Question 1

Which of the following is TRUE of the Premium on Bonds Payable account? (The bonds are due in ten years.)

Accepted Answer

A)  It is added to the Bonds Payable balance and shown with long-term liabilities on the balance sheet. 
B)  It is added to the Bonds Payable balance and shown with stockholders' equity on the balance sheet. 
C)  It is subtracted from the Bonds Payable balance and shown with long-term liabilities on the balance sheet. 
D)  It is subtracted from the Bonds Payable balance and shown with the current liabilities on the balance sheet. 
A)  It is added to the Bonds Payable balance and shown with long-term liabilities on the balance sheet. 
B)  It is added to the Bonds Payable balance and shown with stockholders' equity on the balance sheet. 
C)  It is subtracted from the Bonds Payable balance and shown with long-term liabilities on the balance sheet. 
D)  It is subtracted from the Bonds Payable balance and shown with the current liabilities on the balance sheet. A

Question 2

Discount on Bonds Payable is additional Interest Expense of the company that issues the bond.

Accepted Answer

A) True 
 B)False  True

Question 3

On December 31,2018,Anderson Hardware Company purchases $300,000 of property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.The amortization schedule shows that the company will pay $46,072 per year.Journalize the first yearly payment on December 31,2019.Omit explanation.

Accepted Answer

$$\begin{array} { | c | r | r | } 
\hline \text { Mortgage Payable } & 13,572 & \
\hline \text { Interest Expense } & 32,500 & \
\hline \text { Cash } & & 46,072 \
\hline
\end{array}$$ Interest Expense = Principal × Interest
Interest Expense = $250,000 × .13
Interest Expense = $32,500

Question 4

On January 1,2018,Milton Tools Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Prepare the journal entry for January 1,2018.Omit explanation.

Accepted Answer

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

Question 5

Simple interest means that interest is calculated on the principal and on all previously earned interest.

Accepted Answer

A) True 
 B)False

Question 6

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.

Accepted Answer

A) True 
 B)False

Question 7

Willson Glassware Company issues $1,014,000 of 10%,10-year bonds at 97 on February 28,2019.The bond pays interest on February 28 and August 31.On August 31,2019,how much cash did Willson pay to the bondholders?

Accepted Answer

A)  $51,968 
B)  $50,700 
C)  $101,400 
D)  $49,432 
A)  $51,968 
B)  $50,700 
C)  $101,400 
D)  $49,432

Question 8

List the two categories of liabilities reported on the balance sheet and provide an example of each.

Accepted Answer

The two categories of liabilities report

Question 9

Present value is the amount a person would invest now to receive a greater amount in the future.

Accepted Answer

A) True 
 B)False

Question 10

On January 1,2019,Outdoor Services issued $20,000 of 8% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.Provide the journal entry for the payment made on June 30,2019.Omit explanation.

Accepted Answer

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Question 11

An investment today of $8,424 at 6% will yield $2,000 per year for the next five years because interest is being earned on principal that is left invested each year.The following tables are available:
Present value of $1:
 $$\begin{array} { | l | r | r | r | r | r | } 
\hline & 4 \% & 5 \% & 6 \% & 7 \% & 8 \% \
\hline 5 & 0.822 & 0.784 & 0.747 & 0.713 & 0.681 \
\hline 6 & 0.790 & 0.746 & 0.705 & 0.666 & 0.630 \
\hline 7& 0.760 & 0.711 & 0.665 & 0.623 & 0.583 \
\hline 8 & 0.731 & 0.677 & 0.627 & 0.582 & 0.540 \
\hline 9 & 0.703 & 0.645 & 0.592 & 0.544 & 0.500 \
\hline 10 & 0.676 & 0.614 & 0.558 & 0.508 & 0.463 \
\hline
\end{array}$$ Present value of ordinary annuity of $1:
 $$\begin{array} { | l | l | l | l | l | l | } 
\hline & 4 \% & 5 \% & 6 \% & 7 \% & 3 \% \
\hline 5 & 4.452 & 4.329 & 4.212 & 4.100 & 3.993 \
\hline 6 & 5.242 & 5.076 & 4.917 & 4.767 & 4.623 \
\hline7& 6.002 & 5.786 & 5.582 & 5.389 & 5.206 \
\hline 8 & 6.733 & 6.463 & 6.210 & 5.971 & 5.747 \
\hline 9 & 7.435 & 7.108 & 5.802 & 5.515 & 6.247 \
\hline 10 & 3.111 & 7.722 & 7.360 & 7.024 & 6.710 \
\hline
\end{array}$$

Accepted Answer

A) True 
 B)False

Question 12

On July 1,2019,Montana Company has bonds with balances as shown below.   Discount on Bonds Payable
  If the company retires the bonds for $71,150,what will be the effect on the income statement?

Accepted Answer

A)  loss on retirement of $4750 
B)  gain on retirement of $4750 
C)  sales revenue of $66,400 
D)  no effect on net income 
A)  loss on retirement of $4750 
B)  gain on retirement of $4750 
C)  sales revenue of $66,400 
D)  no effect on net income

Question 13

Term bonds all mature at the same specified time.

Accepted Answer

A) True 
 B)False

Question 14

A mortgage payable is a long-term debt that is backed with a security interest in specific property.

Accepted Answer

A) True 
 B)False

Question 15

On May 1,2018,Plumbing Services issued a long-term note payable for $35,000.The note will be paid over five-years with annual principal payments of $7,000,plus interest,on May 1 of each year beginning on May 1,2019.Prepare the journal entry for the issuance of the note.Omit explanation.

Accepted Answer

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Question 16

The Lakeside Company issues $518,000 of its 10%,10-year bonds at 106 on March 31,2019.The bonds pay interest on March 31 and September 30.On September 30,2019,how much cash did the company pay to the bondholders?

Accepted Answer

A)  $2590 
B)  $51,800 
C)  $25,900 
D)  $12,950 
A)  $2590 
B)  $51,800 
C)  $25,900 
D)  $12,950

Question 17

When using the effective-interest amortization method,the amount of the interest payment is calculated using the face value of the bonds and the stated interest rate.

Accepted Answer

A) True 
 B)False

Question 18

On December 31,2018,Country Living Sales has 10-year Bonds Payable of $89,000 and Discount on Bonds Payable of $2350.How will this be shown on the December 31,2018 Balance Sheet?

Accepted Answer

A)  Bonds Payable $89,000 less Discount on Bonds Payable $2350 for a carrying amount of $86,650 
B)  Bonds Payable $89,000 plus Discount on Bonds Payable for a carrying amount of $91,350 
C)  Bonds Payable $89,000 
D)  Bonds Payable $89,000 less one-tenth of $2350 for a carrying amount of $88,765 
A)  Bonds Payable $89,000 less Discount on Bonds Payable $2350 for a carrying amount of $86,650 
B)  Bonds Payable $89,000 plus Discount on Bonds Payable for a carrying amount of $91,350 
C)  Bonds Payable $89,000 
D)  Bonds Payable $89,000 less one-tenth of $2350 for a carrying amount of $88,765

Question 19

On January 1,2019,Drake Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.Omit explanation.

Accepted Answer

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Question 20

If bonds with a face value of $209,000 are issued at 93,the amount of cash proceeds is ________.

Accepted Answer

A)  $208,907 
B)  $209,000 
C)  $194,370 
D)  $179,740 
A)  $208,907 
B)  $209,000 
C)  $194,370 
D)  $179,740

Exam 14: Long-Term Liabilities

Which of the following is TRUE of the Premium on Bonds Payable account? (The bonds are due in ten years.)

Discount on Bonds Payable is additional Interest Expense of the company that issues the bond.

On January 1,2018,Milton Tools Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Prepare the journal entry for January 1,2018.Omit explanation.

Simple interest means that interest is calculated on the principal and on all previously earned interest.

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.

Willson Glassware Company issues $1,014,000 of 10%,10-year bonds at 97 on February 28,2019.The bond pays interest on February 28 and August 31.On August 31,2019,how much cash did Willson pay to the bondholders?

List the two categories of liabilities reported on the balance sheet and provide an example of each.

Present value is the amount a person would invest now to receive a greater amount in the future.

On January 1,2019,Outdoor Services issued $20,000 of 8% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.Provide the journal entry for the payment made on June 30,2019.Omit explanation.

On July 1,2019,Montana Company has bonds with balances as shown below. Discount on Bonds Payable If the company retires the bonds for $71,150,what will be the effect on the income statement?

Term bonds all mature at the same specified time.

A mortgage payable is a long-term debt that is backed with a security interest in specific property.

On May 1,2018,Plumbing Services issued a long-term note payable for $35,000.The note will be paid over five-years with annual principal payments of $7,000,plus interest,on May 1 of each year beginning on May 1,2019.Prepare the journal entry for the issuance of the note.Omit explanation.

The Lakeside Company issues $518,000 of its 10%,10-year bonds at 106 on March 31,2019.The bonds pay interest on March 31 and September 30.On September 30,2019,how much cash did the company pay to the bondholders?

When using the effective-interest amortization method,the amount of the interest payment is calculated using the face value of the bonds and the stated interest rate.

On December 31,2018,Country Living Sales has 10-year Bonds Payable of $89,000 and Discount on Bonds Payable of $2350.How will this be shown on the December 31,2018 Balance Sheet?

On January 1,2019,Drake Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.Omit explanation.

If bonds with a face value of $209,000 are issued at 93,the amount of cash proceeds is ________.

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