Accounting II Test #2 QUESTION #1 On January 1, 2008, Kohl Corporation issued $700,000, 8%, 10-year bonds at face value. Interest is payable semiannually on July 1 and January 1. Kohl Corporation has a calendar year end. Instructions Prepare all entries related to the bond issue for 2008. QUESTION #2 Presented below are three independent situations: (a) Howell Corporation purchased $250,000 of its bonds on June 30, 2008, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $229,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded. (b) Justice, Inc. purchased $200,000 of its bonds at 97 on June 30, 2008, and immediately retired them. The carrying value of the bonds on the retirement date was $196,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded. (c) Starr Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Starr $5 par value common stock for each $1,000 par value bond. On December 31, 2008, after the bond interest has been paid, $30,000 par value of bonds were converted. The market value of Starr's common stock was $38 per share on December 31, 2008. Instructions For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds. QUESTION #3 Unruh Company issued $900,000, 10%, 20-year bonds on January 1, 2008, at 104. Interest is payable semiannually on July 1 and January 1. Unruh uses the straight-line method of amortization and has a calendar year end. Instructions Prepare the January 1, 2008 and the July 1, 2008 journal entries related to the bond issue. QUESTION #4 Karly Company issued $250,000, 11%, 10-year bonds on December 31, 2008, for $230,000. Interest is payable semiannually on June 30 and December 31. Karly uses the straight-line method of amortization and has a calendar year end. Instructions Prepare the appropriate journal entries on (a) December 31, 2008. (b) June 30, 2009. QUESTION #5 The adjusted trial balance for Payne Corporation at the end of the current year contained the following accounts: Bonds payable, 10% $800,000 Bond interest payable 20,000 Discount on bonds payable 40,000 Lease liability 60,000 Mortgage notes payable, 9%, due 2018 80,000 Accounts payable 120,000 Instructions (a) Prepare the long-term liabilities section of the balance sheet. (b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section. QUESTION #6 Glaser Company had the following transactions pertaining to debt securities held as a short-term investment. Jan. 1 Purchased 40, 8%, $1,000 Cotter Company bonds for $40,000 cash plus brokerage fees of $800. Interest i.