Chapter 14 Long-Term Liabilities: Bonds and Notes Student: _ A bond is simply a form of an interest bearing note True False Bondholders are creditors of the issuing corporation True False Bonds of major corporations are traded on bond exchanges True False Bondholders claims on the assets of the corporation rank ahead of stockholders True False A bond is usually divided into a number of individual bonds of $500 each True False A secured bond is called a debenture bond and is backed only by the general creditworthiness of the corporation True False If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond True False The prices of bonds are quoted as a percentage of the bonds' market value True False The face value of a term bond is payable at a single specific date in the future True False 10 When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture True False 11 The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions True False 12 The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date True False 13 The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest True False 14 When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium True False 15 Bonds are sold at face value when the contract rate is equal to the market rate of interest True False 16 The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the at the end of each interest period True False 17 An equal stream of periodic payments is called an annuity True False 18 The present value of an annuity is the sum of the present values of each cash flow True False 19 The present value of $5,000 to be received in years at a market rate of interest of 6% compounded annually is $3,636.30 True False 20 If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty, $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10% True False 21 The price of a bond is equal to the sum of the interest payments and the face amount of the bonds True False 22 One reason a dollar today is worth more than a dollar year from today is the time value of money True False 23 If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium True False 24 The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond True False 25 Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use not materially differ from the results obtained by use of the interest method True False 26 If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity True False 27 If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity True False 28 There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method True False 29 The effective-interest method of amortizing a bond discount or premium is the preferred method True False 30 The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount True False 31 The amortization of a premium on bonds payable decreases bond interest expense True False 32 If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416 True False 33 If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500 True False 34 Zero-coupon bonds not provide for interest payments True False 35 The issue price of zero-coupon bonds is the present value of their face amount True False 36 To determine the six month interest payment amount on a bond, you would take one-half of the market rate times the face value of the bond True False 37 Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every months True False 38 Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue True False 39 If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount True False 40 The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund True False 41 At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in 2011 are classified on the balance sheet as current assets True False 42 If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities True False 43 Both callable and non-callable bonds can be purchased by the issuing corporation in the open market True False 44 There is a loss on redemption of bonds when bonds are redeemed above carrying value True False 45 When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off True False 46 A corporation often issues callable bonds to protect itself against significant declines in future interest rates True False 47 Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds True False 48 Only callable bonds can be purchased by the issuing corporation before maturity True False 49 Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture True False 50 The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium True False 51 If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the gain on redemption of bonds is $10,000 True False 52 Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement True False 53 Bonds may be purchased directly from the issuing corporation or through one of the bond exchanges True False 54 Bonds payable would be listed at their carrying value on the balance sheet True False 55 The unamortized Discount on Bonds Payable account is a contra-liability account True False 56 The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet True False 57 The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable True False 58 The higher the times interest earned ratio, the better the creditors’ protection True False 59 The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense True False 60 When the effective interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond’s carrying value at the beginning of the given period True False 61 The effective interest method produces a constant dollar amount of interest expense to be reported each interest period True False 62 When there are material differences between the results of using the straight-line method and using the effective interest method of amortization, the effective interest method should be used True False 63 An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note True False 64 The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period True False 65 One potential advantage of financing corporations through the use of bonds rather than common stock is A the interest on bonds must be paid when due B the corporation must pay the bonds at maturity C the interest expense is deductible for tax purposes by the corporation D a higher earnings per share is guaranteed for existing common shareholders 66 Which of the following is not an advantage of issuing bonds instead of common stock? A Tax savings result B Income to common shareholders may increase C Earnings per share on common stock may be lower D Stockholder control is not affected 67 A bond indenture is A a contract between the corporation issuing the bonds and the underwriters selling the bonds B the amount due at the maturity date of the bonds C a contract between the corporation issuing the bonds and the bond trustee, who is acting on behalf of the bondholders D the amount for which the corporation can buy back the bonds prior to the maturity date 68 Debenture bonds are A bonds secured by specific assets of the issuing corporation B bonds that have a single maturity date C issued only by the federal government D issued on the general credit of the corporation and not pledge specific assets as collateral 69 When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are A convertible bonds B unsecured bonds C debenture bonds D callable bonds 70 When the maturities of a bond issue are spread over several dates, the bonds are called A serial bonds B bearer bonds C debenture bonds D term bonds 71 The market interest rate related to a bond is also called the A stated interest rate B effective interest rate C contract interest rate D straight-line rate 72 If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with a face value of $250,000 will be A Equal to $250,000 B Greater than $250,000 C Less than $250,000 D Greater than or less than $250,000, depending on the maturity date of the bonds 73 The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar) A $37,736 B $42,400 C $40,000 D $2,400 74 The present value of $30,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar) A $23,916 B $37,632 C $23,700 D $30,000 75 When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at A a premium B their face value C their maturity value D a discount 76 A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually The amount received for the bonds will be A present value of 50 semiannual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 25 years B present value of 25 annual interest payments of $720,000 C present value of 25 annual interest payments of $720,000, plus present value of $9,000,000 to be repaid in 25 years D present value of $9,000,000 to be repaid in 25 years, less present value of 50 semiannual interest payments of $360,000 77 The interest rate specified in the bond indenture is called the A discount rate B contract rate C market rate D effective rate 78 An unsecured bond is the same as a A debenture bond B zero coupon bond C term bond D bond indenture 79 A legal document that indicates the name of the issuer, the face value of the bond and such other data is called A trading on the equity B convertible bond C a bond debenture D a bond certificate (1) a b (2) Cash 125,000 Notes Payable 125,000 Intere 6,250 st Expe nse Notes 15,352 Payab le Cash 21,602 Interest expense, $6,250 166 Jenson Co., is considering the following alternative plans for financing their company: Issue 10% Bonds (at face) Issue $10 Common Stock Plan I $3,000,000 Plan II $2,000,000 $1,000,000 Income tax is estimated at 40% of income Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000 Earnings before bond interest and income tax Bond interest expense Balance Income tax Net income Dividends on preferred stock Earnings available for common stock Number of common shares * $2,000,000 ´ 10% **$1,000,000 ´ 40% ***$ 800,000 ´ 40% Plan I $1,000,000 $1,000,000 400,000** $ 600,000 $ 600,000 ÷ 300,000 = $2.00 Plan II $1,000,000 200,000* $ 800,000 320,000*** $ 480,000 $ 480,000 ÷ 100,000 = $4.80 167 Ulmer Company is considering the following alternative financing plans: Issue 8% bonds at face value Issue preferred stock, $15 par Issue common stock, $10 par Plan $2,000,000 2,000,000 Plan $1,000,000 1,500,000 1,500,000 Income tax is estimated at 35% of income Dividends of $1 per share were declared and paid on the preferred stock Required: Determine the earnings per share of common stock, assuming income before bond interest and income tax is $600,000 Earnings before bond interest and income tax Bond interest Balance Income tax Net income Dividends on preferred stock Earnings available for common stock Number of common shares Earnings per share on common stock 1$2,000,000 ´ 8% 2$440,000 ´ 35% 3$1,000,000 ´ 8% 4$520,000 ´ 35% Plan Plan $600,000 160,0001 $440,000 154,0002 $286,000 $286,000 ¸200,000 $ 1.43 $600,000 80,0003 $520,000 182,0004 $338,000 100,000 238,000 ¸150,000 $ 1.59 168 Given the following data, determine the times interest earned ratio Net income - $70,000 Bonds Payable (issued at face value), 8% - $5,000,000 Preferred Stock ($50 par value, 6%, 10,000 shares issued & outstanding) Tax rate - 30% TIER = 1.25 169 Given the following data, prepare the journal entry to record interest expense and any related amortization on December 31st of the first year using the effective method Assume interest is paid annually on January The bonds were issued on January for $7,411,233 Bonds Payable $8,000,000 (matures in 10 years) Contract rate = 5% Yield = 6% Round answers to nearest dollar Interest expense 444,674 Amortization of bond discount 44,674 Interest Payable 400,000 170 Given the following data, prepare an amortization table (use the effective method) 1/1/10 - issue $800,000, 9%, year bonds, interest paid annually on 12/31, to yield 8% Use the following format (round to nearest dollar - may have a slight rounding difference); Date Cash paid Int expense Amortization Bond carry value Date 1/1/10 12/31/10 12/31/11 12/31/12 Cash paid Int expense Amortization 820,615 6,351 6,859 7,408 Bond carry value 72,000 72,000 72,000 65,649 65,141 64,592 814,264 807,405 800,000 (rounded) 171 Given the following data, prepare an amortization schedule (use the straight line method) 1/1/10 - issued $800,000, 9%, year bonds, interest paid annually on 12/31 to yield 8% Use the following format (round to nearest dollar, may have small rounding difference); Date Cash paid Date 1/1/10 12/31/10 12/31/11 12/31/12 Cash paid 72,000 72,000 72,000 Int expense Amortization Int expense 65,128 65,128 65,128 Bond carry value Amortization 820,615 6,872 6,872 6,872 Bond carry value 813,743 806,872 800,000 172 Two companies are financed as follows: Bonds payable, 9% issued at face Common stock, $25 par X Co $5,000,000 3,000,000 Y Co $3,000,000 3,000,000 Income tax is estimated at 40% of income Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each Earnings before interest and taxes Deduct interest on bonds Income before income tax Deduct income tax Net income Earnings per share on common stock X Co $2,280,000 450,000 $1,830,000 732,000 $ 1,098,000 $ 9.15 Y Co $2,280,000 270,000 $2,010,000 804,000 $ 1,206,000 $ 10.05 173 (a) (b) Prepare the journal entry to issue $500,000 bonds which sold for $490,000 Prepare the journal entry to issue $500,000 bonds which sold for $515,000 (a) Cash Discount on Bonds Payable Bonds Payable (b) Cash Premium on Bonds Payable Bonds Payable 490,000 10,000 500,000 515,000 15,000 500,000 174 Brubeck Co issued $10,000,000 of 30-year, 8% bonds on May of the current year, with interest payable on May and November The fiscal year of the company is the calendar year Journalize the entries to record the following selected transactions for the current year: May Nov Dec 31 Issued the bonds for cash at their face amount Paid the interest on the bonds Recorded accrued interest for two months May Nov Dec 31 Cash Bonds Payable 10,000,000 Interest Expense Cash 400,000 Interest Expense Interest Payable 133,333 10,000,000 400,000 133,333 175 On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000 Present entries to record the following transactions for the current fiscal year: (a) (b) (c) Issuance of the bonds First semiannual interest payment Amortization of bond discount for the year, using the straight-line method of amortization (a) Cash Discount on Bonds Payable Bonds Payable 1,225,000 275,000 1,500,000 (b) Interest Expense Cash 60,000 (c) Interest Expense Discount on Bonds Payable 27,500 60,000 27,500 176 On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000 Present entries to record the following transactions for the current fiscal year: (a) (b) (c) Issuance of the bonds First annual interest payment Amortization of bond premium for the year, using the straight-line method of amortization (a) Cash Premium on Bonds Payable Bond Payable 2,125,000 125,000 2,000,000 (b) Interest Expense Cash 140,000 (c) Premium on Bonds Payable Interest Expense 12,500 140,000 12,500 177 On August 1, Clayton Co issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000 Interest is payable semiannually on February and August Present the entries to record the following transactions for the current year: (a) (b) Issuance of the bonds Accrual of interest and amortization of bond discount for the year, on December 31, using the straight-line method Round to the nearest dollar when necessary (a) Cash Discount on Bonds Payable Bonds Payable (b) Interest Expense Interest Payable Interest Expense Discount on Bonds Payable 1,225,000 75,000 1,300,000 48,750 48,750 1,563 1,563 178 On the first day of the fiscal year, Lisbon Co issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually Orange Inc purchased the bonds on the issue date for the issue price Present entries to record the following transactions for the current fiscal year: (a) (b) (c) Lisbon Co Issuance of the bonds Second semiannual interest payment Amortization of bond premium for the year, using the straight-line method of amortization (d) (e) (f) Orange Inc Purchase of the bonds Receipt of second semiannual interest payment Amortization of bond premium for the year, using the straight-line method of amortization (a) Cash 1,050,000 Premium on Bonds Payable Bonds Payable 50,000 1,000,000 (b) Interest Expense Cash 35,000 (c) Premium on Bonds Payable Interest Expense 5,000 (d) Investment in Lisbon Co Bonds Cash 1,050,000 (e) Cash 35,000 5,000 1,050,000 35,000 Interest Revenue (f) Interest Revenue Invenstment in Lisbon Co Bonds 35,000 5,000 179 Present entries to record the selected transactions described below: (a) (b) (c) Issued $2,750,000 of 10-year, 8% bonds at 97 Amortized bond discount for a full year, using the straight-line method Called bonds at 98 The bonds were carried at $2,692,250 at the time of the redemption 5,000 (a) Cash Discount on Bonds Payable Bonds Payable (b) Interest Expense Discount on Bonds Payable (c) Bonds Payable Loss on Redemption of Bonds Discount on Bonds Payable Cash 2,667,500 82,500 2,750,000 8,250 8,250 2,750,000 2,750 57,750 2,695,000 180 A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with interest payable on April and October The fiscal year of the company is the calendar year Journalize the entries to record the following selected transactions: 2011 Apr Oct Issued the bonds for cash at their face amount Paid the interest on the bonds 2013 Oct Called the bond issue at 103, the rate provided in the bond indenture (Omit entry for payment of interest.) 2011 Apr Oct 2013 Oct Cash Bonds Payable 2,000,000 Interest Expense Cash 80,000 Bonds Payable Loss on Redemption of Bonds Cash 2,000,000 60,000 2,000,000 80,000 2,060,000 181 Dennis Corp issued $2,500,000 of 20-year, 9% callable bonds on July 1, 2007, with interest payable on June 30 and December 31 The fiscal year of the company is the calendar year Journalize the entries to record the following selected transactions: 2007 July Dec 31 Issued the bonds for cash at their face amount Paid the interest on the bonds 2011 Dec 31 Called the bond issue at 97, the rate provided in the bond indenture (Omit entry for payment of interest.) 2007 July Dec 31 2011 Dec 31 Cash Bonds Payable 2,500,000 Interest Expense Cash 112,500 Bonds Payable Gain on Redemption of Bonds Cash 2,500,000 2,500,000 112,500 75,000 2,425,000 182 On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds, dated June 30, for $1,540,000 Present entries to record the following transactions: Arlington Company (1) Issuance of bonds (2) Payment of first semiannual interest on December 31, 2011 (3) Amortization by straight-line method of bond premium on December 31, 2011 (1) (2) (3) Cash Premium on Bonds Payable Bonds Payable 1,540,000 Interest Expense Cash 60,000 Premium on Bonds Payable Interest Expense 2,000 40,000 1,500,000 60,000 2,000 183 (a) (b) Prepare the journal entry to issue $100,000 bonds which sold for $94,000 Prepare the journal entry to issue $100,000 bonds which sold for $104,000 (a) Cash Discount on Bonds Payable Bonds Payable 94,000 6,000 100,000 (b) Cash Premium on Bonds Payable Bonds Payable 104,000 4,000 100,000 184 Balance sheet and income statement data indicate the following: Bonds payable, 8% (issued 1995, due 2019) Preferred 5% stock, $100 par (no change during year) Common stock, $50 par (no change during year) Income before income tax for year Income tax for year Common dividends paid Preferred dividends paid (a) (b) Company A $1,200,000 Company B $ 900,000 300,000 400,000 1,000,000 495,000 75,000 50,000 21,000 1,000,000 130,000 12,000 28,000 For each company, what is the number of times bond interest charges were earned (round to one decimal place)? Which company gives potential creditors the most protection? (a) Company A 6.2 Company B 2.8 (b) Company A offers potential creditors the most protection 185 Prepare an amortization schedule for the 1st years (effective method) using the following data: On January 1, 2010, ABC Co issued $2,000,000, 5%, 10 year bonds, interest payable on June 30th and December 31st to yield 6% Use the following format and round to nearest dollar (may have small rounding error) The bonds were issued for $1,851,234 Date Cash paid Interest expense Amortization Bond carry Value Show how this bond would be reported on the balance sheet at 12/31/11 Date 1/1/10 6/30/10 12/31/10 6/30/11 12/31/11 Cash paid Interest exp 50,000 50,000 50,000 50,000 55,537 55,703 55,874 56,050 Bond Payable $2,000,000 Unamortized bond discount (125,602) Amortization 1,851,234 5,537 5,703 5,874 6,050 Bond Carry Value 1,856,771 1,862,474 1,868,348 1,874,398 186 Prepare an amortization schedule for the 1st years (straight line method) using the following data: On January 1, 2010 XYZ Co issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and December 31st to yield 5% Use the following format and round to the nearest dollar (may have small rounding error) The bonds were issued for $3,233,834 Date Cash paid Interest expense Amortization Bond Carry Value Show how this bond would be reported on the balance sheet on 12/31/11 Date 1/1/10 6/30/10 12/31/10 6/30/11 12/31/11 Cash paid 90,000 90,000 90,000 90,000 Interest expense 78,308 78,308 78,308 78,308 Bond Payable $3,000,000 Unamortized Bond Premium 187,066 Amortization Bond Carry Value 3,233,834 11,692 3,222,142 11,692 3,210,450 11,692 3,198,758 11,692 3,187,066 187 On January 1, 2011, Citrus Retail Co issued a $500,000, year, 8% installment note payable with payments of $100,000 principal plus interest due on January of each year for the next years Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the year Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on December 31, 2011 Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on December 31, 2011 Interest Expense Interest Payable 40,000 40,000 Interest Expense = $40,000 reported as “Other expense” Current Liabilities: Interest Payable = $40,000 Note Payable - current portion = $100,000 Long-Term Liabilities Note Payable = $400,000 188 On January 1, 2010 Orange Retail Co issued a $300,000, year, 6% installment note payable with payments of $100,000 principal and interest due on January 1st for each of the next years Prepare the adjusting journal entry to accrue interest at the end of the 2nd year - 12/31/11 Show the account(s) and amount (s) and where the account(s) will appear on a multi-step income statement prepared on December 31, 2011 Show the account(s) and amount(s) and where the account(s) will appear on a classified balance sheet prepared on December 31, 2011 Interest Expense Interest Payable 12,000 12,000 Interest Expense = $12,000 reported on the income statement as “Other expense” Current Liabilities: Interest Payable = 12,000 Note Payable - current portion = $100,000 Long-Term Liabilities: Note Payable = $100,000 189 Glover Corporation issued $2,000,000 of 7.5%, 6-year bonds dated March 1, 2011, with semiannual interest payments on September and March The bonds were issued on March 1, 2011, at 97 Glover’s year-end is December 31 a) Were the bonds issued at a premium, a discount, or at par? b) Was the market rate of interest higher, lower, or the same as the contract rate of interest? c) If the company uses the straight-line method of amortization, what is the amount of interest expense Glover Corporation will show for the year ended December 31, 2011? d) What is the carrying value of the bonds on December 31, 2011? a) The bonds were issued at a discount b) The market rate of interest was higher than 7.5% since the bonds were issued at a discount c) $2,000,000 X 075 X 10/12 = $125,000 interest expense prior to amortization $2,000,000 - $1,940,000 = $60,000 discount on bonds payable $60,000/6 = $10,000 annual amortization of discount $10,000 X 10/12 = $8,333 current year’s amortization of discount $125,000 + $8,333 = $133,333 d) $2,000,000 - $60,000 + $8,333 = $1,948,333 190 Calculate the total amount of interest expense over the life of the bonds for the following independent situations a) $100,000 face value, 10%, 10-year bonds issued at 101 b) $240,000 face value, 5%, 5-year bonds issued at 100 c) $300,000 face value, 9%, 6-year bonds issued at 98 a) $100,000 X 01 = $1,000 premium $100,000 X 10 = $10,000 annual cash payment $10,000 X 10 years = $100,000 $100,000 - $1,000 = $99,000 total interest expense b) $240,000 X 05 = $12,000 annual cash payment $12,000 X years = $60,00 total interest expense c) $300,000 X 02 = $6,000 discount $300,000 X 09 = $27,000 annual cash payment $27,000 X years = $162,000 $162,000 + $6,000 = $168,000 total interest expense ... due in 2015 would be reported on the balance sheet in the section entitled A investments B long- term liabilities C current assets D intangible assets 130 The balance in Premium on Bonds Payable... the period B remain constant over the term of the note C equal the interest rate on the note times the face amount D increase over the term of the note 140 On the first day of the fiscal year,... $4,400 D a debit to Notes Payable for $15,208 141 On January 1, 2 014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank The note requires annual payments of $23,492,