Question 1

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 2

On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 102. What is the adjusting entry on December 31 using straight-line method?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

Which of the following statements is true?

Accepted Answer

A) Bondholders would be paid before stockholders in a liquidation. 
B) Dividends are required to be paid to stockholders. 
C) Bondholders are owners while stockholders are creditors. 
D) Stockholders receive a fixed interest while bondholders are paid only if earnings are sufficient. 
A) Bondholders would be paid before stockholders in a liquidation. 
B) Dividends are required to be paid to stockholders. 
C) Bondholders are owners while stockholders are creditors. 
D) Stockholders receive a fixed interest while bondholders are paid only if earnings are sufficient.

Question 4

When bonds are retired, the Bonds Payable account is credited for face value even if the bonds were originally sold at a premium.

Accepted Answer

A) True 
 B)False

Question 5

Island Corporation issued $500,000 of 6%, 10-year bonds at 104 on May 1, 2009. Interest is paid semi-annually 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 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

The carrying value for bonds sold at a discount:

Accepted Answer

A) equals face value at all times. 
B) increases as time passes until it matures at face value. 
C) decreases as time passes until it matures at face value. 
D) None of these answers are correct. 
A) equals face value at all times. 
B) increases as time passes until it matures at face value. 
C) decreases as time passes until it matures at face value. 
D) None of these answers are correct.

Question 7

On January 1, Auctions Online issued $300,000, 9%, 10-year bonds to lenders at the contract rate. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries:
a. Issued the bonds.
b. Paid first semiannual interest payment.
c. Retired the bonds at maturity.

Accepted Answer

The answer of On January 1, Auctions Online issued $300,000,...

Question 8

Dividends paid to stockholders are:

Accepted Answer

A) taxable to the recipient stockholder. 
B) taxable to the corporation. 
C) treated the same as bond interest. 
D) None of these answers are correct. 
A) taxable to the recipient stockholder. 
B) taxable to the corporation. 
C) treated the same as bond interest. 
D) None of these answers are correct.

Question 9

The straight-line method amortizes an equal amount of discount to Bonds Interest Expense each period.

Accepted Answer

A) True 
 B)False

Question 10

Using the following accounts:
   Indicate the account(s)to be debited and credited to record the following transactions.
-Recorded the interest earned on the bond sinking fund.
Debit ________ & ________ & ________ Credit ________ & ________ & ________

Accepted Answer

The answer of Using the following accounts:
   Indicate...

Question 11

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 12

Bailey Corporation has decided to issue bonds pledging specific assets. What type of bonds is it offering?

Accepted Answer

A) Secured bonds 
B) Debenture bonds 
C) Convertible bonds 
D) Serial bonds 
A) Secured bonds 
B) Debenture bonds 
C) Convertible bonds 
D) Serial bonds

Question 13

Describe bond refunding and explain why it might be advantageous for a company.

Accepted Answer

Bond refunding occurs when a company rea

Question 14

Using the following accounts:
   Indicate the account(s)to be debited and credited to record the following transactions.
-Retired bonds plus interest previously accrued when the retirement value was above the cost of retirement, cash was paid.
Debit ________ & ________ & ________ Credit ________ & ________ & ________

Accepted Answer

Debit 8 &

Question 15

One reason a corporation might issue bonds rather than selling stock is that:

Accepted Answer

A) bond interest is a tax-deductible expense. 
B) interest rates are high. 
C) dividends will lower the amount of tax due. 
D) bondholders have claims at liquidation. 
A) bond interest is a tax-deductible expense. 
B) interest rates are high. 
C) dividends will lower the amount of tax due. 
D) bondholders have claims at liquidation.

Question 16

On October 1, Allan Company issued 8%, 10-year, $300,000 bonds at 105. 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) $24,000. 
C) $12,000. 
D) $6,000. 
A) $0. 
B) $24,000. 
C) $12,000. 
D) $6,000.

Question 17

Davis Corporation sells $100,000, 12%, 10-year bonds for 103 on January 1. Compute the semi-annual interest expense recorded on July 1 using the interest method. The market rate is 8%.

Accepted Answer

A) $12,000 
B) $4,120 
C) $8,240 
D) $6,000 
A) $12,000 
B) $4,120 
C) $8,240 
D) $6,000

Question 18

If a corporation issues serial bonds, each bond will have the same maturity date.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

The contract rate for a bond is:

Accepted Answer

A) the annual interest rate based on selling price. 
B) the annual interest rate based on market value. 
C) the annual interest rate based on face value. 
D) None of these answers are correct. 
A) the annual interest rate based on selling price. 
B) the annual interest rate based on market value. 
C) the annual interest rate based on face value. 
D) None of these answers are correct.

Exam 20: Corporations and Bonds Payable

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

On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 102. What is the adjusting entry on December 31 using straight-line method?

Which of the following statements is true?

When bonds are retired, the Bonds Payable account is credited for face value even if the bonds were originally sold at a premium.

The carrying value for bonds sold at a discount:

On January 1, Auctions Online issued $300,000, 9%, 10-year bonds to lenders at the contract rate. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries: a. Issued the bonds. b. Paid first semiannual interest payment. c. Retired the bonds at maturity.

Dividends paid to stockholders are:

The straight-line method amortizes an equal amount of discount to Bonds Interest Expense each period.

Using the following accounts: Indicate the account(s)to be debited and credited to record the following transactions. -Recorded the interest earned on the bond sinking fund. Debit ________ & ________ & ________ Credit ________ & ________ & ________

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

Bailey Corporation has decided to issue bonds pledging specific assets. What type of bonds is it offering?

Describe bond refunding and explain why it might be advantageous for a company.

One reason a corporation might issue bonds rather than selling stock is that:

On October 1, Allan Company issued 8%, 10-year, $300,000 bonds at 105. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:

Davis Corporation sells $100,000, 12%, 10-year bonds for 103 on January 1. Compute the semi-annual interest expense recorded on July 1 using the interest method. The market rate is 8%.

If a corporation issues serial bonds, each bond will have the same maturity date.

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

The contract rate for a bond is:

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

Using the following accounts: Indicate the account(s)to be debited and credited to record the following transactions. -Recorded the interest earned on the bond sinking fund. Debit & & Credit & &