Question 1

The proceeds received from a bond issue will be greater than the bond maturity value when the coupon rate exceeds the market rate of interest.

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.
- Which of the following is incorrect with regard to the Davis bonds when the straight-line method of amortization is utilized?

Accepted Answer

A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued. 
B) The semiannual interest expense is $1,095. 
C) The book value of the bonds increases $45 every six months. 
D) The semiannual interest expense is less than the semiannual cash interest payment. 
A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued. 
B) The semiannual interest expense is $1,095. 
C) The book value of the bonds increases $45 every six months. 
D) The semiannual interest expense is less than the semiannual cash interest payment.

Question 3

On March 31,2019,Bundy Company retired $10,000,000 of bonds,which have an unamortized premium of $500,000,by paying bondholders $9,850,000.What is the amount of the gain or loss on the retirement of the bonds?

Accepted Answer

A) $150,000 loss. 
B) $150,000 gain. 
C) $650,000 gain. 
D) $350,000 loss. 
A) $150,000 loss. 
B) $150,000 gain. 
C) $650,000 gain. 
D) $350,000 loss.

Question 4

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:  
- What was the issuance price of the bonds if the market rate of interest was 8%?

Accepted Answer

A) $5,000,000. 
B) $5,670,000. 
C) $5,387,500. 
D) $5,712,500. 
A) $5,000,000. 
B) $5,670,000. 
C) $5,387,500. 
D) $5,712,500.

Question 5

A bond will sell at its par value when the market rate of interest equals the coupon rate of interest.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is incorrect?

Accepted Answer

A) It is common for companies to retire bonds and also issue new bonds in the same year as a way to replace higher interest rate debt with lower interest rate issuances. 
B) The cash payment of interest is reported as a cash flow from operating activities. 
C) Retiring bonds by paying cash creates a cash flow from investing activities when the issuing company buys the bonds back from investors. 
D) The cash payment to call an outstanding bond issue is reported as a cash flow from financing activities. 
A) It is common for companies to retire bonds and also issue new bonds in the same year as a way to replace higher interest rate debt with lower interest rate issuances. 
B) The cash payment of interest is reported as a cash flow from operating activities. 
C) Retiring bonds by paying cash creates a cash flow from investing activities when the issuing company buys the bonds back from investors. 
D) The cash payment to call an outstanding bond issue is reported as a cash flow from financing activities.

Question 7

A company prepared the following journal entry:   Which of the following statements incorrectly describes the effect of this journal entry on the financial statements?

Accepted Answer

A) The bonds payable book value decreases by the amount of the debit to premium on bonds payable. 
B) Assets decrease by the amount of the credit to cash. 
C) Stockholders' equity decreases by the amount of the debit to interest expense. 
D) The cash payment is reported as a cash flow from financing activities. 
A) The bonds payable book value decreases by the amount of the debit to premium on bonds payable. 
B) Assets decrease by the amount of the credit to cash. 
C) Stockholders' equity decreases by the amount of the debit to interest expense. 
D) The cash payment is reported as a cash flow from financing activities.

Question 8

Grand Company issued $150,000 of 5-year bonds on January 1,2019 with a coupon interest rate of 14%,payable annually each December 31.On January 1,2019,the market interest rate was 12%.Assume effective-interest amortization.(The present value factor for $1 at 6% for 10 periods is 0.55839,for $1 at 7% for 10 periods is 0.50835,for $1 at 14% for 5 periods is 0.51937,and for $1 at 12% for 5 periods is 0.56743.The present value of an annuity of $1 for 10 periods at 6% is 7.36009,for 10 periods at 7% is 7.02358,for 5 periods at 6% is 4.21236,for 5 periods at 7% is 4.10020,and for 5 periods at 12% is 3.60478).Round your final answers to the nearest next whole dollar amount.
A.Calculate the issue price (total amount received)at January 1,2019.
B.What would be the amount of premium amortization for December 31,2019? No adjusting journal entries have been made during the year.
C.What would be the amount of the interest payment on December 31,2019?
D.What is the book value of the bonds at December 31,2019?

Accepted Answer

A.$160,815.
B.$1,702

Question 9

Halverson's times interest earned ratio was 2.98 in 2019,2.79 in 2018,and 2.31 in 2017.Which of the following statements about the ratio is correct?

Accepted Answer

A) The increasing ratio indicates decreasing levels of debt on which interest is incurred. 
B) The increasing ratio indicates the strategy of pursuing growth by investment in other companies,which has increased debt,but Halverson's profits have not yet increased from those investments. 
C) The increasing ratio implies increased long-term debt financing. 
D) The increasing ratio would be considered by creditors to be an indicator of higher risk. 
A) The increasing ratio indicates decreasing levels of debt on which interest is incurred. 
B) The increasing ratio indicates the strategy of pursuing growth by investment in other companies,which has increased debt,but Halverson's profits have not yet increased from those investments. 
C) The increasing ratio implies increased long-term debt financing. 
D) The increasing ratio would be considered by creditors to be an indicator of higher risk.

Question 10

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 book value of the bonds after the November 1,2020 interest payment was recorded using the straight-line method of amortization?

Accepted Answer

A) $29,010. 
B) $29,100. 
C) $29,190. 
D) $29,280. 
A) $29,010. 
B) $29,100. 
C) $29,190. 
D) $29,280.

Question 11

Rock Company issued a $1,000,000 bond on January 1,2019.The bond was dated January 1,2019,had an 8% coupon rate,pays interest annually on December 31,and sold for $924,184 at a time when the market rate of interest was 10%.Rock uses the effective-interest method to account for its bonds.
Prepare the necessary journal entry for each of the following dates (assuming that no adjusting journal entries have been made during the year):
(a)January 1,2019
(b)December 31,2019
(c)December 31,2020
Round the entry items to the nearest whole dollar amounts.

Accepted Answer

(a)January 1,2019
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Question 12

The debt-to-equity ratio assesses the amount of capital provided by creditors relative to stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 13

Stone Company issued a $1,000,000,5-year bond on January 1,2019.The bond was dated January 1,2019 with an 8% coupon rate,paying interest annually on December 31,and was issued for $1,084,250 at a time when the market rate of interest was 6%.Stone uses the effective-interest method to account for its bonds.
Prepare the necessary journal entry for each of the following dates (round your answers to the nearest whole dollar amount):
(a)January 1,2019
(b)December 31,2019
(c)December 31,2020

Accepted Answer

(a)January 1,2019
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Question 14

A company prepared the following journal entry:   Which of the following statements is incorrect?

Accepted Answer

A) The book value of the bonds was less than the cash payment. 
B) The increase in stockholders' equity equals the gain on the bond retirement. 
C) The decrease in assets is less than the decrease in liabilities. 
D) The net cash flow from financing activities decreases by the cash payment. 
A) The book value of the bonds was less than the cash payment. 
B) The increase in stockholders' equity equals the gain on the bond retirement. 
C) The decrease in assets is less than the decrease in liabilities. 
D) The net cash flow from financing activities decreases by the cash payment.

Question 15

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used.
- The interest expense for the six-month period ending December 31,2019 is closest to:

Accepted Answer

A) $24,000. 
B) $20,491. 
C) $20,000. 
D) $20,825. 
A) $24,000. 
B) $20,491. 
C) $20,000. 
D) $20,825.

Question 16

Which of the following statements regarding the effective-interest method of amortization is incorrect?

Accepted Answer

A) The amount of interest expense is different each period. 
B) The amount of discount or premium,on which amortization is calculated,increases each period. 
C) The effective-interest method is one of the options allowed by generally accepted accounting principles for all bond issues. 
D) The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization. 
A) The amount of interest expense is different each period. 
B) The amount of discount or premium,on which amortization is calculated,increases each period. 
C) The effective-interest method is one of the options allowed by generally accepted accounting principles for all bond issues. 
D) The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization.

Question 17

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used.
- Which of the following statements is incorrect?

Accepted Answer

A) The market rate of interest on the sale date was less than the coupon rate of interest. 
B) The book value of the bond will decrease as the bond reaches maturity. 
C) The interest expense will decrease as the bond reaches maturity. 
D) The amortization of the premium on bonds payable will decrease as the bond matures. 
A) The market rate of interest on the sale date was less than the coupon rate of interest. 
B) The book value of the bond will decrease as the bond reaches maturity. 
C) The interest expense will decrease as the bond reaches maturity. 
D) The amortization of the premium on bonds payable will decrease as the bond matures.

Question 18

On January 1,2019,Clintwood Company issued a $1,000,ten-year,10% bond payable (interest payable each December 31).
For the three assumptions below,complete the following schedule if the fiscal year end is December 31,and straight-line amortization is used:

Accepted Answer

The answer of On January 1,2019,Clintwood Company issued a $1,000,ten-year,10%...

Question 19

When recording bond issuance costs for fees paid to underwriters:

Accepted Answer

A) The fee is recorded in a bond issuance costs account regardless of whether the bonds were issued at a discount or at a premium. 
B) The fee is recorded as a reduction in the bond discount account if the bonds were issued at a discount. 
C) The fee is recorded as a reduction in the bond premium account if the bonds were issued at a premium. 
D) The fee is recorded as a bond issuance expense regardless of whether the bonds were issued at a discount or at a premium. 
A) The fee is recorded in a bond issuance costs account regardless of whether the bonds were issued at a discount or at a premium. 
B) The fee is recorded as a reduction in the bond discount account if the bonds were issued at a discount. 
C) The fee is recorded as a reduction in the bond premium account if the bonds were issued at a premium. 
D) The fee is recorded as a bond issuance expense regardless of whether the bonds were issued at a discount or at a premium.

Question 20

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 11%.Which of the following statements is correct?

Accepted Answer

A) The bonds were issued at a premium. 
B) Annual interest expense will exceed the company's actual cash payments for interest. 
C) Annual interest expense will be $500,000. 
D) The book value of the bond will decrease as the bond matures. 
A) The bonds were issued at a premium. 
B) Annual interest expense will exceed the company's actual cash payments for interest. 
C) Annual interest expense will be $500,000. 
D) The book value of the bond will decrease as the bond matures.

The proceeds received from a bond issue will be greater than the bond maturity value when the coupon rate exceeds the market rate of interest.

On March 31,2019,Bundy Company retired $10,000,000 of bonds,which have an unamortized premium of $500,000,by paying bondholders $9,850,000.What is the amount of the gain or loss on the retirement of the bonds?

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: - What was the issuance price of the bonds if the market rate of interest was 8%?

A bond will sell at its par value when the market rate of interest equals the coupon rate of interest.

Which of the following statements is incorrect?

A company prepared the following journal entry: Which of the following statements incorrectly describes the effect of this journal entry on the financial statements?

Halverson's times interest earned ratio was 2.98 in 2019,2.79 in 2018,and 2.31 in 2017.Which of the following statements about the ratio is correct?

The debt-to-equity ratio assesses the amount of capital provided by creditors relative to stockholders' equity.

A company prepared the following journal entry: Which of the following statements is incorrect?

Which of the following statements regarding the effective-interest method of amortization is incorrect?

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used. - Which of the following statements is incorrect?

On January 1,2019,Clintwood Company issued a $1,000,ten-year,10% bond payable (interest payable each December 31). For the three assumptions below,complete the following schedule if the fiscal year end is December 31,and straight-line amortization is used:

When recording bond issuance costs for fees paid to underwriters:

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 11%.Which of the following statements is correct?

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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

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Exam 10: Reporting and Interpreting Bond Securities

The proceeds received from a bond issue will be greater than the bond maturity value when the coupon rate exceeds the market rate of interest.

On March 31,2019,Bundy Company retired $10,000,000 of bonds,which have an unamortized premium of $500,000,by paying bondholders $9,850,000.What is the amount of the gain or loss on the retirement of the bonds?

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: - What was the issuance price of the bonds if the market rate of interest was 8%?

A bond will sell at its par value when the market rate of interest equals the coupon rate of interest.

Which of the following statements is incorrect?

A company prepared the following journal entry: Which of the following statements incorrectly describes the effect of this journal entry on the financial statements?

Halverson's times interest earned ratio was 2.98 in 2019,2.79 in 2018,and 2.31 in 2017.Which of the following statements about the ratio is correct?

The debt-to-equity ratio assesses the amount of capital provided by creditors relative to stockholders' equity.

A company prepared the following journal entry: Which of the following statements is incorrect?

Which of the following statements regarding the effective-interest method of amortization is incorrect?

On January 1,2019,a company issued $400,000 of 10-year,12% bonds.The interest is payable semiannually on June 30 and December 31.The issue price was $413,153 based on a 10% market interest rate.The effective-interest method of amortization is used. - Which of the following statements is incorrect?

On January 1,2019,Clintwood Company issued a $1,000,ten-year,10% bond payable (interest payable each December 31). For the three assumptions below,complete the following schedule if the fiscal year end is December 31,and straight-line amortization is used:

When recording bond issuance costs for fees paid to underwriters:

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 11%.Which of the following statements is correct?

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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