Question 1

When the contract rate of interest on bonds is equal to the market rate of interest,bonds 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

Monies set aside to pay off bondholders at maturity are called:

Accepted Answer

A) discount funds. 
B) maturity funds. 
C) sinking funds. 
D) annuity funds. 
A) discount funds. 
B) maturity funds. 
C) sinking funds. 
D) annuity funds.

Question 3

On April 1,Braintree Corporation issued 10%,10-year,$300,000 bonds at face value.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) $15,000. 
C) $30,000. 
D) $31,000. 
A) $0. 
B) $15,000. 
C) $30,000. 
D) $31,000.

Question 4

On July 1,Ball Computer Corporation issued 10-year,8%,$100,000 bonds for 97.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

a. @#IMG-DLM&_TB5851

Question 5

Martin Corporation sells $200,000,12%,10-year bonds at face value on January 1.Interest is paid on January 1 and July 1.The entry to record the issuance of the bonds on January 1 is:

Accepted Answer

A)  $\begin{array} {| l  | l|} 
\hline \text { Cash\quad\quad\quad\quad } & 200,000 \
\hline  \text {\quad\quad\quad\quad Bonds Payable } &\quad\quad\quad\quad\quad\quad\quad 200,000 \
\hline
\end{array}$ 
B)  $$\begin{array} {| r |r | r | } 
\hline \text { Cash \quad\quad\quad\quad\quad} & 200,000 \
\hline \text { Interest Payable } &\quad\quad\quad 24,000 \
\hline \text { Bonds Payable } & 176,000 \
\hline
\end{array}$$ 
C)  $\begin{array} {| l | l| } 
\hline \text { Cash\quad\quad\quad\quad } & 176,000 \quad\quad\quad\quad\
\hline \text { Interest Expense } & 24,000 \
\hline \text { \quad\quad Bonds Payable } &\quad\quad\quad 200,000 \
\hline
\end{array}$ 
D)  $\begin{array} {| l | l| } 
\hline \text { Cash\quad\quad\quad\quad\quad\quad\quad } & 188,000 \
\hline \text { Interest Expense } & 12,000 \
\hline \text { Bonds Payable } &\quad\quad\quad\quad200,000 \
\hline
\end{array}$ 
A)  $\begin{array} {| l  | l|} 
\hline \text { Cash\quad\quad\quad\quad } & 200,000 \
\hline  \text {\quad\quad\quad\quad Bonds Payable } &\quad\quad\quad\quad\quad\quad\quad 200,000 \
\hline
\end{array}$ 
B)  $$\begin{array} {| r |r | r | } 
\hline \text { Cash \quad\quad\quad\quad\quad} & 200,000 \
\hline \text { Interest Payable } &\quad\quad\quad 24,000 \
\hline \text { Bonds Payable } & 176,000 \
\hline
\end{array}$$ 
C)  $\begin{array} {| l | l| } 
\hline \text { Cash\quad\quad\quad\quad } & 176,000 \quad\quad\quad\quad\
\hline \text { Interest Expense } & 24,000 \
\hline \text { \quad\quad Bonds Payable } &\quad\quad\quad 200,000 \
\hline
\end{array}$ 
D)  $\begin{array} {| l | l| } 
\hline \text { Cash\quad\quad\quad\quad\quad\quad\quad } & 188,000 \
\hline \text { Interest Expense } & 12,000 \
\hline \text { Bonds Payable } &\quad\quad\quad\quad200,000 \
\hline
\end{array}$

Question 6

For a corporation,a premium on bonds results when:

Accepted Answer

A) the contract rate is greater than the market rate. 
B) the contract rate is less than the market rate. 
C) the face value is greater than the effective rate. 
D) None of these answers are correct. 
A) the contract rate is greater than the market rate. 
B) the contract rate is less than the market rate. 
C) the face value is greater than the effective rate. 
D) None of these answers are correct.

Question 7

To determine the interest payment on a bond,multiply the ________ value times the ________ interest rate.

Accepted Answer

face (or p

Question 8

Evans Corporation sells $200,000,10%,10-year bonds for 97 on January 1.Compute the semi-annual interest expense recorded on July 1 using the interest method.The market rate is 12%.

Accepted Answer

A) $5,820 
B) $20,000 
C) $10,000 
D) $11,640 
A) $5,820 
B) $20,000 
C) $10,000 
D) $11,640

Question 9

When a bond issued at face value is retired,the journal entry is:

Accepted Answer

A) debit Bond Interest Expense,credit Cash. 
B) debit Bonds Payable,credit Cash. 
C) debit Cash,credit Bonds Payable. 
D) debit Cash,credit Bond Interest Expense. 
A) debit Bond Interest Expense,credit Cash. 
B) debit Bonds Payable,credit Cash. 
C) debit Cash,credit Bonds Payable. 
D) debit Cash,credit Bond Interest Expense.

Question 10

Bonds that can be exchanged for stock in the corporation are called ________ bonds.

Accepted Answer

The answer of Bonds that can be exchanged for stock...

Question 11

A bond sinking fund established to redeem bonds at maturity in 10 years should be classified in the current year on the balance sheet as:

Accepted Answer

A) current assets. 
B) plant and equipment assets. 
C) long-term investments. 
D) intangible assets. 
A) current assets. 
B) plant and equipment assets. 
C) long-term investments. 
D) intangible assets.

Question 12

A bond is issued for more than its face value.Which of the following statements most likely would explain why?

Accepted Answer

A) The bond's contract rate is lower than the market rate at the time of the issue. 
B) The bond's contract rate is the same as the market rate at the time of the issue. 
C) The bond's contract rate is higher than the market rate at the time of the issue. 
D) The bond is secured by specific assets of the corporation. 
A) The bond's contract rate is lower than the market rate at the time of the issue. 
B) The bond's contract rate is the same as the market rate at the time of the issue. 
C) The bond's contract rate is higher than the market rate at the time of the issue. 
D) The bond is secured by specific assets of the corporation.

Question 13

The entry to record the semiannual payment and amortization of the discount using the straight-line method on a 10%,$100,000,5-year bond issued at 97 would be to:

Accepted Answer

A) debit Bond Interest Expense $5,000; credit Cash $5,000. 
B) debit Bond Interest Expense $5,300; credit Cash $5,000; credit Discount on Bonds Payable $300. 
C) debit Bond Interest Expense $10,000; credit Cash $10,000. 
D) debit Bond Interest Expense $13,000; credit Cash $10,000; credit Discount on Bonds Payable $3,000. 
A) debit Bond Interest Expense $5,000; credit Cash $5,000. 
B) debit Bond Interest Expense $5,300; credit Cash $5,000; credit Discount on Bonds Payable $300. 
C) debit Bond Interest Expense $10,000; credit Cash $10,000. 
D) debit Bond Interest Expense $13,000; credit Cash $10,000; credit Discount on Bonds Payable $3,000.

Question 14

Northern Union Pacific is planning to issue 10-year,10% semiannual interest bonds with a par value of $200,000.
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

a. @#IMG-DLM&_TB5851

Question 15

A bond is issued for an amount equal to its face value.Which of the following statements most likely would explain why?

Accepted Answer

A) The bond's contract rate is lower than the market rate at the time of the issue. 
B) The bond's contract rate is the same as the market rate at the time of the issue. 
C) The bond's contract rate is higher than the market rate at the time of the issue. 
D) The bond is secured by specific assets of the corporation. 
A) The bond's contract rate is lower than the market rate at the time of the issue. 
B) The bond's contract rate is the same as the market rate at the time of the issue. 
C) The bond's contract rate is higher than the market rate at the time of the issue. 
D) The bond is secured by specific assets of the corporation.

Question 16

The interest paid to bondholders is determined by:

Accepted Answer

A) multiplying the bond's annual rate of interest by the face value. 
B) multiplying the market rate of interest by the face value. 
C) dividing the bond's annual rate of interest by the face value. 
D) dividing the face value by the bond's annual rate of interest. 
A) multiplying the bond's annual rate of interest by the face value. 
B) multiplying the market rate of interest by the face value. 
C) dividing the bond's annual rate of interest by the face value. 
D) dividing the face value by the bond's annual rate of interest.

Question 17

A fund set up so that a bond can be retired at maturity is called a:

Accepted Answer

A) sinking fund. 
B) bond payable fund. 
C) stock fund. 
D) retirement fund. 
A) sinking fund. 
B) bond payable fund. 
C) stock fund. 
D) retirement fund.

Question 18

Interest earned on the sinking fund will be subtracted from the Sinking Fund account.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The real or actual rate of interest to the borrowing corporation is called the:

Accepted Answer

A) market rate of interest. 
B) effective rate of interest. 
C) discount rate of interest. 
D) premium rate of interest. 
A) market rate of interest. 
B) effective rate of interest. 
C) discount rate of interest. 
D) premium rate of interest.

Exam 20: Corporations and Bonds Payable

When the contract rate of interest on bonds is equal to the market rate of interest,bonds sell at:

Monies set aside to pay off bondholders at maturity are called:

On April 1,Braintree Corporation issued 10%,10-year,$300,000 bonds at face value.Interest dates are April 1 and October 1.The amount of cash paid out for interest during the current calendar year is:

On July 1,Ball Computer Corporation issued 10-year,8%,$100,000 bonds for 97.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.

Martin Corporation sells $200,000,12%,10-year bonds at face value on January 1.Interest is paid on January 1 and July 1.The entry to record the issuance of the bonds on January 1 is:

For a corporation,a premium on bonds results when:

To determine the interest payment on a bond,multiply the ________ value times the ________ interest rate.

Evans Corporation sells $200,000,10%,10-year bonds for 97 on January 1.Compute the semi-annual interest expense recorded on July 1 using the interest method.The market rate is 12%.

When a bond issued at face value is retired,the journal entry is:

Bonds that can be exchanged for stock in the corporation are called ________ bonds.

A bond sinking fund established to redeem bonds at maturity in 10 years should be classified in the current year on the balance sheet as:

A bond is issued for more than its face value.Which of the following statements most likely would explain why?

The entry to record the semiannual payment and amortization of the discount using the straight-line method on a 10%,$100,000,5-year bond issued at 97 would be to:

A bond is issued for an amount equal to its face value.Which of the following statements most likely would explain why?

The interest paid to bondholders is determined by:

A fund set up so that a bond can be retired at maturity is called a:

Interest earned on the sinking fund will be subtracted from the Sinking Fund account.

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

The real or actual rate of interest to the borrowing corporation is called the:

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: The Conclusion of the Payroll Process

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, and Retained Earnings

Statement of Cash Flows

Analyzing Financial Statements

The Voucher System

Departmental Accounting

Manufacturing Accounting

Filters

To determine the interest payment on a bond,multiply the value times the interest rate.