Question 1

Collateral agreements for a note or bond can:

Accepted Answer

A)  Reduce the risk of loss in comparison with unsecured debt. 
B)  Increase the risk of loss in comparison with unsecured debt. 
C)  Have no effect on risk. 
D)  Reduce the issuer's assets. 
E)  Increase total cost for the borrower. 
A)  Reduce the risk of loss in comparison with unsecured debt. 
B)  Increase the risk of loss in comparison with unsecured debt. 
C)  Have no effect on risk. 
D)  Reduce the issuer's assets. 
E)  Increase total cost for the borrower.

Question 2

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Accepted Answer

A) True 
 B)False

Question 3

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

Accepted Answer

A bond premium occurs when bonds are sol

Question 4

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the issuance of the bond.

Accepted Answer

@#LAT-DLM& Discount

Question 5

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 6

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

Accepted Answer

A)  Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B)  Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C)  Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903. 
D)  Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E)  Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 
A)  Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B)  Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C)  Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903. 
D)  Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E)  Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000.

Question 7

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 8

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s)is:

Accepted Answer

A)  $3,200. 
B)  $2,800. 
C)  $1,600. 
D)  $1,400. 
E)  $0. 
A)  $3,200. 
B)  $2,800. 
C)  $1,600. 
D)  $1,400. 
E)  $0.

Question 9

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 payment on the note on December 31,Year 2 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 Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
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 Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
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 10

A discount reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 11

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Accepted Answer

A) True 
 B)False

Question 12

Match each of the following terms with the appropriate definitions.
-Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A) Secured bonds 
B) Sinking fund bonds 
C) Carrying value 
D) Serial bonds 
E) Bond indenture
F)Annuity
G)Premium on bonds
H)Contract rate
I)Debt-to-equity ratio
J)Callable bonds 
A) Secured bonds 
B) Sinking fund bonds 
C) Carrying value 
D) Serial bonds 
E) Bond indenture
F)Annuity
G)Premium on bonds
H)Contract rate
I)Debt-to-equity ratio
J)Callable bonds

Question 13

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

Accepted Answer

A) True 
 B)False

Question 14

How are bond issue prices determined?

Accepted Answer

The issue price of bonds is found by com

Question 15

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a 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 16

Strider Corporation issued 14%,5-year bonds with a par value of $5,000,000 on January 1,Year 1.Interest is to be paid semiannually on each June 30 and December 31.The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1,year 1.
(b)Show how the bonds would be reported on Strider's balance sheet at January 1,Year 1.
(c)Assume that Strider uses the effective interest method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.
(d)Assume instead that Strider uses the straight-line method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.

Accepted Answer

The answer of Strider Corporation issued 14%,5-year bonds with a...

Question 17

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Accepted Answer

A)  $3,500.00. 
B)  $3,679.49. 
C)  $3,673.01. 
D)  $7,000.00. 
E)  $7,346.03. 
A)  $3,500.00. 
B)  $3,679.49. 
C)  $3,673.01. 
D)  $7,000.00. 
E)  $7,346.03.

Question 18

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Accepted Answer

A)  Debit Bond Interest Expense $14,000; credit Cash $14,000. 
B)  Debit Bond Interest Expense $28,000; credit Cash $28,000. 
C)  Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200. 
D)  Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000. 
E)  Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200. 
A)  Debit Bond Interest Expense $14,000; credit Cash $14,000. 
B)  Debit Bond Interest Expense $28,000; credit Cash $28,000. 
C)  Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200. 
D)  Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000. 
E)  Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.

Question 19

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

Accepted Answer

$3,000 * 4

Question 20

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

Accepted Answer

A)  Debit to Premium on Bonds. 
B)  Credit to Premium on Bonds. 
C)  Debit to Discount on Bonds. 
D)  Credit to Gain on Bond Retirement. 
E)  Credit to Bonds Payable. 
A)  Debit to Premium on Bonds. 
B)  Credit to Premium on Bonds. 
C)  Debit to Discount on Bonds. 
D)  Credit to Gain on Bond Retirement. 
E)  Credit to Bonds Payable.

Collateral agreements for a note or bond can:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the issuance of the bond.

The effective interest amortization method:

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

A company's ability to issue unsecured debt depends on its credit standing.

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s)is:

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 payment on the note on December 31,Year 2 is:

A discount reduces the interest expense of a bond over its life.

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Match each of the following terms with the appropriate definitions. -Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

How are bond issue prices determined?

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

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

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Exam 10: Accounting for Long-Term Liabilities

Collateral agreements for a note or bond can:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the issuance of the bond.

The effective interest amortization method:

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

A company's ability to issue unsecured debt depends on its credit standing.

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s)is:

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 payment on the note on December 31,Year 2 is:

A discount reduces the interest expense of a bond over its life.

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Match each of the following terms with the appropriate definitions. -Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

How are bond issue prices determined?

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

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

Filters