1. a bond is a liability of the issuing company and a share represents part ownership in the company true false 2. There is no tax advantage with bonds when issued by companies True False 3. The Contract rate is also known as the coupon or stated rate that is identified in the indenture true false 4. The effective interest method of amortizing bonds allocates the same amount of expense to each period true false 5. there is an inverse relationship between market interest rates and bond prices true false 6. ABC company issued a bond on january 2 2020 with a face value of 800000 and sold at 775000. the bond is a discount bond true false 7. DEF Company issued a 5 year bond on january 2 2020 with a par value of 700000. the bond pays its investors every six months. the coupon rate is 6% and the market rate is 7%. How much coupon cash interest payment does DEF company pay its investors every six months 8. GHI Company issued a 7 year bond on january 2 2020 with a par value of 550000 and pays its investors cash interest payments semi annually (every six months). The market rate for this bond is 6% and the coupon rate is 5% What is the present value of the face value for this bond (Use Present Value Table) 9. Using the info from question 8 what is the present value of the coupon payment? (Use the Present value table)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 8P

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PLEASE ANSWER ALL THE QUESTIONS AND THE IMAGE ATTACHED

1. a bond is a liability of the issuing company and a share represents part ownership in the company

true

false

2. There is no tax advantage with bonds when issued by companies

True

False

3. The Contract rate is also known as the coupon or stated rate that is identified in the indenture

true

false

4. The effective interest method of amortizing bonds allocates the same amount of expense to each period

true

false

5. there is an inverse relationship between market interest rates and bond prices

true

false

6. ABC company issued a bond on january 2 2020 with a face value of 800000 and sold at 775000. the bond is a discount bond

true

false

7. DEF Company issued a 5 year bond on january 2 2020 with a par value of 700000. the bond pays its investors every six months. the coupon rate is 6% and the market rate is 7%.

How much coupon cash interest payment does DEF company pay its investors every six months

8. GHI Company issued a 7 year bond on january 2 2020 with a par value of 550000 and pays its investors cash interest payments semi annually (every six months). The market rate for this bond is 6% and the coupon rate is 5%

What is the present value of the face value for this bond (Use Present Value Table)

9. Using the info from question 8 what is the present value of the coupon payment? (Use the Present value table)

10) Given the following Bond Amortization Table, answer the multiple choice question below
the Table.
Interest
Unamortized
DATE
PMT
Expense
Amortization Amortization Carrying Value
1/1/2018
$
45,242 $
654,758
6/30/2018 $ 28,000 $
12/31/2018 $ 28,000 $
6/30/2019 $ 28,000 $
12/31/2019 $ 28,000 $
6/30/2020 $ 28,000 $
40,505 $
35,530 $
32,738 $
4,738 $
659,495
4,975 $
5,224 $
32,975 $
664,470
33,224 $
33,485 $
30,306 $
669,694
5,485 $
24,822 $
675,178
33,759 $
5,759 $
19,063 $
680,937
34,047 $
34,349 $
13,016 $
6,667 $
0.00 $
12/31/2020 $ 28,000 $
6,047 $
686,984
6/30/2021 $ 28,000 $
6,349 $
693,333
12/31/2021 $ 28,000 $
34,667 $
6,667 $
700,000
Question: If this bond were retired on January 1, 2021 at $690,000, then the journal entry
on January 1, 2021 would show:
A. Credit to Discount on Bond Payable in the amount of $3,016
B. Debit to Discount on Bond Payable in the amount of $3,016
C. Gain in the amount of $3,016
D. Loss in the amount of $3,016

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