Question 1

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

Accepted Answer

A) True 
 B)False

Question 2

The higher the times interest earned ratio, the better the creditors' protection.

Accepted Answer

A) True 
 B)False

Question 3

One reason a dollar today is worth more than a dollar one year from today is the time value of money.

Accepted Answer

A) True 
 B)False

Question 4

The prices of bonds are quoted as a percentage of the bonds' market value.

Accepted Answer

A) True 
 B)False

Question 5

Match each description below to the appropriate term (a-g).
-The entire principal of the bond is paid back on maturity date

Accepted Answer

A) EPS 
B) Face value 
C) Callable bond 
D) Indenture 
E) Term bond
F)Convertible bond
G)Serial bond 
A) EPS 
B) Face value 
C) Callable bond 
D) Indenture 
E) Term bond
F)Convertible bond
G)Serial bond

Question 6

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

Accepted Answer

A)  face value 
B)  face value plus the unamortized discount 
C)  face value minus the unamortized premium 
D)  face value plus the unamortized premium 
A)  face value 
B)  face value plus the unamortized discount 
C)  face value minus the unamortized premium 
D)  face value plus the unamortized premium

Question 7

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 = $8,000,000Contract 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 8

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization, the effective interest rate method should be used.

Accepted Answer

A) True 
 B)False

Question 9

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Accepted Answer

A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable 
A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable

Question 10

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every six months.

Accepted Answer

A) True 
 B)False

Question 11

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

Accepted Answer

The answer of A $375,000 bond issue on which there...

Question 12

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 13

Match each description below to the appropriate term (a-g).
-Allows the issuer to redeem bonds before maturity date

Accepted Answer

A) EPS 
B) Face value 
C) Callable bond 
D) Indenture 
E) Term bond
F)Convertible bond
G)Serial bond 
A) EPS 
B) Face value 
C) Callable bond 
D) Indenture 
E) Term bond
F)Convertible bond
G)Serial bond

Question 14

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Accepted Answer

A) True 
 B)False

Question 15

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

Accepted Answer

A)  at a premium 
B)  at face value 
C)  at a discount 
D)  only after the stated rate of interest is increased 
A)  at a premium 
B)  at face value 
C)  at a discount 
D)  only after the stated rate of interest is increased

Question 16

If Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is

Accepted Answer

A)  $1,425,000 
B)  $1,080,000 
C)  $1,000,000 
D)  $1,575,000 
A)  $1,425,000 
B)  $1,080,000 
C)  $1,000,000 
D)  $1,575,000

Question 17

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

Accepted Answer

A) True 
 B)False

Question 18

Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a

Accepted Answer

A)  credit to Discount on Bonds Payable for $160,000 
B)  debit to Cash for $2,000,000 
C)  credit to Bonds Payable for $2,000,000 
D)  credit to Cash for $1,840,000 
A)  credit to Discount on Bonds Payable for $160,000 
B)  debit to Cash for $2,000,000 
C)  credit to Bonds Payable for $2,000,000 
D)  credit to Cash for $1,840,000

Question 19

On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 3 carrying amount in the amortization table for this installment note will be equal to

Accepted Answer

A)  $0 
B)  $13,000 
C)  $14,252 
D)  $16,603 
A)  $0 
B)  $13,000 
C)  $14,252 
D)  $16,603

Question 20

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...

Exam 14: Long-Term Liabilities: Bonds and Notes

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

The higher the times interest earned ratio, the better the creditors' protection.

One reason a dollar today is worth more than a dollar one year from today is the time value of money.

The prices of bonds are quoted as a percentage of the bonds' market value.

Match each description below to the appropriate term (a-g). -The entire principal of the bond is paid back on maturity date

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization, the effective interest rate method should be used.

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every six months.

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize the redemption of the bonds.

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

Match each description below to the appropriate term (a-g). -Allows the issuer to redeem bonds before maturity date

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

If Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a

On January 1, Year 1, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 3 carrying amount in the amortization table for this installment note will be equal to

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.

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

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