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21 Feb 2020

When callable bonds are redeemed below carrying value, loss on redemption of bond is debited. True or False?

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Jamar Ferry
Jamar FerryLv2
21 Feb 2020
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Related questions

Select the best answer from the list below to completestatements that follow.

amortization long-term callable loss contra liability marketface value present value discount premium

1. All liabilities that are not classified as currentliabilities are classified as_____________

. 2. The denomination or principal amount of the bond is usuallyreferred to as the___________

. 3. Bonds that may be retired by the issuing company beforetheir specified due date are________________

. 4. The________________ rate of interest is the rate thatbondholders could obtain by investing in other bonds that aresimilar to the issuing firm's bonds.

5. The bond issue price equals the _______________of the cashflows that the bond will produce.

6. Bonds were issued at a(n)________________ when the issueprice exceeds the face value.

7. Discount on Bonds Payable is shown on the balance sheet asa(n) ________________

. 8. If the market rate ofinterest is greater then the face rate, then the bonds are issuedat a(n) ________________________.

9. ____________________is theprocess of transferring an amount from the bond discount or premiumto interest expense each time period to adjust interestexpense.

10. When a bond is retired earlyand the redemption price is greater than the bond's carrying value,there will be a(n) ______________________ on redemption.

13. At the end of the first year of operations, the total costof the trading securities portfolio is $245,000. Total fair valueis $250,000. The financial statements should show

A. an addition to an asset of$5,000 in the current assets section and a realized gain of $5,000in "Other revenues and gains."

B. an addition to an asset of$5,000 and an unrealized gain of $5,000 in the stockholders' equitysection.

C. an addition to an asset of$5,000 in the current assets section and an unrealized gain of$5,000 in "Other revenues and gains."

D. an addition to an asset of$5,000 and a realized gain of $5,000.

14. Comanic Corp. has commonstock of $5,400,000, retained earnings of $2,000,000, unrealizedgains on trading securities of $100,000 and unrealized losses onavailable-for-sale securities of $200,000. What is the total amountof its stockholders' equity?

A. $7,400,000

B. $7,200,000

C. $7,500,000

D. $7,300,000

17. Stockholders of a company maybe reluctant to finance expansion through issuing more equitybecause

A. their earnings per share maydecrease.

B. the price of the stock willautomatically decrease.

C. dividends must be paid on aperiodic basis.

D. leveraging with debt is alwaysa better idea.

18. Which of the following is notan advantage of issuing bonds instead of common stock?

A. Income to common shareholdersmay increase.

B. Tax savings result.

C. Stockholder control is notaffected.

D. Earnings per share on commonstock may be lower.

19. A major disadvantageresulting from the use of bonds is that

A. earnings per share may belowered.

B. bondholders have votingrights.

C. interest must be paid on aperiodic basis.

D. taxes may increase.

21. If the market interest rateis 5%, a $10,000, 6%, 10-year bond, that pays interest semiannuallywould sell at an amount

A. less than facevalue.

B. equal to facevalue.

C. greater than facevalue.

D. that cannot bedetermined.

23. If bonds are issued at adiscount, it means that thE

A. bondholder will receiveeffectively less interest than the contractual interestrate.

B. market interest rate is higherthan the contractual interest rate.

C. market interest rate is lowerthan the contractual interest rate.

D. financial strength of theissuer is suspect.

24. In the balance sheet, theaccount, Premium on Bonds Payable, is

A. deducted from bondspayable.

B. classified as a revenueaccount.

C. added to bondspayable.

D. classified as a stockholders'equity account.

25. Bond interest paidis

A. higher when bonds sell at adiscount and lower when bonds sell at a premium.

B. the same whether bonds sell ata discount or a premium.

C. higher when bonds sell at adiscount.

D.lower when bonds sell at apremium.

27. Lowe Company has $1,500,000of bonds outstanding. The unamortized premium is $19,600. If thecompany redeemed the bonds at 101, what would be the gain or losson the redemption?

A. $15,000 loss

B. $4,600 loss

C. $15,000 gain

D. $4,600 gain

28. Robin Corporation retires its$800,000 face value bonds at 104 on January 1, following thepayment of annual interest. The carrying value of the bonds at theredemption date is $829,960. The entry to record the redemptionwill include a

A. debit of $2,040 to Loss onBond Redemption.

B. credit of $32,040 to Premiumon Bonds Payable.

C. credit of $2,040 to Loss onBond Redemption.

D. debit of $32,000 to Premium onBonds Payable.

29. If there is a loss on bondsredeemed early, the

A. loss is debited directly toRetained Earnings.

B. loss is debited to InterestExpense, as a cost of financing.

C. bonds' carrying value was lessthan the redemption price.

D. bonds' carrying value wasgreater than the redemption price.

30. Over the term of the bonds,the balance in the Discount on Bonds Payable accountwill

A. fluctuate up and down if themarket is volatile.

B. increase.

C. decrease.

D. be unaffected until the bondsmature.

Presented below are three independent situations.1. Wakarusa Corporation retired $126,000 face value, 14% bonds on June 30, 2012, at 104. The carrying value of the bonds at the redemption date was $122,220. The bonds pay semiannual interest, and the interest payment due on June 30, 2012, has been made and recorded. 2. Pin Oak Inc. retired $142,100 face value, 12.5% bonds on June 30, 2012, at 96. The carrying value of the bonds at the redemption date was $144,300. The bonds pay semiannual interest, and the interest payment due on June 30, 2012, has been made and recorded. 3. Mishawaka Company has $75,200, 9%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 30 shares of Mishawaka $10 par value common stock for each $1,000 worth of bonds. On December 31, 2012, after the bond interest has been paid, $42,000 face value bonds were converted. The market value of Mishawaka common stock was $48 per share on December 31, 2012. For each independent situation above, prepare the appropriate journal entry for the redemption or conversion of the bonds.

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