Saturn issues 7.5%, five-year bonds dated January 1, 2011, with a $440,000 par v

Question

Saturn issues 7.5%, five-year bonds dated January 1, 2011, with a $440,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $468,152. The annual market rate is 6% on the issue date. Use the market rate at issuance to compute the present value of the remaining cash flows for these bonds as of December 31, 2013. (Use Table B.1, Table B.3) (Round your intermediate calculations and final answer to nearest dollar amount. Omit the "$" sign in your response.) Present value $

Explanation / Answer

01. A bond indenture is c. a contract between the corporation issuing the bonds and the bond trustee, who is acting on behalf of the bondholders. 02. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium. False 03. When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following below a. face value of the bonds 04. If $1,000,000 of 8% bonds are issued at 105, the amount of cash received from the sale is d. $1,050,000 05. When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off. True 06. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount c. greater than face value. 07. The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is c. debit Interest Expense and Premium on Bonds Payable, credit Cash 08. Bondholders are creditors of the issuing corporation. True 09. The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount. True 10. To determine the six month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond. False 11. The entry to record the amortization of a premium on bonds payable on an interest payment date includes: c. debit Interest Expense, debit Premium on Bonds Payable, credit Cash 12. On January 1, 2007, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2011. Baker records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2007, is d. $5,800 13. If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity. False 14. When callable bonds are redeemed below carrying value a. Gain on Redemption of Bonds is credited 15. If $3,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is d. $2,850,000

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