F5 -LT Liabilities and Bonds Payable

Question 1

To determine the market price of a bond:

Answer 1

The present value of the principal is added to the present value of all interest payments, using the market interest rate.

Question 2

Bond issuance total:

Answer 2

Bond issue proceeds PLUS any Accrued interest.

Question 3

Exam trick for Long Term Liabilities and Bonds Payable

Answer 3

Always Note DATES!!!

Question 4

Bonds are issued at face (par) value when:

Answer 4

The STATED RATE equals the MARKET RATE

Question 5

If MARKET RATE is higher than the STATED RATE

Answer 5

Bonds will be issued at a DISCOUNT

Question 6

If MARKET RATE is lower than the STATED RATE

Answer 6

Bonds will be issued at a PREMIUM

Question 7

Journal entry for borrower when bond is issued at a discount:

Answer 7

DR: Cash
DR: Discount
CR: Bond Payable

Question 8

Journal entry for investor when bond issued at a discount:

Answer 8

DR: Investment in Bonds

CR: Cash

Question 9

Journal entry for borrower when bond is issued at a premium:

Answer 9

DR: Cash
CR: Premium
CR: Bond Payable

Question 10

Journal entry for investor when bond is issued at a premium:

Answer 10

DR: Investment in Bonds

CR: Cash