Question 1

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

Accepted Answer

A) True 
 B)False

Question 2

Bondholder claims on the assets of the corporation rank ahead of stockholders.

Accepted Answer

A) True 
 B)False

Question 3

Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.

Accepted Answer

A) True 
 B)False

Question 4

Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

Accepted Answer

A) True 
 B)False

Question 5

Using the following table, what is the present value of $40,000 to be received in 5 years, if the market rate is 7% compounded annually? $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% \
\hline 1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 \
\hline 2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 \
\hline 3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 \
\hline 4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 \
\hline 5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 \
\hline 6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 \
\hline 7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 \
\hline 8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 \
\hline 9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 \
\hline 10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 \
\hline
\end{array}$$

Accepted Answer

The answer of Using the following table, what is the...

Question 6

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

Accepted Answer

A) True 
 B)False

Question 7

The face value of a term bond is payable at a single specific date in the future.

Accepted Answer

A) True 
 B)False

Question 8

On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

Accepted Answer

The answer of On the first day of the fiscal...

Question 9

The Designer Company issued 10-year bonds on January 1. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Designer should record interest expense (round to the nearest dollar) of

Accepted Answer

A)  $27,638 
B)  $24,000 
C)  $48,000 
D)  $55,277

Question 10

Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or discount.

Accepted Answer

A) True 
 B)False

Question 11

​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.

Question 12

Cramer Corp. issued $20,000,000 of 5-year, 9% bonds at a market (effective) interest rate of 10%, receiving cash of $19,227.757. Interest on the bonds is payable semiannually. Journalize the entry to record the first semiannual interest payment, and the amortization of the bond discount, using the interest method?

Accepted Answer

The answer of Cramer Corp. issued $20,000,000 of 5-year, 9%...

Question 13

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

Accepted Answer

A) True 
 B)False

Question 14

Creditors are interested in the times interest earned ratio because they want to

Accepted Answer

A)  know what rate of interest the corporation is paying 
B)  have adequate protection against a potential drop in earnings jeopardizing their interest payments 
C)  be sure their debt is backed by collateral 
D)  know the tax effect of lending to a corporation

Question 15

Given the following data, prepare the journal entry to record interest expense and any related amortization on December 31 of the first year using the effective interest rate method. Assume interest is paid annually on January 1. The bonds were issued on January 1 for $7,411,233.
 
Bonds payable, maturing in 10 years = $8,000,000
Contract interest rate = 5%
Market (effective) interest rate = 6%
 
Round answers to nearest dollar.

Accepted Answer

The answer of Given the following data, prepare the journal...

Question 16

The amortization of a premium on bonds payable decreases bond interest expense.

Accepted Answer

A) True 
 B)False

Question 17

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

Accepted Answer

A) True 
 B)False

Question 18

Using the table, calculate the present value of an annuity of $50,0000 to be received at the end of each of five years at 6 percent interest?
 
Present value of an annuity of $1 at compound interest:
 \(\begin{array}{ccccccc}
\text { Periods}&\mathbf{4 . 0 \%} & \mathbf{4 . 5 \%} & \mathbf{5 . 0 \%} & \mathbf{5 . 5 \%} & \mathbf{6 . 0 \%} & \mathbf{6 . 5 \%} & \mathbf{7 . 0 \%}&10.\%&11.0\%&12.0\%&13.0\% \
&0.961 & 0.956 & 0.952 & 0.947 & 0.943 & 0.938 & 0.934 & 0.909 & 0.900 & 0.892 & 0.884 \
1&54 & 94 & 38 & 87 & 40 & 97 & 58 & 09 & 90 & 86 & 96\&1.886 & 1.872 & 1.859 & 1.846 & 1.833 & 1.820 & 1.808 & 1.735 & 1.712 & 1.690 & 1.668 \
2&09 & 67 & 41 & 32 & 39 & 63 & 02 & 54 & 52 & 05 & 10\&2.775 & 2.748 & 2.723 & 2.697 & 2.673 & 2.648 & 2.624 & 2.486 & 2.443 & 2.401 & 2.361 \
3&09 & 96 & 25 & 93 & 01 & 48 & 32 & 85 & 71 & 83 & 15\&3.629 & 3.587 & 3.545 & 3.505 & 3.465 & 3.425 & 3.387 & 3.169 & 3.102 & 3.037 & 2.974 \
4&90 & 53 & 95 & 15 & 11 & 80 & 21 & 87 & 45 & 35 & 47\&4.451 & 4.389 & 4.329 & 4.270 & 4.212 & 4.155 & 4.100 & 3.790 & 3.695 & 3.604 & 3.517 \
5&82 & 98 & 48 & 28 & 36 & 68 & 20 & 79 & 90 & 78 & 23\&5.242 & 5.157 & 5.075 & 4.995 & 4.917 & 4.841 & 4.766 & 4.355 & 4.230 & 4.111 & 3.997 \
6&14 & 87 & 69 & 53 & 32 & 01 & 54 & 26 & 54 & 41 & 55\&6.002 & 5.892 & 5.786 & 5.682 & 5.582 & 5.484 & 5.389 & 4.868 & 4.712 & 4.563 & 4.422 \
7&05 & 70 & 37 & 97 & 38 & 52 & 29 & 42 & 20 & 76 & 61\&6.732 & 6.595 & 6.463 & 6.334 & 6.209 & 6.088 & 5.971 & 5.334 & 5.146 & 4.967 & 4.798 \
8&74 & 89 & 21 & 57 & 79 & 75 & 30 & 93 & 12 & 64 & 77\&7.435 & 7.268 & 7.107 & 6.952 & 6.801 & 6.656 & 6.515 & 5.759 & 5.537 & 5.328 & 5.131 \
9&33 & 79 & 82 & 20 & 69 & 10 & 23 & 02 & 05 & 25 & 66\&8.110 & 7.912 & 7.721 & 7.537 & 7.360 & 7.188 & 7.023 & 6.144 & 5.889 & 5.650 & 5.426 \
10&90 & 72 & 73 & 63 & 09 & 83 & 58 & 57 & 23 & 22 & 24
\end{array}\)

Accepted Answer

The answer of Using the table, calculate the present value...

Question 19

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

Accepted Answer

A)  $10,290 
B)  $2,710 
C)  $2,500 
D)  $2,290

Question 20

Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is

Accepted Answer

A)  
 
B)  
 
C)  
 
D)

Exam 11: Liabilities: Bonds Payable

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.

Bondholder claims on the assets of the corporation rank ahead of stockholders.

Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.

Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

The face value of a term bond is payable at a single specific date in the future.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or discount.

​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?

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

Creditors are interested in the times interest earned ratio because they want to

The amortization of a premium on bonds payable decreases bond interest expense.

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is

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?