For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all.

1. The amount of a bond liability.

2. Interest expense for the period.

3. Cash interest paid for the period.

4. Interest rates for specific bond issues.

5. The names of major holders of bonds.

6. The maturity date of specific bond issues.

Price Company plans to issue $600,000, 10-year bonds that pay 8 percent payable semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2009. Determine the issuance price of the bonds assuming a market yield of 8 percent.

Waterhouse Company plans to issue $900,000, 10-year, 6 percent bonds. Interest is payable semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2009. Determine the issuance price of the bonds assuming a market yield of 8.5 percent.

Hopkins Company issued $1,000,000, 10-year, 10 percent bonds on January 1, 2009. The bonds sold for $940,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds on January 1, 2009, and the payment of interest on June 30, 2009, using effective-interest amortization. The yield on the bonds is 11 percent.

Garland Company issued $600,000, 10-year, 10 percent bonds on January 1, 2009. The bonds sold for $580,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds on January 1, 2009, and the payment of interest on June 30, 2009, using straight-line amortization.

Coopers Company plans to issue $500,000, 10-year, 10 percent bonds. Interest is paid semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2009. Determine the issuance price of the bonds, assuming a market yield of 8 percent.

Price Company issued $600,000, 10-year, 9 percent bonds on January 1, 2009. The bonds sold for $620,000. Interest is payable annually each December 31. Record the sale of the bonds on January 1, 2009, and the payment of interest on December 31, 2009, using straight-line amortization.

IDS Company issued $850,000, 10-year, 8 percent bonds on January 1, 2009. The bonds sold for $900,000. Interest is payable annually each December 31. Record the sale of the bonds on January 1, 2009, and the payment of interest on December 31, 2009, using the effective-interest method of amortization. The yield on the bonds is 7 percent.

The debt-to-equity and times interest earned ratios were discussed in this chapter. Which is a better indicator of a company’s ability to meet its required interest payment? Explain.

If interest rates fell after the issuance of a bond and the company decided to retire the debt, would you expect the company to report a gain or loss on debt retirement? Describe the financial statement effects of a debt retirement under these circumstances.

If a company issues a bond at a discount, will interest expense each period be more or less than the cash payment for interest? If another company issues a bond at a premium, will interest expense be more or less than the cash payment for interest? Is your answer to either question affected by the method used to amortize the discount or premium?

In what section of the statement of cash flow would you find cash paid to retire bonds? In what section would you find cash paid for interest?