Question 1

Amortization of a discount on a bond payable will result in an increase in the book value of the bond liability on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 2

On November 1,2019,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2019,and interest is payable each November 1 and May 1.Davis uses the straight-line method of amortization.
- How much is the semiannual interest expense when the straight-line method of amortization is utilized?

Accepted Answer

A) $2,010. 
B) $2,190. 
C) $1,095. 
D) $2,055. 
A) $2,010. 
B) $2,190. 
C) $1,095. 
D) $2,055.

Question 3

The journal entry for the cash payment of interest on a bond issued at a premium results in an increase in the book value of the bond liability.

Accepted Answer

A) True 
 B)False

Question 4

On January 1,2019,Simmons Company issued $100,000 of its ten-year,6% bonds payable at $108,000 to yield a market rate of 5%.The bonds were dated January 1,2019,and interest is paid semiannually on each June 30 and each December 31.The effective interest method is used for amortization and no adjusting journal entries were made during the year.
A.Prepare the journal entry for the sale of the bonds.
B.Prepare the journal entry to record the first interest payment and include the appropriate date before the entry.
C.Prepare the journal entry to record the second interest payment and include the appropriate date before the entry.

Accepted Answer

The answer of On January 1,2019,Simmons Company issued $100,000 of...

Question 5

Mayberry,Inc. ,issued $100,000 of 10-year,12% bonds dated April 1,2019,for $102,360 on April 1,2019.The bonds pay interest annually on April 1,beginning in 2020.Straight-line amortization is used by the company.What entry is required at April 1,2020 for the first interest payment?

Accepted Answer

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

Question 6

Skylar Company issued $50,000,000 of its 10% bonds at par on January 1,2019.On December 31,2019,the bonds were trading on the bond exchange at 102.5.Since the issue date,what has happened to the market rate of interest?

Accepted Answer

A) The market rate increased. 
B) The market rate decreased. 
C) The market rate stayed the same. 
D) The change in the market rate cannot be determined. 
A) The market rate increased. 
B) The market rate decreased. 
C) The market rate stayed the same. 
D) The change in the market rate cannot be determined.

Question 7

When a company needs funds to finance the expansion of its operations,which of the following is not an advantage of issuing bonds rather than issuing stock?

Accepted Answer

A) Stockholders remain in control as bondholders cannot vote or share in the company's earnings. 
B) Interest expense is tax deductible but dividends are not. 
C) Bonds can usually be issued at a low interest rate and the proceeds can be invested to earn a higher rate. 
D) The dates for the interest and maturity payments are fixed. 
A) Stockholders remain in control as bondholders cannot vote or share in the company's earnings. 
B) Interest expense is tax deductible but dividends are not. 
C) Bonds can usually be issued at a low interest rate and the proceeds can be invested to earn a higher rate. 
D) The dates for the interest and maturity payments are fixed.

Question 8

Fence Company reported the following information for 2019 (in millions).
Identify the activities section where these items would be reported on the statement of cash flows (operating,investing,or financing).Also,indicate whether each amount would be added (+)or subtracted (-)in those sections of the statement of cash flows.

Accepted Answer

The answer of Fence Company reported the following information for...

Question 9

Harriman Company authorized a $1,000,000,10-year,6% bond issue dated January 1,2019,when the market rate was 8%.Annual interest will be paid each December 31.On January 1,2019,the bonds were issued for $866,000.Harriman Company has a December 31 year-end.
A.Prepare the journal entry to record the sale of the bonds.
B.Prepare the required journal entry on December 31,2019 to record amortization using the effective interest method.No adjusting journal entries were made during the year.
C.Was the bond issued at par,at a discount,or at a premium?
D.Will interest expense over the life of the bond be greater than,less than,or equal to the total cash payment for interest over the life of the bond?

Accepted Answer

A.
 @#IMG-DLM& B.
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Question 10

Either straight-line or effective-interest amortization may be used for bond premiums or discounts regardless of the amounts involved.

Accepted Answer

A) True 
 B)False

Question 11

On July 1,2019,immediately after recording interest payments,Salsa,Inc.retired one fifth of its $500,000 of bonds payable for $97,500.The bonds were originally issued at par value in 2014.Which of the following statements is correct?

Accepted Answer

A) Stockholders' equity is not affected by the bond retirement. 
B) A gain of $2,500 will be reported on the income statement. 
C) A loss of $2,500 will be reported on the income statement. 
D) A gain of $402,500 will be reported on the income statement. 
A) Stockholders' equity is not affected by the bond retirement. 
B) A gain of $2,500 will be reported on the income statement. 
C) A loss of $2,500 will be reported on the income statement. 
D) A gain of $402,500 will be reported on the income statement.

Question 12

Which of the following statements does not correctly describe the accounting for bonds that were issued at their face (maturity)value?

Accepted Answer

A) The market rate of interest equals the coupon rate. 
B) The interest expense over the life of the bonds will equal the total cash interest payments. 
C) The present value of the bonds' future cash flows equals the bonds' maturity value. 
D) The book value of the bond liability decreases when interest payments are made on the due dates. 
A) The market rate of interest equals the coupon rate. 
B) The interest expense over the life of the bonds will equal the total cash interest payments. 
C) The present value of the bonds' future cash flows equals the bonds' maturity value. 
D) The book value of the bond liability decreases when interest payments are made on the due dates.

Question 13

A convertible bond can be called for early retirement at the option of the issuing company.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements regarding the debt-to-equity ratio is correct?

Accepted Answer

A) A high ratio means that the company is primarily financed through stockholder investments. 
B) A higher ratio is preferred. 
C) The debt-to-equity ratio is a measure of a company's ability to pay its debt. 
D) The debt-to-equity ratio is a measure of investor and creditor risk. 
A) A high ratio means that the company is primarily financed through stockholder investments. 
B) A higher ratio is preferred. 
C) The debt-to-equity ratio is a measure of a company's ability to pay its debt. 
D) The debt-to-equity ratio is a measure of investor and creditor risk.

Question 15

When recording bond issuance costs for underwriter fees:

Accepted Answer

A) Debit bond issuance costs and credit cash. 
B) Credit bond issuance costs and debit bond discount. 
C) Debit bond premium and credit cash. 
D) Credit cash and debit bond fee expense. 
A) Debit bond issuance costs and credit cash. 
B) Credit bond issuance costs and debit bond discount. 
C) Debit bond premium and credit cash. 
D) Credit cash and debit bond fee expense.

Question 16

When a bond payable is issued at a premium,subsequent amortization of the premium does which of the following?

Accepted Answer

A) Increases interest expense. 
B) Decreases the book value of the bonds. 
C) When the effective-interest method is used,the amount of amortization would decrease for each year the bond approaches maturity. 
D) The amount of amortization would be added to net income to arrive at cash flows from operating activities. 
A) Increases interest expense. 
B) Decreases the book value of the bonds. 
C) When the effective-interest method is used,the amount of amortization would decrease for each year the bond approaches maturity. 
D) The amount of amortization would be added to net income to arrive at cash flows from operating activities.

Question 17

Interest expense increases over time when a bond is initially issued at a premium and the effective-interest method is used.

Accepted Answer

A) True 
 B)False

Question 18

On January 1,2019,Tonika Company issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Tonika uses the effective-interest amortization method.
- The December 31,2020 book value after the December 31,2020 interest payment was made is closest to:

Accepted Answer

A) $9,662. 
B) $9,820. 
C) $9,668. 
D) $9,723. 
A) $9,662. 
B) $9,820. 
C) $9,668. 
D) $9,723.

Question 19

On January 1,2019,Jason Company issued $5 million of 10-year bonds at a 10% coupon interest rate to be paid annually.The following present value factors have been provided:   
-Calculate the issuance price if the market rate of interest is 12%.

Accepted Answer

A) $4,427,500. 
B) $4,477,500. 
C) $4,435,000. 
D) $5,000,000. 
A) $4,427,500. 
B) $4,477,500. 
C) $4,435,000. 
D) $5,000,000.

Question 20

The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Amortization of a discount on a bond payable will result in an increase in the book value of the bond liability on the balance sheet.

The journal entry for the cash payment of interest on a bond issued at a premium results in an increase in the book value of the bond liability.

Mayberry,Inc. ,issued $100,000 of 10-year,12% bonds dated April 1,2019,for $102,360 on April 1,2019.The bonds pay interest annually on April 1,beginning in 2020.Straight-line amortization is used by the company.What entry is required at April 1,2020 for the first interest payment?

Skylar Company issued $50,000,000 of its 10% bonds at par on January 1,2019.On December 31,2019,the bonds were trading on the bond exchange at 102.5.Since the issue date,what has happened to the market rate of interest?

When a company needs funds to finance the expansion of its operations,which of the following is not an advantage of issuing bonds rather than issuing stock?

Either straight-line or effective-interest amortization may be used for bond premiums or discounts regardless of the amounts involved.

On July 1,2019,immediately after recording interest payments,Salsa,Inc.retired one fifth of its $500,000 of bonds payable for $97,500.The bonds were originally issued at par value in 2014.Which of the following statements is correct?

Which of the following statements does not correctly describe the accounting for bonds that were issued at their face (maturity)value?

A convertible bond can be called for early retirement at the option of the issuing company.

Which of the following statements regarding the debt-to-equity ratio is correct?

When recording bond issuance costs for underwriter fees:

When a bond payable is issued at a premium,subsequent amortization of the premium does which of the following?

Interest expense increases over time when a bond is initially issued at a premium and the effective-interest method is used.

On January 1,2019,Jason Company issued $5 million of 10-year bonds at a 10% coupon interest rate to be paid annually.The following present value factors have been provided: -Calculate the issuance price if the market rate of interest is 12%.

The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 10: Reporting and Interpreting Bond Securities

Amortization of a discount on a bond payable will result in an increase in the book value of the bond liability on the balance sheet.

The journal entry for the cash payment of interest on a bond issued at a premium results in an increase in the book value of the bond liability.

Mayberry,Inc. ,issued $100,000 of 10-year,12% bonds dated April 1,2019,for $102,360 on April 1,2019.The bonds pay interest annually on April 1,beginning in 2020.Straight-line amortization is used by the company.What entry is required at April 1,2020 for the first interest payment?

Skylar Company issued $50,000,000 of its 10% bonds at par on January 1,2019.On December 31,2019,the bonds were trading on the bond exchange at 102.5.Since the issue date,what has happened to the market rate of interest?

When a company needs funds to finance the expansion of its operations,which of the following is not an advantage of issuing bonds rather than issuing stock?

Either straight-line or effective-interest amortization may be used for bond premiums or discounts regardless of the amounts involved.

On July 1,2019,immediately after recording interest payments,Salsa,Inc.retired one fifth of its $500,000 of bonds payable for $97,500.The bonds were originally issued at par value in 2014.Which of the following statements is correct?

Which of the following statements does not correctly describe the accounting for bonds that were issued at their face (maturity)value?

A convertible bond can be called for early retirement at the option of the issuing company.

Which of the following statements regarding the debt-to-equity ratio is correct?

When recording bond issuance costs for underwriter fees:

When a bond payable is issued at a premium,subsequent amortization of the premium does which of the following?

Interest expense increases over time when a bond is initially issued at a premium and the effective-interest method is used.

On January 1,2019,Jason Company issued $5 million of 10-year bonds at a 10% coupon interest rate to be paid annually.The following present value factors have been provided: -Calculate the issuance price if the market rate of interest is 12%.

The cash payment for interest on a bond payable is reported as a cash flow from financing activities on the statement of cash flows.

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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