Interest payment dates. Annually on July 1
What is the issue price for each $1,000 bond?
Answer: c. Total issue price = $1,000 (PV1, 9%, 10) + .06 ($1,000)(PVA, 9%, 10) =
$1,000 (.42241) + $60 (6.41766) = $8
16-9 Multiple Choice Accounting for Bonds Choose the correct answer for each question.
1. A 6 percent bond issue has nine semiannual interest periods remaining in its term. Each $1,000 bond
in the issue was sold to yield 10 percent. The bonds were sold at
interest method and straight-line method amortization amounts is not material; therefore, use straight-line
amortization. Youngblood intends to hold the bonds to maturity.
September 1, 1998:
E16-1 Bonds: Issue above, at and below Par Rowe Corporation authorized $600,000 of 8 percent
(interest payable semiannually), 10-year bonds. The bonds were dated January 1. 1998; interest dates are
June 30 and December 31.
Assume four different cases with
14. Under GAAP, when is it appropriate to use the (a) straight-line and (b) interest method of'
amortization for bond discount or premium?
Answer: Under generally accepted accounting principles (GAAP), it is acceptable to use the straightline method only
CHAPTER 16: LONGTERM LIABILITIES
2. What are the primary distinctions between a debt security and an equity security?
Answer: The primary distinctions between debt and equity securities are:
a. Debt securityfixed principal and interest; no voting privileg
cannot be used in operations. For large firms, such as Amoco, these amounts are likely to be immaterial.
A 15-3 An Unknown Company's Current Liabilities The following is the liability section of a
corporation's 1995 annual financial statement:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Short-Term Obligations
Amoco's short-term obligations consist of notes payable and commercial paper. Notes
payable as of December 31, 1995, totaled $36 million at an average annual interest rate of