Question 1

Match each description below to the appropriate term (a-g).
​
-The return required by the market on the day of issuance

Accepted Answer

A) Contract rate 
B) Effective rate 
C) Bond discount 
D) Bond premium 
E) Bond
F)Bond indenture
G)Principal 
A) Contract rate 
B) Effective rate 
C) Bond discount 
D) Bond premium 
E) Bond
F)Bond indenture
G)Principal B

Question 2

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. 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 carrying amount increases from its amount at issuance date to $1,000,000 at maturity. 
B)  The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity. 
C)  The amount of annual interest paid to bondholders increases over the 10-year life of the bonds. 
D)  The amount of annual interest expense decreases as the bonds approach maturity. 
A)  The carrying amount increases from its amount at issuance date to $1,000,000 at maturity. 
B)  The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity. 
C)  The amount of annual interest paid to bondholders increases over the 10-year life of the bonds. 
D)  The amount of annual interest expense decreases as the bonds approach maturity. B

Question 3

On January 1, Yeargan Company obtained a $125,000, seven-year 5% installment note from Farmers Bank. The note requires annual payments of $21,602, with the first payment occurring on the last day of the fiscal year. The first payment consists of $6,250 interest and principal repayment of $15,352.Journalize the following entries:
(a)Issued the installment notes for cash on January 1.
(b)Paid the first annual payment on the note.

Accepted Answer

The answer of On January 1, Yeargan Company obtained a...

Question 4

On January 1 of the current year, Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is

Accepted Answer

A)  $10,900 
B)  $18,200 
C)  $21,800 
D)  $29,000 
A)  $10,900 
B)  $18,200 
C)  $21,800 
D)  $29,000

Question 5

Bonds Payable has a balance of $900,000, and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

Accepted Answer

A)  $1,200 loss 
B)  $1,200 gain 
C)  $17,000 loss 
D)  $17,000 gain 
A)  $1,200 loss 
B)  $1,200 gain 
C)  $17,000 loss 
D)  $17,000 gain

Question 6

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Accepted Answer

A) True 
 B)False

Question 7

When the corporation issuing the bonds has the right to redeem the bonds prior to maturity, the bonds are

Accepted Answer

A)  convertible bonds 
B)  unsecured bonds 
C)  debenture bonds 
D)  callable bonds 
A)  convertible bonds 
B)  unsecured bonds 
C)  debenture bonds 
D)  callable bonds

Question 8

Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Cash for $2,000,000 
B)  credit to Discount on Bonds Payable for $80,000 
C)  credit to Bonds Payable for $1,920,000 
D)  debit to Cash for $1,920,000 
A)  debit to Cash for $2,000,000 
B)  credit to Discount on Bonds Payable for $80,000 
C)  credit to Bonds Payable for $1,920,000 
D)  debit to Cash for $1,920,000

Question 9

Match each description below to the appropriate term (a-g).
​
-The contract between bond issuer and bond purchaser

Accepted Answer

A) Contract rate 
B) Effective rate 
C) Bond discount 
D) Bond premium 
E) Bond
F)Bond indenture
G)Principal 
A) Contract rate 
B) Effective rate 
C) Bond discount 
D) Bond premium 
E) Bond
F)Bond indenture
G)Principal

Question 10

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Accepted Answer

A) True 
 B)False

Question 11

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. 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 annual interest paid to bondholders remains the same over the life of the bonds. 
B)  The amount of annual interest expense decreases as the bonds approach maturity. 
C)  The amount of annual interest paid to bondholders increases over the 15-year life of the bonds. 
D)  The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity. 
A)  The amount of annual interest paid to bondholders remains the same over the life of the bonds. 
B)  The amount of annual interest expense decreases as the bonds approach maturity. 
C)  The amount of annual interest paid to bondholders increases over the 15-year life of the bonds. 
D)  The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.

Question 12

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

Accepted Answer

A)  $10,000 loss 
B)  $25,000 loss 
C)  $25,000 gain 
D)  $15,000 gain 
A)  $10,000 loss 
B)  $25,000 loss 
C)  $25,000 gain 
D)  $15,000 gain

Question 13

If $500,000 of 10-year bonds with interest payable semiannually are sold for $494,040 based on 
(1) the present value of $500,000 due in 20 periods at 5% plus 
(2) the present value of twenty $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%.

Accepted Answer

A) True 
 B)False

Question 14

On January 1, Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 10 years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 of the first year is

Accepted Answer

A)  $5,000 
B)  $5,200 
C)  $5,800 
D)  $5,400 
A)  $5,000 
B)  $5,200 
C)  $5,800 
D)  $5,400

Question 15

A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:Year 1Apr. 1Issued the bonds for cash at their face amount.Oct. 1Paid the interest on the bonds.Year 3Oct. 1Called the bond issue at 104, the rate provided in the bond indenture. 
(Omit entry for payment of interest.)

Accepted Answer

The answer of A company issued $1,000,000 of 30-year, 8%...

Question 16

(a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000.
(b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.

Accepted Answer

The answer of (a) Prepare the journal entry to issue...

Question 17

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A)  Tax savings result. 
B)  Income to common shareholders may increase. 
C)  Earnings per share on common stock may be lower. 
D)  Stockholder control is not affected. 
A)  Tax savings result. 
B)  Income to common shareholders may increase. 
C)  Earnings per share on common stock may be lower. 
D)  Stockholder control is not affected.

Question 18

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

Accepted Answer

A) True 
 B)False

Question 19

The balance in Premium on Bonds Payable

Accepted Answer

A)  should be reported on the balance sheet as a deduction from the related bonds payable 
B)  should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results obtained by that method materially differ from the results that would be obtained by the effective interest rate method 
C)  would be added to the related bonds payable on the balance sheet 
D)  should be reported in the Paid-in capital section of the balance sheet 
A)  should be reported on the balance sheet as a deduction from the related bonds payable 
B)  should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results obtained by that method materially differ from the results that would be obtained by the effective interest rate method 
C)  would be added to the related bonds payable on the balance sheet 
D)  should be reported in the Paid-in capital section of the balance sheet

Question 20

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Accepted Answer

The answer of Bonds with a face amount of $1,000,000...

Match each description below to the appropriate term (a-g). -The return required by the market on the day of issuance

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Bonds Payable has a balance of $900,000, and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

When the corporation issuing the bonds has the right to redeem the bonds prior to maturity, the bonds are

Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Match each description below to the appropriate term (a-g). -The contract between bond issuer and bond purchaser

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

(a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.

Which of the following is not an advantage of issuing bonds instead of common stock?

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

The balance in Premium on Bonds Payable

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

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

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Cost-Volume-Profit Analysis

Evaluating Variances From Standard Costs

Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Filters

Exam 14: Long-Term Liabilities: Bonds and Notes

Match each description below to the appropriate term (a-g). ​ -The return required by the market on the day of issuance

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Bonds Payable has a balance of $900,000, and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

When the corporation issuing the bonds has the right to redeem the bonds prior to maturity, the bonds are

Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Match each description below to the appropriate term (a-g). ​ -The contract between bond issuer and bond purchaser

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

(a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.

Which of the following is not an advantage of issuing bonds instead of common stock?

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

The balance in Premium on Bonds Payable

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

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

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Cost-Volume-Profit Analysis

Evaluating Variances From Standard Costs

Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Filters

Match each description below to the appropriate term (a-g). -The return required by the market on the day of issuance

Match each description below to the appropriate term (a-g). -The contract between bond issuer and bond purchaser