Chapter Review
14-9dDiscussion Questions
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Describe the two distinct obligations incurred by a corporation when issuing bonds.
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Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and (b) callable.
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If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.
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A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) face amount, (2) market or effective rate of interest, (3) contract rate of interest, and (4) maturity amount.
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If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate?
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The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period:
Bond carrying amount at beginning of period $2,125,000 Interest paid during period 160,000 Interest expense allocable to the period 148,750 (a) Were the bonds issued at a discount or at a premium? (b) What is the unamortized amount of the discount or premium account at the beginning of the period? (c) What account was debited to amortize the discount or premium?
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Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
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What is a mortgage note?
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Fleeson Company needs additional funds to purchase equipment for a new production facility and is considering either issuing bonds payable or borrowing the money from a local bank in the form of an installment note. How does an installment note differ from a bond payable?
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In what section of the balance sheet would a bond payable be reported if (a) it is payable within one year and (b) it is payable beyond one year?