Question 1

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 2

On January 1, a company issues 8%, 5-year, $300,000 bonds that pay interest semiannually each June 30 and December 31. On the issue date, the annual market rate of interest for the bonds is 10%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
 $$\begin{array} { l | l } 
\text { Present value of an annuity for } 10 \text { periods at } & 8.1109 \
4 \% & \
\hline \text { Present value of an annuity for } 10 \text { periods at } \
5 \% & 7.7217 \
\hline \text { Present value of } 1 \text { for } 10 \text { periods at } 4 \% & 0.6756 \
\hline \text { Present value of } 1 \text { for } 10 \text { periods at } 5 \% & 0.6139
\end{array}$$

Accepted Answer

\[\begin{array} { l | l | l } 
\begin{ar

Question 3

A company purchased two new delivery vans for a total of $250,000 on January 1, Year 1. The company paid $40,000 cash and signed a $210,000, 3-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments of $81,487 each, with the first payment on December 31, Year 1. Each payment includes interest on the unpaid balance plus principal.
(1) Prepare a note amortization table using the format below:
 $\begin{array}{l|l|l|l|l|l}
\text { Period } & & \text { Debit } & \text { Debit } & & \
\hline \text { Ending } & \text { Beginning } & \text { Interest } & \text { Notes } & \text { Credit } & \text { Ending } \
\hline \text { Date } & \text { Balance } & \text { Expense } & \text { Payable } & \text { Cash } & \text { Balance } \
\hline 12 / 31 / \mathrm{Yr} 1 & & & & & \
\hline 12 / 31 / \mathrm{Yr} 2 & & & & & \
\hline 12 / 31 / \mathrm{Yr} 3 & & & & &
\end{array}$
 (2) Prepare the journal entries to record the purchase of the vans on January 1, Year 1 and the second annual installment payment on December 31, Year 2.

Accepted Answer

(1)
 12/31/Yr 1:
Interest expense: $210,

Question 4

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is
$2,373.94.

Accepted Answer

A) True 
 B)False

Question 5

______________bonds are bonds that mature at more than one date, often in a series, and thus are usually repaid over a number of periods.

Accepted Answer

The answer of ______________bonds are bonds that mature at more...

Question 6

Debentures always have specific assets of the issuing company pledged as collateral.

Accepted Answer

A) True 
 B)False

Question 7

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. Using the effective interest method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Accepted Answer

Bond Interest Expense 22,994
Discount on

Question 8

A bond sells at a discount when the:

Accepted Answer

A)  Contract rate is equal to the market rate. 
B)  Bond pays interest only once a year. 
C)  Contract rate is above the market rate. 
D)  Contract rate is below the market rate. 
E)  Bond has a short-term life. 
A)  Contract rate is equal to the market rate. 
B)  Bond pays interest only once a year. 
C)  Contract rate is above the market rate. 
D)  Contract rate is below the market rate. 
E)  Bond has a short-term life.

Question 9

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 is the journal entry to record the first annual payment?

Accepted Answer

A)  Debit Interest Expense $20,000; debit Interest Payable $17,258; credit Cash $37,258. 
B)  Debit Interest Expense $20,000; credit Cash $20,000. 
C)  Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258. 
D)  Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258. 
E)  Debit Interest Expense $37,258; credit Cash $37,258. 
A)  Debit Interest Expense $20,000; debit Interest Payable $17,258; credit Cash $37,258. 
B)  Debit Interest Expense $20,000; credit Cash $20,000. 
C)  Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258. 
D)  Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258. 
E)  Debit Interest Expense $37,258; credit Cash $37,258.

Question 10

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 issuance of the bond is:

Accepted Answer

A)  Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
B)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Cash $383,793; credit Bonds Payable $383,793. 
D)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
A)  Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
B)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Cash $383,793; credit Bonds Payable $383,793. 
D)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207.

Question 11

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 12

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Accepted Answer

A) True 
 B)False

Question 13

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 $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
B)  Debit Notes Payable $14,238; credit Cash $14,238. 
C)  Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
D)  Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
E)  Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
A)  Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
B)  Debit Notes Payable $14,238; credit Cash $14,238. 
C)  Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
D)  Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
E)  Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

Question 14

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

Question 15

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. Using the straight-line method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.(Round amounts to the nearest whole dollar)

Accepted Answer

\[\begin{array} { l | l | l } 
\text { B

Question 16

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177.
- The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
B)  Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
A)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
B)  Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Interest Payable $13,500; credit Cash $13,500.00.

Question 17

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

Question 18

Premium on Bonds Payable is an adjunct liability account, as it increases the carrying value of the bond.

Accepted Answer

A) True 
 B)False

Question 19

_______bonds have specific assets of the issuing company pledged as collateral.

Accepted Answer

The answer of _______bonds have specific assets of the issuing...

Question 20

When the contract rate is above the market rate, a bond sells at a discount.

Accepted Answer

A) True 
 B)False

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is $2,373.94.

______________bonds are bonds that mature at more than one date, often in a series, and thus are usually repaid over a number of periods.

Debentures always have specific assets of the issuing company pledged as collateral.

A bond sells at a discount when the:

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 is the journal entry to record the first annual payment?

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

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:

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:

Premium on Bonds Payable is an adjunct liability account, as it increases the carrying value of the bond.

_______bonds have specific assets of the issuing company pledged as collateral.

When the contract rate is above the market rate, a bond sells at a discount.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Exam 14: Long-Term Liabilities

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is $2,373.94.

______________bonds are bonds that mature at more than one date, often in a series, and thus are usually repaid over a number of periods.

Debentures always have specific assets of the issuing company pledged as collateral.

A bond sells at a discount when the:

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 is the journal entry to record the first annual payment?

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

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:

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:

Premium on Bonds Payable is an adjunct liability account, as it increases the carrying value of the bond.

_______bonds have specific assets of the issuing company pledged as collateral.

When the contract rate is above the market rate, a bond sells at a discount.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters