Chapter 14: Bonds and Long Term Notes

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

Interest accrues as time passes on long-term liabilities.

The requirement of future cash payments.

Future cash payments cannot be measured.

Future cash payments are certain or estimable.

Interest accrues as time passes on long-term liabilities.

The requirement of future cash payments.

Future cash payments are certain or estimable.

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

They obligate the issuing company to repay the bonds when market interest rates decrease.

They obligate the issuing company to repay the bonds at a specific date.

They obligate the issuing company to repay the bonds when interest rates increase.

They obligate the issuing company to pay an estimated amount.

They obligate the issuing company to pay a specific amount.

They obligate the issuing company to repay the bonds at a specific date.

They obligate the issuing company to pay a specific amount.

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

indenture

On January 1, 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:

$200,000

Premium

a bond that sells for more than its face amount

discount

a bond that sells for less than its face amount

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.

Periodic interest must be paid

Periodic principal payments must be made

Periodic interest is incurred

Periodic interest is incurred

Who records interest expense and interest revenue under the effective interest method?

Both the bond issuer and bondholder record interest revenue.

Both the bond issuer and bondholder record interest expense.

The bond issuer records interest expense, and the bondholder records interest revenue.

The bond issuer records interest revenue, and the bondholder records interest expense.

The bond issuer records interest expense, and the bondholder records interest revenue.

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

Repay a certain amount at a date to be determined in the future.

Repay a certain amount at a specific date.

Pay interest if the company is profitable.

Reacquire the bonds when interest rates rise.

Reacquire the bonds when interest rates fall.

Repay a certain amount at a specific date.

Which of the following correctly describes a bond indenture?

A document detailing the promises made by the bond issuer.

On January 1, 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?

credit cash $200,000

debit investment in bonds $200,000