Question 1

The effective interest amortization method:

Accepted Answer

A) Allocates bond interest expense over the bond's life using a changing interest rate. 
B) Allocates bond interest expense over the bond's life using a constant interest rate. 
C) Allocates a decreasing amount of interest over the life of a discounted bond. 
D) Allocates bond interest expense using the current market rate for each interest period. 
E) Is not allowed by the FASB. 
A) Allocates bond interest expense over the bond's life using a changing interest rate. 
B) Allocates bond interest expense over the bond's life using a constant interest rate. 
C) Allocates a decreasing amount of interest over the life of a discounted bond. 
D) Allocates bond interest expense using the current market rate for each interest period. 
E) Is not allowed by the FASB.

Question 2

The carrying value of bonds at maturity always equals:

Accepted Answer

A) the amount of cash originally received in exchange for the bonds. 
B) the par value of the bond. 
C) the amount of discount or premium. 
D) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E) the amount in excess of par value. 
A) the amount of cash originally received in exchange for the bonds. 
B) the par value of the bond. 
C) the amount of discount or premium. 
D) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E) the amount in excess of par value.

Question 3

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.
-The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C) Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D) Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E) Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00. 
A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C) Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D) Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E) Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Question 4

On January 1,Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607,the first of which is due on December 31,Year 1.
(a)Prepare the company's journal entry to record the note's issuance.
(b)Prepare the journal entries to record the first and second installment payments.

Accepted Answer

@#IMG-DLM& Second year Note Pa

Question 5

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value for an annuity (series of payments)at 8% for 5 years is 3.9927.The present value of 1 (single sum)at 8% for 5 years is .6806.Each annual payment equals $75,000.The present value of the note is:

Accepted Answer

A) $56,352.84. 
B) $18,784.28. 
C) $375,000.00. 
D) $299,452.50. 
E) $110,196.89. 
A) $56,352.84. 
B) $18,784.28. 
C) $375,000.00. 
D) $299,452.50. 
E) $110,196.89.

Question 6

Describe the recording procedures for the issuance,retirement,and payment of interest for installment notes.

Accepted Answer

At issuance,the proceeds from a note mus

Question 7

On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the first payment on the note on December 31,Year 1 is:

Accepted Answer

A) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D) Debit Notes Payable $14,238; credit Cash $14,238. 
E) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
A) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D) Debit Notes Payable $14,238; credit Cash $14,238. 
E) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Question 8

On January 1,Year 1 Cleaver Company borrowed $85,000 cash by signing a 7% installment note that is to be repaid with 4 annual year-end payments of $25,094,the first of which is due on December 31,Year 1.
(a)Prepare the company's journal entry to record the note's issuance.
(b)Prepare the journal entries to record the first installment payment.

Accepted Answer

The answer of On January 1,Year 1 Cleaver Company borrowed...

Question 9

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 10

A company issued 10%,5-year bonds with a par value of $2,000,000,on January 1.Interest is to be paid semiannually each June 30 and December 31.The bonds were sold at $2,162,290 based on an annual market rate of 8%.The company uses the effective interest method of amortization.
(1)Prepare an amortization table for the first two semiannual payment periods using the format shown below.
   (2)Prepare the journal entry to record the first semiannual interest payment.

Accepted Answer

(1)
 @#IMG-DLM& 6/30
Cash payment: $2,000,000 * 10

Question 11

On January 1,Haymark Corporation signs a six-year lease for a truck that is accounted for as a finance lease.The lease requires six $15,252 lease payments (the first at the beginning of the lease and the rest at December 31 of years 1 through 5).The present value of the six annual lease payments,at 6% interest,is $79,500.The lease payment schedule follows.
   (a)Prepare the January 1 journal entry at the start of the lease to record any asset or liability.
(b)Prepare the January 1 journal entry to record the first $15,252 cash lease payment.
(b)Prepare the journal entry to record the cash lease payment at the end of Year 1 and the end of Year 2.
(c)Prepare the journal entry made at the end of each year to record straight-line amortization,assuming zero salvage value at the end of the six-year lease term.

Accepted Answer

The answer of On January 1,Haymark Corporation signs a six-year...

Question 12

Which of the following statements is true?

Accepted Answer

A) Interest on bonds is tax deductible. 
B) Interest on bonds is not tax deductible. 
C) Dividends to stockholders are tax deductible. 
D) Bonds do not have to be repaid. 
E) Bonds always increase return on equity. 
A) Interest on bonds is tax deductible. 
B) Interest on bonds is not tax deductible. 
C) Dividends to stockholders are tax deductible. 
D) Bonds do not have to be repaid. 
E) Bonds always increase return on equity.

Question 13

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of interest expense will be included in the first annual payment?

Accepted Answer

A) $20,000 
B) $37,258 
C) $25,000 
D) $17,258 
E) $232,742 
A) $20,000 
B) $37,258 
C) $25,000 
D) $17,258 
E) $232,742

Question 14

The debt-to-equity ratio:

Accepted Answer

A) Is calculated by dividing book value of secured liabilities by book value of pledged assets. 
B) Is a means of assessing the risk of a company's financing structure. 
C) Is not relevant to secured creditors. 
D) Can always be calculated from information provided in a company's income statement. 
E) Must be calculated from the market values of assets and liabilities. 
A) Is calculated by dividing book value of secured liabilities by book value of pledged assets. 
B) Is a means of assessing the risk of a company's financing structure. 
C) Is not relevant to secured creditors. 
D) Can always be calculated from information provided in a company's income statement. 
E) Must be calculated from the market values of assets and liabilities.

Question 15

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 16

The carrying value of a bond is computed as the face value minus any unamortized discount or plus any unamortized premium.

Accepted Answer

A) True 
 B)False

Question 17

The bonds' future cash flows include the par value paid at maturity and the interest payments.

Accepted Answer

A) True 
 B)False

Question 18

________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

Accepted Answer

The answer of ________ bonds reduce a bondholder's risk by...

Question 19

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Accepted Answer

A bond is a written promise to pay an am

Question 20

The issue price of bonds is the ________ of the bonds' cash payments,discounted at the bonds' market rate.

Accepted Answer

The answer of The issue price of bonds is the...

Exam 10: Accounting for Long-Term Liabilities

The effective interest amortization method:

The carrying value of bonds at maturity always equals:

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value for an annuity (series of payments)at 8% for 5 years is 3.9927.The present value of 1 (single sum)at 8% for 5 years is .6806.Each annual payment equals $75,000.The present value of the note is:

Describe the recording procedures for the issuance,retirement,and payment of interest for installment notes.

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Which of the following statements is true?

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of interest expense will be included in the first annual payment?

The debt-to-equity ratio:

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

The carrying value of a bond is computed as the face value minus any unamortized discount or plus any unamortized premium.

The bonds' future cash flows include the par value paid at maturity and the interest payments.

________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

The issue price of bonds is the ________ of the bonds' cash payments,discounted at the bonds' market rate.

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