Question

Exercises Evalnate statements about bonds. E1S.1 (LO 1) Nick Bosch has prepared the following list of statements about bonds. 1. Bonds are a form of interest-bearing notes payable. 2. Secured bonds have specific assets of the issuer pledged as collateral for the bonds. 3. Secured bonds are also known as debenture bonds. 4. A conversion feature may be added to bonds to make them more attractive to bond buvers 5. The rate used to determine the amount of cash interest the borrower pays is called the stated rate. 6. Bond prices are usually quoted as a percentage of the face value of the bond. 7. The present value of a bond is the value at which it should sell in the marketplace. Instructions Identify each statement as true or false. If false, indicate how to correct the statement. E15.2 Prepare entriesforissance ofbonds and payment and accrual of bond interest. (LO 2) On January 1, 2020, Klosterman Company issued S500.000, 10%, 10-year bonds at face value. Interest is payable annually on January 1. Prepare journal entries to record the following. a. The issuance of the bonds. b. The accrual of interest on December 31, 2020. c. The payment of interest on January 1, 202 E 15.4 (LO 2) Laudie Company issued $400,000 of 9%, 10-year bonds on January 1, 2020, at face value. Interest is payable annually on January 1, 2021 Prepare en riesfor bonds issued at face value. Prepare the journal entries to record the following events. a. The issuance of the bonds. b. The accrual of interest on December 31, 2020. c. The payment of interest on January 1, 2021 d. The redemption of bonds at maturity, assuming interest for the last interest period has been paid and recorded

Answer 1

15.1)

1. Bonds are a form of interest bearing notes payable – True

2. Secured bonds have specific assets of issuer pledge as collateral for the bonds – True

3. Secured bonds are also known as debenture bonds – False

4. A conversion feature may be added to bonds to make them more attractive to bond buyers.- True

5. The rate used to determine the amount of cash interest of borrower pays is called the stated rate. True

6. Bond prices are usually quoted as a percentage of face value of the bond. True

7. The present value of the bond is the value at which it should sell in marketplace. True

15.2)

)
Pass the following journalentry to record accrual of interest Account name with explanation RF No Debit Credit 31-Dec Interest expense 50000 Interest payable 50000 (to record interest expense Given on 31-December, interest has been accrued. Hence Interest payable is credited instead of cash as cash is not paid towards interest.

15.4)

Journal Entries
Date	Particulars	Dr Amt	Cr Amt
01 Jan 2020	Cash Dr	400,000.00
	To Bonds Payable		400,000.00
31 Dec 20	Interest Expene Dr	36,000.00
	To Interest Payable		36,000.00
	(400,000*9%)
01 Jan,2021	Interest Payable Dr	36,000.00
	To Cash		36,000.00
01 Jan 2030	Bonds Payable Dr	400,000.00
	To Cash		400,000.00