson, & Thomas Chapter 14 solutions complete answers 

 

On May 1, Early Company sells $500,000 face amount, 12% bonds. The bonds pay interest semi-annually on June 30 and December 31. The effective rate for this company is also 12%. When the bonds are issued, Early will credit (Select all that apply.)

 

On January 1, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. All the bonds are privately placed with one investor. On the date of issue, the investor should record what journal entry? (Select all that apply.)

 

Which of the following represent the typical characteristics of liabilities? (Select all that apply.)

 

Neumann Company issues 20-year bonds. Related to these bonds, Neumann is obligated to

 

The specific promises made to bondholders are described in a document called a bond       . (Enter only one word.)

 

On January 1, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. All the bonds are privately placed with one investor. On the date of issue, the investor should recognize an investment in bonds payable of

 

Match the description with the correct term.

 

The requirements of a future payment of a specific or estimated amount of cash, at a specific or projected date are characteristics of debt. Identify another common characteristic.

 

Mergenthal Company issues bonds with a face amount of $800,000 for $749,000. Which of the following journal entries would be correct?

 

Which of the following are correct regarding bonds? (Select all that apply.)

 

Recording interest each period as the effective rate of interest multiplied by the outstanding balance of the debt during the interest period is referred to as the               method. (Enter only one word per blank.)

 

The specific promises made to bondholders are described in a document referred to as a bond

 

Zero-coupon bonds typically issue at a deep discount because they

 

On January 1, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of

 

On January 1, Arnold Corp issues $100,000 of 7% bonds. Interest of $3,500 is payable semi-annually on June 30 and December 31. The bonds mature in 10 years. The market yield for bonds of similar risk and maturity is 5%. Calculate the issue price of the bonds (round the result to whole dollars).

 

A bond that sells for more than its face amount is sold at a       .

 

On July 1, 20X1, Klein Company issued $200,000 face amount bonds for $195,000. The effective interest rate is 8%. The bonds pay semi-annual interest of 7% on January 1 and July 1. On December 31, 20X1, the company should credit

 

Peter Company issues 10-year bonds on October 1, 20X1. The bonds pay 6% interest semi-annually. Peter Company has a calendar year year-end. Which of the following statements is correct regarding interest recognized in its 12/31/X1 income statement relating to this bond issue?

 

Which of the following is correct regarding the effective interest method?

 

The decision of whether the straight-line method of allocating bond discount or premium is acceptable should be guided by whether or not the straight-line method would tend to

 

Bonds that pay no interest and instead issue at a deep discount are commonly referred to as       coupon bonds. (Enter only one word.)

 

On January 2, 20X1, Hauser Company issues $2 million face amount, 10-year bonds. Issue costs associated with these bonds are $100,000. How are the issue costs accounted for?

 

On January 2, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 4%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars).

 

Schulz Company borrows cash from a bank and signs a promissory note. The bank should record

 

A bond that sells for less than its face amount is sold at a       .

 

The interest rate on notes payable typically is equal to the ____ rate.

 

When an accounting period ends between interest dates, interest should be

 

Norbert purchases a piece of equipment and signs a note with a very low interest rate that is unlikely to reflect current market conditions. Norbert should estimate the appropriate market rate with reference to the

 

Which of the following statements is correct regarding using the straight-line method of amortizing bond discounts or premiums?

 

Periodic payments on installment notes typically include

 

Bond issue costs

 

Kordel Company pays $15,200 relating to its installment note payable; of this amount $9,000 represents interest. In Kordel's statement of cash flows, this payment should be reported as (Select all that apply.)

 

A company that recognizes a long-term notes payable has signed the legal document referred to as a        note.

 

The following selected information pertains to Wilson Company. Current liabilities: $100; long-term liabilities: $150; contributed capital: $120; retained earnings: $50; accumulated other comprehensive income: $20. The company's debt to equity ratio (rounded to two digits after the decimal point) is

 

True or false: The interest rate stated in a note is typically equal to the market rate.

 

An early extinguishment of debt refers to long-term liability such as bonds that are

 

If an asset is exchanged for notes payable and the stated interest rate does not closely reflect the market rate at time of negotiation, the market rate should be established with reference to the:

 

Which of the following are among the most important reasons why companies issue convertible instead of nonconvertible bonds? (Select all that apply.)

 

Installment notes typically involve the purchase of assets and (Select all that apply.)

 

Which of the following represents an important difference between bonds with detachable warrants and convertible bonds?

 

In the statement of cash flows, interest received on long-term notes receivable should be reported as inflows from a(n)

 

If a company elects to report bonds under the fair value option, changes in fair value result in

 

Dividing total liabilities by total stockholders' equity will result in a ratio referred to as the

 

On April 1, Munchin Company sells $800,000 face amount, 6% bonds. The bonds pay interest semi-annually on June 30 and December 31. The effective rate for this company is also 6%. When the bonds are sold, Munchin should receive:

 

Which of the following are common strategies for debtors to retire bonds prior to the maturity date? (Select all that apply.)

 

On April 1, Magenta Company sells $500,000 face amount, 10% bonds. The bonds pay interest semi-annually on June 30 and December 31. The effective rate for this company is 9%. When the bonds are issued, how much interest will be included in the issue price?

 

Bonds that can be exchanged for shares of stock at the option of the bondholder are referred to as        bonds.

 

The result of changes in the original terms of a debt agreement that are motivated by financial difficulties experienced by the debtor are referred to as

 

Which of the following are true regarding bonds sold with detachable warrants? (Select all that apply.)

 

Southfield Company reached an agreement with its bank to transfer a piece of land with a historical cost of $500,000 and a fair value of $1.2 million to the bank in full settlement of its outstanding loan principal plus accrued interest of $1.5 million. Prior to the transfer, Southfield should credit

 

Grunwald elected to report it bonds at fair value. During the current year the fair value of the bonds increased due to changes in the related credit risk. Grunwald should report the gain

 

Accounting for troubled debt restructuring with modified terms depends on whether under the new agreement,

 

On May 1, Early Company sells $500,000 face amount, 12% bonds. The bonds pay interest semi-annually on June 30 and December 31. The effective rate for this company is also 12%. When the bonds are sold, Early will receive cash in amount of

 

A               restructuring refers to a change in the original terms of a debt agreement that is motivated by the financial difficulties of the borrower. (Enter one word per blank.)

 

Assets that are used to satisfy troubled debt are valued at

 

In a troubled debt restructuring with modified terms, if total cash payments are less than the book value of the debt,

 

 

 
If bonds sell between interest periods, the amount received by the bond issuer includes the bonds selling price
 
 
 
In the statement of cash flows, interest paid on long term notes should be reported as outflows from a(n)
 
 
 

 
Otto Company purchases bonds with a face amount of $80,000 for $74,000. Which of the following journal entries would be correct?
 
 
 
On January 1, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. All the bonds are privately placed with one investor. On the date of issue, the investor should record what journal entry? (Select all that apply.)
 
 
 
 
 
 
 
 
 

 
Accounting for convertible bonds subsequent to issuance is the same as accounting for _____.
 
 
 
The amount of interest paid on bonds is calculated by multiplying ______ of the bonds with the ____ rate.
 
 
 
A(n) _____ bond is backed by a lien on specified real estate owned by the issuer.
 
 
 
A bond feature that aims at making the bonds more attractive to investors is the ____ feature.
 
 
 
A bond investor who applies the effective interest method calculates interest revenue based on the _____ balance of the bonds times the _____ interest rate.
 
 
 
Bonds that are backed by a lien on specific real estate owned by the issuer are referred to as ____ bonds.
 
 
 
Bonds that can be bought back by the issuer at a specified price prior to the bonds' maturity date are referred to as ____ bonds.
 
 
 
Bonds that do not include a call provision
 
 
 
A bond that is secured only by the faith and credit of the issuing corporation is referred to as a(n)
 
 
 
Callable bonds can be redeemed at the choice of the
 
 
 
Changes in the current ______ often represent a major contributor to changes in the fair value of bonds.
 
 
 
A conversion feature is "beneficial" if the stock into which the bond can be converted
 
 
 
The difference between the effective interest and the interest paid represents
 
 
 
During the current period, Roberts recognized interest expense of $9,400 and paid interest of $9,000 related to its discounted bonds. The amortization recognized during the current period was:
 
 
 
Emil Company has $4 million in bonds outstanding. During the current year, the applicable market interest rate decreases. The fair value of Emil Company's bonds likely will:
 
 
 
Evergreen Corp. issues 10,000, $1,000 face amount bonds. Each bond can be converted into 20 shares of common stock. At the bond issue date, the company's common shares trade for $55 per share. At the date of issue, Evergreen should recognize an addition to equity of
 
 
 
The following selected information pertains to Wilson Company. Total assets: $400; total liabilities: $220; operating income: $60; income from continuing operations: $55; net income: $50. The company's return on assets percentage is
 
 
 
The following selected information pertains to Wilson Company. Total assets: $400; total liabilities: $220; operating income: $60; income from continuing operations: $55; net income: $50. The company's return on shareholders' equity expressed as a percentage is
 
 
 
For the current interest period, Jones Corporation's accountant correctly recognized interest expense of $7,350 relating to Jones' bonds and paid $7,000 in interest to bond holders. The journal entry recording the interest also must have included a:
 
 
 
The fundamental reason why companies issue convertible bonds is to
 
 
 
Generally, liabilities are valued at their
 
 
 
Gertrude Company receives $15,200 relating to its installment note receivable; of this amount $9,000 represents interest. In its statement of cash flows, this inflow should be reported as a(n)
 
 
 
Gregory Company issues $5 million face amount bonds. The bond indenture is held by a large national bank. Which of the following explains why a bank is holding the indenture?
 
 
 
Gruenwald Corp. issues 10,000, $1,000 face amount bonds. Each bond can be converted into 25 shares of common stock. At the bond issue date, the company's common shares trade for $44 per share. At the date of issue, Gruenwald should recognize an addition to equity of
 
 
 
If a company elects the fair value option for its bonds, related gains and losses that arise from changes to credit risk are reported as:
 
 
 
 
 
 
 
 
 
 
 

 
If bonds are not traded on an open-market exchange, their fair value can be estimated as the
 
 
 
The issue price of bonds is calculated as the _____ value of all the cash flows required of the bonds.
 
 
 
Jackie Company's new bond issue with face amount of $6 million sells for $6.4 million. Which of the following facts may explain why the bonds sell at a premium?
 
 
 
Jackson Company has $1 million bonds outstanding that were issued to yield 5%. During the year, the market interest rate decreases. The fair value of Jackson's bonds likely will
 
 
 
Mitchell's investment in convertible bonds has a net book value of $1.4 million when Mitchell converts the bonds to common stock. The fair value of the common stock is $1.5 million. Mitchell should recognize its investment in common stock at
 
 
 
Munster Company's bonds have increased in fair value and Munster records a gain. This indicates that Munster
 
 
 
Nattel Corp. issues 10,000, $1,000 face amount bonds at 104. Each bond can be converted into 25 shares of no-par common stock. Margarita, Inc., purchased 2,500 of the bonds and converts them after 2 years. At that time, the balance in the premium on bond investment is $75,000. Margarita should recognize this conversion by debiting investment in common stock for
 
 
 
Nattel Corp. issues 10,000, $1,000 face amount bonds at 104. Each bond can be converted into 25 shares of no-par common stock. Two years after issuance, 25% of the bondholders convert their bonds. The balance in the premium on bonds payable account is $300,000. Nattel should debit (Select all that apply.)
 
 
 
Nattel Corp. issues 10,000, $1,000 face amount bonds at 104. Each bond can be converted into 25 shares of no-par common stock. Two years after issuance, 25% of the bondholders convert their bonds. The balance in the premium on bonds payable account is $300,000. Nattel should recognize this conversion by crediting common stock for
 
 
 
Neumann Corp. compares three different investment opportunities. Opportunity A has $1 million in debt and $2 million in equity; Opportunity B, $1.5 million in debt and $2 million in equity; Opportunity C, $1 million in debt and $2.5 million in equity. If the companies are equal in all other aspects, which of the companies tends to have the lowest investment risk?
 
 
 
A new bond issue that offers an 8% stated interest rate, while bonds of similar risk return 10%, will sell at:
 
 
 
 
 
 
 
 
 

 
On January 2, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The bond issues for $191,684 with an effective interest rate of 7%. Effective interest recognized on June 30, 20X1, will be equal to (round to whole dollars)
 
 
 
On January 2, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market interest rate is 7%. The bond issues for $191,684. On June 30, the company should recognize a discount amortization of
 
 
 
On January 2, 20X1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 7%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars).
 
 
 
On January 2, 20X1, Schneider Company issues $100,000 of 6% bonds. Interest of $3,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The bonds issued for $95,842 with an effective interest rate of 7%. Effective interest recognized on June 30, 20X1, will be equal to (round to the nearest full dollar)
 
 
 
On January 2, 20X1, Schneider Company issues $100,000 of 6% bonds. The market interest rate is 7%. Interest of $3,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The bond issues for $95,842. On June 30, the company should recognize a discount amortization of
 
 
 
On January 2, 20X1, Schneider Company issues $100,000 of 7% bonds. Interest of $3,500 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 8%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars).
 
 
 
 
 
 
 
 
 

 
The primary purpose of the call feature associated with bonds is to
 
 
 
The return on assets is calculated by dividing _____ _____ by total assets.
 
 
 
The return on shareholders' equity is calculated by dividing _____ _____ by total shareholders' equity.
 
 
 
The risk that bondholders will not receive interest and principal payments when due is _____ risk.
 
 
 
The risk that bond investors will not receive interest and principal payments when they are due is referred to as:
 
 
 
Schulz Company borrows cash from a bank and signs a promissory note. Schulz should credit
 
 
 
This ratio may provide information about a company's default risk.
 
 
 
This ratio provides information about a company's effectiveness of employing resources provided by owners.
 
 
 
True or false: If a company elects the fair value option, it must report all of its financial instruments at fair value.
 
 
 
Using the effective interest method, the bond issuer calculates interest expense based on the:
 
 
 
Walker Corp. issues $10 million in bonds at a discount. One year later, the unamortized discount associated with the bonds is $325,000. The company chose the fair value option; however, because of private placement, the fair value is not readily observable. As an alternative, the company
 
 
 
Walker Corp. issues $10 million in bonds at a discount. One year later, the unamortized discount associated with the bonds is $325,000. The market value of the bonds is $10.2 million. If the company chose the fair value option, the bonds should be reported at
 
 
 
Wasser Company issues $500,000, 8% convertible bonds for $510,000. Without the conversion feature, the bonds would issue at par. On the date of issuance, Wasser should
 
 
 
 
 
 
 
 
 

 
Which of the following are cash flows typically associated with already issued bonds? (Select all that apply.)
 
 
 
Which of the following are true regarding zero-coupon bonds? (Select all that apply.)
 
 
 
Which of the following are valid valuation methods for reporting bonds payable? (Select all that apply.)
 
 
 
Which of the following correctly describes a bond indenture?
 
 
 
Which of the following is a common factor that affects the fair value of a company's bonds?
 
 
 
Which of the following is correct regarding the default of a bond issuer?
 
 
 
Which of the following is correct regarding the rate of return on shareholders' equity?
 
 
 
Which of the following is correct regarding the recognition of the value of a conversion feature associated with a convertible bond?
 
 
 
Which of the following is true regarding a debenture bond?
 
 
 
Which of the following purchases frequently involve installment notes payable? (Select all that apply.)
 
 
 
Which of the following statements is correct regarding payment priority to holders of subordinated debentures in the case of a bankruptcy?
 
 
 
Which of the following statements regarding convertible bonds subsequent to issuance is correct?
 
 
 
Which of the following statements regarding the fair value option is correct?