Question 1

The terms of the bond issue are set forth in a formal legal document called a bond indenture.

Accepted Answer

A) True 
 B)False

Question 2

On July 1 2017 Fogg Corporation issued $600000 8% 10-year bonds at face value. Interest is payable annually on July 1. Fogg Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2017.

Accepted Answer

None

Question 3

Discount on Bonds Payable is ________________ (from)(to) bonds payable on the balance sheet. Premium on Bonds Payable is ________________ (from)(to) bonds payable on the balance sheet.

Accepted Answer

The answer of Discount on Bonds Payable is ________________ (from)(to)...

Question 4

On January 1 Browne Inc. issued $5000000 9% bonds for $4685000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Browne uses the effective-interest method of amortizing bond discount. At the end of the first year Greene should report unamortized bond discount of

Accepted Answer

A)  $283500. 
B)  $296500. 
C)  $286650. 
D)  $255650. 
A)  $283500. 
B)  $296500. 
C)  $286650. 
D)  $255650.

Question 5

A bond with a face value of $200000 and a quoted price of 102⅛ has a selling price of

Accepted Answer

A)  $240225. 
B)  $204025. 
C)  $200225. 
D)  $204250. 
A)  $240225. 
B)  $204025. 
C)  $200225. 
D)  $204250.

Question 6

On January 1 2017 Trapp Enterprises issued 9% 10-year bonds with a face amount of $900000 at 96. Interest is payable annually on January 1. The bonds were issued for an effective interest rate of 10%.
Instructions
Prepare the entries to record the issuance of the bonds and the first annual interest accrual and amortization assuming that the company uses effective-interest amortization.

Accepted Answer

None

Question 7

Which of the following statements concerning bonds is not a true statement?

Accepted Answer

A)  Bonds are generally sold through an investment company. 
B)  The bond indenture is prepared after the bonds are printed. 
C)  The bond indenture and bond certificate are separate documents. 
D)  The trustee keeps records of each bondholder. 
A)  Bonds are generally sold through an investment company. 
B)  The bond indenture is prepared after the bonds are printed. 
C)  The bond indenture and bond certificate are separate documents. 
D)  The trustee keeps records of each bondholder.

Question 8

Hart Company issued $600000 of 8% 5-year bonds at 105 with interest paid annually. Assuming straight-line amortization what is the carrying value of the bonds after one year?

Accepted Answer

A)  $630000 
B)  $627000 
C)  $624000 
D)  $633000 
A)  $630000 
B)  $627000 
C)  $624000 
D)  $633000

Question 9

When a company retires bonds before maturity the gain or loss on redemption is the difference between the cash paid and the

Accepted Answer

A)  carrying value of the bonds. 
B)  face value of the bonds. 
C)  original selling price of the bonds. 
D)  maturity value of the bonds. 
A)  carrying value of the bonds. 
B)  face value of the bonds. 
C)  original selling price of the bonds. 
D)  maturity value of the bonds.

Question 10

If bonds can be converted into common stock

Accepted Answer

A)  they will sell at a lower price than comparable bonds without a conversion feature. 
B)  they will carry a higher interest rate than comparable bonds without the conversion feature. 
C)  they will be converted only if the issuer calls them in for conversion. 
D)  the bondholder may benefit if the market price of the common stock increases substantially. 
A)  they will sell at a lower price than comparable bonds without a conversion feature. 
B)  they will carry a higher interest rate than comparable bonds without the conversion feature. 
C)  they will be converted only if the issuer calls them in for conversion. 
D)  the bondholder may benefit if the market price of the common stock increases substantially.

Question 11

Under a capital lease the lease/asset is reported on the balance sheet under plant assets.

Accepted Answer

A) True 
 B)False

Question 12

Secured bonds are bonds that

Accepted Answer

A)  are in the possession of a bank. 
B)  are registered in the name of the owner. 
C)  have specific assets of the issuer pledged as collateral. 
D)  have detachable interest coupons. 
A)  are in the possession of a bank. 
B)  are registered in the name of the owner. 
C)  have specific assets of the issuer pledged as collateral. 
D)  have detachable interest coupons.

Question 13

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

Accepted Answer

A) True 
 B)False

Question 14

Eve Corporation issues a $9000000 5% 20-year mortgage note payable on December 31 2017 to obtain needed financing for the construction of a building addition. The terms provide for annual installment payments of $722183 on December 31.
Instructions
(a) Prepare the journal entries to record the mortgage loan on December 31 2017 and the first installment payment.
(b) Will the amount of principal reduction in the second installment payment be more or less than with the first installment payment?

Accepted Answer

(a)
 (b) The amount

Question 15

On January 1 2017 Sunset Corporation issued $4000000 8% 5-year bonds dated January 1 2017 at 95. The bonds pay annual interest on January 1. The company uses the straight-line method of amortization and has a calendar year end.
Instructions
Prepare all the journal entries that Sunset Corporation would make related to this bond issue through January 1 2018. Be sure to indicate the date on which the entries would be made.

Accepted Answer

None

Question 16

The straight-line method of amortization allocates the same amount to _______________ in each interest period.

Accepted Answer

The answer of The straight-line method of amortization allocates the...

Question 17

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

Accepted Answer

A)  off-balance sheet financing. 
B)  an operating lease. 
C)  a capital lease. 
D)  a purchase of property. 
A)  off-balance sheet financing. 
B)  an operating lease. 
C)  a capital lease. 
D)  a purchase of property.

Question 18

When there is a ________________ difference between the straight-line and effective-interest methods of amortization the ________________ method is required under GAAP.

Accepted Answer

material e

Question 19

The adjusted trial balance for Otam Corp. at the end of the current year 2017 contained the following accounts. $\begin{array}{lr}
5 \text {-year Bonds Payable } 8 \% & \$ 1,500,000 \
\text { Interest Payable } & 50,000 \
\text { Premium on Bonds Payable } & 150,000 \
\text { Notes Payable (3 mo.) } & 40,000 \
\text { Notes Payable }(5 \mathrm{yr}) & 145,000 \
\text { Mortgage Payable }(\$ 10,000 \text { due currently) } & 300,000 \
\text { Salaries and Wages Payable } & 18,000 \
\text { Taxes Pavable (due } 3 / 15 \text { of } 2018) & 25,000
\end{array}$ The total long-term liabilities reported on the balance sheet are

Accepted Answer

A)  $1945000. 
B)  $1935000. 
C)  $2095000. 
D)  $2085000. 
A)  $1945000. 
B)  $1935000. 
C)  $2095000. 
D)  $2085000.

Question 20

Able Electronics Company issues a $1000000 8% 20-year mortgage note on January 1. The terms provide for annual installment payments exclusive of real estate taxes and insurance of $101852. After the first installment payment the principal balance is

Accepted Answer

A)  $1000000. 
B)  $920000. 
C)  $978148. 
D)  $898148. 
A)  $1000000. 
B)  $920000. 
C)  $978148. 
D)  $898148.

Exam 15: Long-Term Liabilities

The terms of the bond issue are set forth in a formal legal document called a bond indenture.

On July 1 2017 Fogg Corporation issued $600000 8% 10-year bonds at face value. Interest is payable annually on July 1. Fogg Corporation has a calendar year end. Instructions Prepare all entries related to the bond issue for 2017.

Discount on Bonds Payable is ________________ (from)(to) bonds payable on the balance sheet. Premium on Bonds Payable is ________________ (from)(to) bonds payable on the balance sheet.

A bond with a face value of $200000 and a quoted price of 102⅛ has a selling price of

Which of the following statements concerning bonds is not a true statement?

Hart Company issued $600000 of 8% 5-year bonds at 105 with interest paid annually. Assuming straight-line amortization what is the carrying value of the bonds after one year?

When a company retires bonds before maturity the gain or loss on redemption is the difference between the cash paid and the

If bonds can be converted into common stock

Under a capital lease the lease/asset is reported on the balance sheet under plant assets.

Secured bonds are bonds that

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

The straight-line method of amortization allocates the same amount to _______________ in each interest period.

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

When there is a ________________ difference between the straight-line and effective-interest methods of amortization the ________________ method is required under GAAP.

Able Electronics Company issues a $1000000 8% 20-year mortgage note on January 1. The terms provide for annual installment payments exclusive of real estate taxes and insurance of $101852. After the first installment payment the principal balance is

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

Time Value of Money

Filters

Discount on Bonds Payable is (from)(to) bonds payable on the balance sheet. Premium on Bonds Payable is (from)(to) bonds payable on the balance sheet.

When there is a difference between the straight-line and effective-interest methods of amortization the method is required under GAAP.