Question 1

For a corporation, bond interest:

Accepted Answer

A)  is treated the same as dividends for tax purposes. 
B)  has no effect on earnings and therefore has no effect on income taxes. 
C)  increases income tax by reducing earnings. 
D)  None of the above 
A)  is treated the same as dividends for tax purposes. 
B)  has no effect on earnings and therefore has no effect on income taxes. 
C)  increases income tax by reducing earnings. 
D)  None of the above

Question 2

On October 1, Alex Company issued 8%, 10-year, $400,000 bonds at 108. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:

Accepted Answer

A)  $0. 
B)  $32,000. 
C)  $16,000. 
D)  $8,000. 
A)  $0. 
B)  $32,000. 
C)  $16,000. 
D)  $8,000.

Question 3

Bonds discount and bonds premium are expenses to the corporation.

Accepted Answer

A) True 
 B)False

Question 4

Using the following accounts:
Indicate the account(s) to be debited and credited to record the following transactions.
-Issued bonds at face value in exchange for equipment.
Debit ________ Credit ________

Accepted Answer

A) Cash 
B) Bond Sinking fund 
C) Equipment 
D) Building 
E) Land
F)Accounts payable
G)Notes payable
H)Bond payable
I)Bond interest payable
J)Premium on bonds payable
K)Discount on bonds payable
L)Common stock
M)Retained earnings
N)Sinking fund earned
O)Bond interest expense
P)Gain on retirement
Q)Loss on retirement 
A) Cash 
B) Bond Sinking fund 
C) Equipment 
D) Building 
E) Land
F)Accounts payable
G)Notes payable
H)Bond payable
I)Bond interest payable
J)Premium on bonds payable
K)Discount on bonds payable
L)Common stock
M)Retained earnings
N)Sinking fund earned
O)Bond interest expense
P)Gain on retirement
Q)Loss on retirement

Question 5

Island Corporation issued $500,000 of 6%, 10-year bonds at 104 on May 1, 2009. Interest is paid semiannually on October 31 and April 30. Journalize the entries for the issuance of the bond on May 1, the first interest payment on October 31 using the straight-line method, and the adjusting entry on December 31.

Accepted Answer

The answer of Island Corporation issued $500,000 of 6%, 10-year...

Question 6

Interest expense will be less than the interest payment when bonds are issued at:

Accepted Answer

A)  a premium. 
B)  face value. 
C)  a discount. 
D)  the conversion rate. 
A)  a premium. 
B)  face value. 
C)  a discount. 
D)  the conversion rate.

Question 7

The interest rate specified in the bond indenture is called the:

Accepted Answer

A)  market rate. 
B)  discount rate. 
C)  contract rate. 
D)  effective rate. 
A)  market rate. 
B)  discount rate. 
C)  contract rate. 
D)  effective rate.

Question 8

Applegate Corporation sells $170,000, 9%, 20-year bonds for 96 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of interest expense recorded on July 1, six months after issuance, is:

Accepted Answer

A)  $7,820. 
B)  $7,735. 
C)  $7,650. 
D)  $15,470. 
A)  $7,820. 
B)  $7,735. 
C)  $7,650. 
D)  $15,470.

Question 9

A bond sinking fund is reported as an asset on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 10

The entry to record the issuance of a bond between interest payment dates would include a:

Accepted Answer

A)  debit to Cash. 
B)  credit to Bonds Payable. 
C)  credit to Bonds Interest Payable. 
D)  All of the above 
A)  debit to Cash. 
B)  credit to Bonds Payable. 
C)  credit to Bonds Interest Payable. 
D)  All of the above

Question 11

If bonds are sold between interest payment dates, the amount of cash the issuer receives is:

Accepted Answer

A)  more than the market value of the bonds. 
B)  less than the market value of the bonds. 
C)  equal to the market value of the bonds. 
D)  equal to the face value of the bonds. 
A)  more than the market value of the bonds. 
B)  less than the market value of the bonds. 
C)  equal to the market value of the bonds. 
D)  equal to the face value of the bonds.

Question 12

A bond issue of $500,000 sold at 107 has a bond discount of $35,000.

Accepted Answer

A) True 
 B)False

Question 13

Northern Union Pacific is planning to issue 10-year, 10% semiannual interest bonds with a par value of $100,000.
Required: Prepare the necessary journal entry under each of the following assumptions.
a. The bonds are sold on issuance date at par.
b. The bonds are sold on issuance date at 96.
c. The bonds are sold on issuance date at 103.

Accepted Answer

The answer of Northern Union Pacific is planning to issue...

Question 14

When bonds are retired at less than book value, the company records a loss on the retirement.

Accepted Answer

A) True 
 B)False

Question 15

Davis Corporation sells $200,000, 12%, 10-year bonds for 104 on January 1. Compute the semiannual interest expense recorded on July 1 using the interest method. The market rate is 8%.

Accepted Answer

A)  $12,000 
B)  $4,160 
C)  $8,320 
D)  $6,000 
A)  $12,000 
B)  $4,160 
C)  $8,320 
D)  $6,000

Question 16

Sampson Brothers pays $55,000 into a bond sinking fund each year to redeem the future maturity of its bonds. During the first year, the fund earned $3,500. At the time of bond redemption, the fund has a balance of $550,000. Of this, $525,000 was used to redeem the bonds. Journalize the
a) initial deposit;
b) the first year's interest; and
c) the redemption of the bonds.

Accepted Answer

The answer of Sampson Brothers pays $55,000 into a bond...

Question 17

A bond that pays interest on February 28 and August 31 will have to be adjusted for 2 months interest on December 31.

Accepted Answer

A) True 
 B)False

Question 18

On July 1, Ball Computer Corporation issued 10-year, 8%, $200,000 bonds for 96. Interest is due June 30 and December 31. Prepare the journal entries to record:
a. Issuance of the bond.
b. First semiannual interest period payment including the amortization of the discount using the straight-line method.

Accepted Answer

The answer of On July 1, Ball Computer Corporation issued...

Question 19

At maturity, the Premium on Bonds will have a balance equal to zero.

Accepted Answer

A) True 
 B)False

Question 20

A discount amortization does not affect the amount of cash paid for bond interest.

Accepted Answer

A) True 
 B)False

Exam 20: Corporations and Bonds Payable

For a corporation, bond interest:

On October 1, Alex Company issued 8%, 10-year, $400,000 bonds at 108. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:

Bonds discount and bonds premium are expenses to the corporation.

Using the following accounts: Indicate the account(s) to be debited and credited to record the following transactions. -Issued bonds at face value in exchange for equipment. Debit ________ Credit ________

Interest expense will be less than the interest payment when bonds are issued at:

The interest rate specified in the bond indenture is called the:

Applegate Corporation sells $170,000, 9%, 20-year bonds for 96 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of interest expense recorded on July 1, six months after issuance, is:

A bond sinking fund is reported as an asset on the balance sheet.

The entry to record the issuance of a bond between interest payment dates would include a:

If bonds are sold between interest payment dates, the amount of cash the issuer receives is:

A bond issue of $500,000 sold at 107 has a bond discount of $35,000.

When bonds are retired at less than book value, the company records a loss on the retirement.

Davis Corporation sells $200,000, 12%, 10-year bonds for 104 on January 1. Compute the semiannual interest expense recorded on July 1 using the interest method. The market rate is 8%.

A bond that pays interest on February 28 and August 31 will have to be adjusted for 2 months interest on December 31.

At maturity, the Premium on Bonds will have a balance equal to zero.

A discount amortization does not affect the amount of cash paid for bond interest.

Accounting Concepts and Procedures

Debits and Credits: Analyzing and Recording Business Transactions

Beginning the Accounting Cycle

The Accounting Cycle Continued

The Accounting Cycle Completed

Banking Procedure and Control of Cash

Calculating Pay and Payroll Taxes: the Beginning of the Payroll Process

Paying, Recording, and Reporting Payroll and Payroll Taxes:

Sales and Cash Receipts

Purchases and Cash Payments

Preparing a Worksheet for a Merchandise Company

Completion of the Accounting Cycle for a Merchandise Company

Accounting for Bad Debts

Notes Receivable and Notes Payable

Accounting for Merchandise Inventory

Accounting for Property, Plant, Equipment, and Intangible Assets

Partnership

Corporations: Organizations and Stock

Corporations: Stock Values, Dividends, Treasury Stocks,

Statement of Cash Flows

Analyzing Financial Statements

The Voucher System

Departmental Accounting

Manufacturing Accounting

Filters

Using the following accounts: Indicate the account(s) to be debited and credited to record the following transactions. -Issued bonds at face value in exchange for equipment. Debit Credit