Question 1

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

Accepted Answer

A)  a premium 
B)  their face value 
C)  their maturity value 
D)  a discount 
A)  a premium 
B)  their face value 
C)  their maturity value 
D)  a discount

Question 2

On January 1, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1 would include a

Accepted Answer

A)  debit to interest expense for $11,550 
B)  credit to interest payable for $11,550 
C)  credit to notes payable for $165,000 
D)  debit to notes payable for $165,000 
A)  debit to interest expense for $11,550 
B)  credit to interest payable for $11,550 
C)  credit to notes payable for $165,000 
D)  debit to notes payable for $165,000

Question 3

If bonds payable are not callable, the issuing corporation

Accepted Answer

A)  can exchange them for common stock 
B)  can repurchase them in the open market 
C)  must get special permission from the SEC to repurchase them 
D)  is more likely to repurchase them if the interest rates increase 
A)  can exchange them for common stock 
B)  can repurchase them in the open market 
C)  must get special permission from the SEC to repurchase them 
D)  is more likely to repurchase them if the interest rates increase

Question 4

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

Accepted Answer

A)  $500 loss 
B)  $15,500 loss 
C)  $15,500 gain 
D)  $500 gain 
A)  $500 loss 
B)  $15,500 loss 
C)  $15,500 gain 
D)  $500 gain

Question 5

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

Accepted Answer

A) True 
 B)False

Question 6

On the first day of the fiscal year, a company issues a $800,000, 6%, 5-year bond that pays semiannual interest of $24,000 $800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

Accepted Answer

The answer of On the first day of the fiscal...

Question 7

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

Accepted Answer

A) True 
 B)False

Question 8

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

Accepted Answer

The answer of A $375,000 bond issue on which there...

Question 9

On January 1, Zero Company obtained a $52,000, 4-year, 6.5% installment note from Regional Bank. The note requires annual payments consisting of principal and interest of $15,179, beginning on December 31 of the current year. The December 31, Year 1 carrying amount in the amortization table for this installment note will be equal to:

Accepted Answer

A)  $27,635 
B)  $40,201 
C)  $36,821 
D)  $48,620 
A)  $27,635 
B)  $40,201 
C)  $36,821 
D)  $48,620

Question 10

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

Accepted Answer

A) True 
 B)False

Question 11

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $292,000. The entry to record the redemption would include a

Accepted Answer

A)  loss on bond redemption of $4,000 
B)  gain on bond redemption of $4,000 
C)  gain on bond redemption of $2,000 
D)  loss on bond redemption of $2,000 
A)  loss on bond redemption of $4,000 
B)  gain on bond redemption of $4,000 
C)  gain on bond redemption of $2,000 
D)  loss on bond redemption of $2,000

Question 12

When the effective interest method is used, the amortization of the bond premium

Accepted Answer

A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period 
A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period

Question 13

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.

Accepted Answer

a) $100,000 × 0.01 = $1,000 premium
$100

Question 14

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is to

Accepted Answer

A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable 
A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable

Question 15

Bonds with a face amount $1,000,000 are sold at 106. The journal entry to record the issuance is

Accepted Answer

A)  Cash 1,000,000
Premium on Bonds Payable Bonds Payable
60,000
1,060,000 
B)  Cash Premium on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000 
C)  Cash Discount on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000 
D)  Cash Bonds Payable
1,060,000
1,060,000 
A)  Cash 1,000,000
Premium on Bonds Payable Bonds Payable
60,000
1,060,000 
B)  Cash Premium on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000 
C)  Cash Discount on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000 
D)  Cash Bonds Payable
1,060,000
1,060,000

Question 16

The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

Accepted Answer

A) True 
 B)False

Question 17

If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

Accepted Answer

A)  $2,060,000 
B)  $2,000,000 
C)  $2,100,000 
D)  $1,940,000 
A)  $2,060,000 
B)  $2,000,000 
C)  $2,100,000 
D)  $1,940,000

Question 18

On June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present entries to record the following transactions.
1) Issuance of bonds.
2) Payment of first semiannual interest on December 31 record separate entry from premium amortization).
3) Amortization by straight-line method of bond premium on December 31.

Accepted Answer

1) Cash 2,580,000
Premium on B

Question 19

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Accepted Answer

A) True 
 B)False

Question 20

On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30 and December 31 to yield 6%. Use the following format and round figures to nearest dollar.
The bonds were issued for $1,851,234.
1. Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method.
Date Cash Paid Interest Expense Amortization Bond Carry Value
2. Show how this bond would be reported on the balance sheet at December 31, Year 2.

Accepted Answer

1. @#IMG-DLM& 
2. Bond payable

Exam 12: Long-Term Liabilities: Bonds and Notes

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

If bonds payable are not callable, the issuing corporation

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $292,000. The entry to record the redemption would include a

When the effective interest method is used, the amortization of the bond premium

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.

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is to

Bonds with a face amount $1,000,000 are sold at 106. The journal entry to record the issuance is

The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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