Question 1

Balance sheet and income statement data indicate the following:

Accepted Answer

The answer of Balance sheet and income statement data indicate...

Question 2

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Accepted Answer

A)  The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginning of the year. 
B)  The amount of the annual interest expense gradually decreases over the life of the bonds. 
C)  The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. 
D)  The bonds will be issued at a premium. 
A)  The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginning of the year. 
B)  The amount of the annual interest expense gradually decreases over the life of the bonds. 
C)  The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. 
D)  The bonds will be issued at a premium.

Question 3

(a)  Prepare the joumal entry to issue $500,000 bonds which sold for $490,000
(b)  Prepare the journal entry to issue $500,000 bonds which sold for $515,000

Accepted Answer

(a) Cash 490,000
Discount on B

Question 4

The Merchant Company issued 10-year bonds on January 1, 2011. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Merchant should record interest expense (round to the nearest dollar) of

Accepted Answer

A)  $7,032 
B)  $7,500 
C)  $8,790 
D)  $14,065 
A)  $7,032 
B)  $7,500 
C)  $8,790 
D)  $14,065

Question 5

Use the following tables to calculate the present value of a $25,000 7%, 5 year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest
   Present Value of Annuity of $1 at Compound Interest

Accepted Answer

The answer of Use the following tables to calculate the...

Question 6

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

Accepted Answer

A) True 
 B)False

Question 7

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. If the company uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to:

Accepted Answer

A)  Interest Payable for $30,000 
B)  Interest Expense for $32,500 
C)  Cash for $70,000 
D)  Premium on Bonds Payable for $5,500 
A)  Interest Payable for $30,000 
B)  Interest Expense for $32,500 
C)  Cash for $70,000 
D)  Premium on Bonds Payable for $5,500

Question 8

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

Accepted Answer

A) True 
 B)False

Question 9

A secured bond is called a debenture bond and is backed only by the general creditworthiness of the corporation.

Accepted Answer

A) True 
 B)False

Question 10

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

Accepted Answer

(a)
 @#IMG-DLM&_TB20

Question 11

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

Accepted Answer

A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets 
A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets

Question 12

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Accepted Answer

The answer of A $500,000 bond issue on which there...

Question 13

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Accepted Answer

The answer of A $500,000 bond issue on which there...

Question 14

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Discount on Bonds Payable for $40,000. 
B)  debit to Cash of $1,000,000. 
C)  credit to Bonds Payable for $960,000. 
D)  credit to Cash for $960,000. 
A)  debit to Discount on Bonds Payable for $40,000. 
B)  debit to Cash of $1,000,000. 
C)  credit to Bonds Payable for $960,000. 
D)  credit to Cash for $960,000.

Question 15

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

Accepted Answer

A) True 
 B)False

Question 16

If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

Accepted Answer

A) True 
 B)False

Question 17

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Accepted Answer

A)  equal the interest rate on the note times the carrying amount of the note at the beginning of the period. 
B)  remain constant over the term of the note. 
C)  equal the interest rate on the note times the face amount. 
D)  increase over the term of the note. 
A)  equal the interest rate on the note times the carrying amount of the note at the beginning of the period. 
B)  remain constant over the term of the note. 
C)  equal the interest rate on the note times the face amount. 
D)  increase over the term of the note.

Question 18

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

Accepted Answer

A) True 
 B)False

Question 19

Present entries to record the selected transactions described below:

Accepted Answer

(a)
 @#IMG-DLM&_TB20

Question 20

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

Accepted Answer

A)  a direct deduction from the face amount of the bonds in the liability section 
B)  as paid-in capital 
C)  a direct deduction from retained earnings 
D)  an addition to the face amount of the bonds in the liability section 
A)  a direct deduction from the face amount of the bonds in the liability section 
B)  as paid-in capital 
C)  a direct deduction from retained earnings 
D)  an addition to the face amount of the bonds in the liability section

Exam 14: Long-Term Liabilities: Bonds and Notes

Balance sheet and income statement data indicate the following:

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

(a) Prepare the joumal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500,000 bonds which sold for $515,000

Use the following tables to calculate the present value of a $25,000 7%, 5 year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

A corporation often issues callable bonds to protect itself against significant declines in future interest rates.

A secured bond is called a debenture bond and is backed only by the general creditworthiness of the corporation.

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

Present entries to record the selected transactions described below:

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

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

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