Question 1

A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

Accepted Answer

A)  present value of 50 semiannual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 25 years 
B)  present value of 25 annual interest payments of $720,000 
C)  present value of 25 annual interest payments of $720,000, plus present value of $9,000,000 to be repaid in 25 years 
D)  present value of $9,000,000 to be repaid in 25 years, less present value of 50 semiannual interest payments of $360,000 
A)  present value of 50 semiannual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 25 years 
B)  present value of 25 annual interest payments of $720,000 
C)  present value of 25 annual interest payments of $720,000, plus present value of $9,000,000 to be repaid in 25 years 
D)  present value of $9,000,000 to be repaid in 25 years, less present value of 50 semiannual interest payments of $360,000

Question 2

The Marx Company issued $100,000 of 12% bonds on April 1, 2010 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2010, and mature on January 1, 2014. The total interest expense related to these bonds for the year ended December 31, 2010 is

Accepted Answer

A)  $1,000 
B)  $3,000 
C)  $9,000 
D)  12,000 
A)  $1,000 
B)  $3,000 
C)  $9,000 
D)  12,000

Question 3

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Accepted Answer

A) True 
 B)False

Question 4

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year:

Accepted Answer

(a)
 @#IMG-DLM&_TB20

Question 5

The interest rate specified in the bond indenture is called the

Accepted Answer

A)  discount rate 
B)  contract rate 
C)  market rate 
D)  effective rate 
A)  discount rate 
B)  contract rate 
C)  market rate 
D)  effective rate

Question 6

Sinking Fund Income is reported in the income statement as

Accepted Answer

A)  income from operations 
B)  extraordinary 
C)  gain on sinking fund transactions 
D)  other income 
A)  income from operations 
B)  extraordinary 
C)  gain on sinking fund transactions 
D)  other income

Question 7

Bonds with a face amount $1,000,000, are sold at 108. The entry to record the issuance is

Accepted Answer

A)  Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000 
B)  Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000 
C)  Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000 
D)  Cash 1,080,000 Bonds Payable 1,080,000 
A)  Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000 
B)  Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000 
C)  Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000 
D)  Cash 1,080,000 Bonds Payable 1,080,000

Question 8

Bondholders are creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 9

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Accepted Answer

A) True 
 B)False

Question 10

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Accepted Answer

A) True 
 B)False

Question 11

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

Accepted Answer

A)  $10,420. 
B)  $5,420. 
C)  $5,000. 
D)  $4,580. 
A)  $10,420. 
B)  $5,420. 
C)  $5,000. 
D)  $4,580.

Question 12

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amoritization of the bond premium (by straight-line method) for the year by Orange Inc. includes a credit to:

Accepted Answer

A)  Interest Revenue for $5,000 
B)  Interest Revenue for $2,500 
C)  Investment in Lisbon Co. Bonds $5,000 
D)  Investment in Lisbon Co. Bonds $2,500 
A)  Interest Revenue for $5,000 
B)  Interest Revenue for $2,500 
C)  Investment in Lisbon Co. Bonds $5,000 
D)  Investment in Lisbon Co. Bonds $2,500

Question 13

When the market rate of interest was 11%, Valley Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be

Accepted Answer

A)  $4,000 
B)  $896 
C)  $17,926 
D)  $1,793 
A)  $4,000 
B)  $896 
C)  $17,926 
D)  $1,793

Question 14

Glover Corporation issued $2,000,000 of 7.5%, 6-year bonds dated March 1, 2011, with semiannual interest payments on September 1 and March 1. The bonds were issued on March 1, 2011, at 97. Glover's year-end is December 31.
a) Were the bonds issued at a premium, a discount, or at par?
b) Was the market rate of interest higher, lower, or the same as the contract rate of interest?
c) If the company uses the straight-line method of amortization, what is the amount of interest expense Glover Corporation will show for the year ended December 31, 2011?
d) What is the carrying value of the bonds on December 31, 2011?

Accepted Answer

a) The bonds were issued at a discount.

Question 15

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

Accepted Answer

A)  $ 321,970 
B)  $1,000,000 
C)  $ 943,494 
D)  $621,524 
A)  $ 321,970 
B)  $1,000,000 
C)  $ 943,494 
D)  $621,524

Question 16

The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is

Accepted Answer

A)  debit Interest Expense, credit Cash and Discount on Bonds Payable 
B)  debit Interest Expense, credit Cash 
C)  debit Interest Expense and Discount on Bonds Payable, credit Cash 
D)  debit Interest Expense, credit Interest Payable and Discount on Bonds Payable 
A)  debit Interest Expense, credit Cash and Discount on Bonds Payable 
B)  debit Interest Expense, credit Cash 
C)  debit Interest Expense and Discount on Bonds Payable, credit Cash 
D)  debit Interest Expense, credit Interest Payable and Discount on Bonds Payable

Question 17

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $296,000. The entry to record the redemption would include a

Accepted Answer

A)  loss on bond redemption of $4,000. 
B)  gain on bond redemption of $4,000. 
C)  gain on bond redemption of $2,000. 
D)  loss on bond redemption of $2,000. 
A)  loss on bond redemption of $4,000. 
B)  gain on bond redemption of $4,000. 
C)  gain on bond redemption of $2,000. 
D)  loss on bond redemption of $2,000.

Question 18

When the effective-interest method is used, the amortization of the bond premium

Accepted Answer

A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period 
A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period

Question 19

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

Accepted Answer

A)  $26,000 
B)  $27,635 
C)  $21,642 
D)  $28,402 
A)  $26,000 
B)  $27,635 
C)  $21,642 
D)  $28,402

Question 20

The unamortized Discount on Bonds Payable account is a contra-liability account.

Accepted Answer

A) True 
 B)False

Exam 14: Long-Term Liabilities: Bonds and Notes

A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

The Marx Company issued $100,000 of 12% bonds on April 1, 2010 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2010, and mature on January 1, 2014. The total interest expense related to these bonds for the year ended December 31, 2010 is

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year:

The interest rate specified in the bond indenture is called the

Sinking Fund Income is reported in the income statement as

Bonds with a face amount $1,000,000, are sold at 108. The entry to record the issuance is

Bondholders are creditors of the issuing corporation.

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is

When the market rate of interest was 11%, Valley Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $296,000. The entry to record the redemption would include a

When the effective-interest method is used, the amortization of the bond premium

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

The unamortized Discount on Bonds Payable account is a contra-liability account.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Filters