Deck 12: Debt Financing

Question 1

When the interest payment dates of a bond are May 1 and November 1, and the bond is issued on June 1, the amount of interest expense at December 31 of the year of issuance would be for

A) two months.
B) six months.
C) seven months.
D) eight months.

Answer 1

C

Question 2

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

A) Interest expense as a percentage of the bonds' book value varies from period to period.
B) Interest expense remains constant for each period.
C) Interest expense increases each period.
D) The interest rate decreases each period.

Answer 2

C

Question 3

The most conceptually appropriate method of valuing a liability under the historical cost basis is to

A) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date the liability was initially incurred.
B) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date financial statements are prepared subsequent to issuance.
C) record as a liability the amount of cash or cash-equivalent value that the company would be required to pay to eliminate the liability in the ordinary course of business on the date of the financial statements.
D) record as a liability the amount of cash or cash-equivalent proceeds actually received when a liability was incurred.

Answer 3

A

Question 4

Scott Inc. neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively?

A) Understate; understate
B) Understate; overstate
C) Overstate; overstate
D) Overstate; understate

Question 5

At December 31, 2011, Jenkins Sales & Service has a $100,000, 120-day note payable outstanding. The company has followed the policy of replacing the note rather than repaying it over the last three years. The company's treasurer says that this policy is expected to continue indefinitely, and the arrangement is acceptable to the bank to which the note was issued. The proper classification of the note on the December 31, 2011, balance sheet is

A) dependent on the intention of management.
B) dependent on the actual ability to refinance.
C) current liability, unless specific refinancing criteria are met.
D) noncurrent liability.

Question 6

When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is

A) amortized over the period remaining to maturity and reported as an extraordinary item in the income statement.
B) amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement.
C) reported in the income statement as an extraordinary item in the period of redemption.
D) reported in the income statement as part of income from continuing operations in the period of redemption.

Question 7

A short-term note payable with no stated rate of interest should be

A) recorded at maturity value.
B) recorded at the face amount.
C) discounted to its present value.
D) reported separately from other short-term notes payable.

Question 8

Which of the following does not meet the FASB's definition of a liability?

A) The signing of a three-year employment contract at a fixed annual salary
B) An obligation to provide goods or services in the future
C) A note payable with no specified maturity date
D) An obligation that is estimated in amount

Question 9

In theory (disregarding any other marketplace variables), the proceeds from the sale of a bond will be equal to the

A) face amount of the bond.
B) present value of the bond maturity value plus the present value of the interest payments to be made during the life of the bond.
C) face amount of the bond plus the present value of the interest payments made during the life of the bond.
D) sum of the face amount of the bond and the periodic interest payments.

Question 10

When bonds are retired prior to maturity with proceeds from a new bond issue, gain or loss from the early extinguishment of debt, if material, should be

A) amortized over the remaining original life of the retired bond issue.
B) amortized over the life of the new bond issue.
C) recognized as an extraordinary item in the period of extinguishment.
D) recognized in income from continuing operations in the period of extinguishment.

Question 11

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

A) plus the present value of all future interest payments at the market (effective) rate of interest.
B) plus the present value of all future interest payments at the rate of interest stated on the bond.
C) minus the present value of all future interest payments at the market (effective) rate of interest.
D) minus the present value of all future interest payments at the rate of interest stated on the bond.

Question 12

Which of the following represents a liability?

A) The obligation to pay for goods that a company expects to order from suppliers next year.
B) The obligation to provide goods that customers have ordered and paid for during the current year.
C) The obligation to pay interest on a five-year note payable that was issued the last day of the current year.
D) The obligation to distribute shares of a company's own common stock next year as a result of a stock dividend declared near the end of the current year.

Question 13

Unamortized debt premium should be reported on the balance sheet of the issuer as a

A) direct addition to the face amount of the debt.
B) direct addition to the present value of the debt.
C) deferred credit.
D) deduction from the issue costs.

Question 14

Bruemmer Co. has a $20,000, two-year note payable to Second City Bank that matures June 30, 2011. Bruemmer's management intends to refinance the note for an additional three years and is negotiating a financing agreement with Second City. In order to exclude this note from current liabilities on its December 31, 2010, balance sheet, Bruemmer Co. must

A) pay off the note and complete the refinancing before the 2010 financial statements are issued.
B) demonstrate an ability to refinance the obligation before the 2010 financial statements are issued.
C) complete the refinancing before the balance sheet date.
D) complete the refinancing before the note's maturity date.

Question 15

Bond discount should be presented in the financial statements of the issuer as a(n)

A) contra liability.
B) adjunct liability.
C) deferred charge.
D) contra asset.

Question 16

Kenwood Co. neglected to amortize the premium on outstanding ten-year bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying value, respectively?

A) Understate; understate
B) Understate; overstate
C) Overstate; overstate
D) Overstate; understate

Question 17

Any gains or losses from the early extinguishment of debt should be

A) recognized in income of the period of extinguishment.
B) treated as an increase or decrease in Paid-In Capital.
C) allocated between a portion that is an increase (decrease) in Paid-In Capital and a portion that is recognized in current income.
D) amortized over the remaining original life of the extinguished debt.

Question 18

Debentures are

A) unsecured bonds.
B) secured bonds.
C) ordinary bonds.
D) serial bonds.

Question 19

For a liability to exist,

A) a past transaction or event must have occurred.
B) the exact amount must be known.
C) the identity of the party owed must be known.
D) an obligation to pay cash in the future must exist.

Question 20

For a bond issue that sells for more than its face value, the market rate of interest is

A) dependent on the rate stated on the bond.
B) equal to the rate stated on the bond.
C) less than the rate stated on the bond.
D) higher than the rate stated on the bond.

Question 21

When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?

A) Bond discounts are classified as assets, and bond premiums are classified as contra-asset accounts.
B) Bond discounts are classified as expenses, and bond premiums are classified as revenues.
C) Bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds.
D) None of these are correct.

Question 22

When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

A) actual amount of interest paid.
B) book value of the bonds multiplied by the stated interest rate.
C) book value of the bonds multiplied by the effective interest rate.
D) maturity value of the bonds multiplied by the effective interest rate.

Question 23

Callable bonds

A) can be redeemed by the issuer at some time at a pre-specified price.
B) can be converted to stock.
C) mature in a series of payments.
D) None of these is correct.

Question 24

Accrued interest on bonds that are sold between interest dates

A) is ignored by both the seller and the buyer.
B) increases the amount a buyer must pay to acquire the bonds.
C) is recorded as a loss on the sale of the bonds.
D) decreases the amount a buyer must pay to acquire the bonds.

Question 25

Bonds usually sell at a premium

A) when the market rate of interest is greater than the stated rate of interest on the bonds.
B) when the stated rate of interest on the bonds is greater than the market rate of interest.
C) when the price of the bonds is greater than their maturity value.
D) in none of these cases.

Question 26

The net amount of a bond liability that appears on the balance sheet is the

A) call price of the bond plus bond discount or minus bond premium.
B) face value of the bond plus related premium or minus related discount.
C) face value of the bond plus related discount or minus related premium.
D) maturity value of the bond plus related discount or minus related premium.

Question 27

Included in Kaiser Corporation's liability account balances at December 31, 2011, were the following:

Kaiser's December 31, 2011, financial statements were issued on March 31, 2012. On January 15, 2012, the entire $400,000 balance of the 16 percent note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2012, Kaiser consummated a noncancelable agreement with the lender to refinance the 14 percent, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. Both parties are financially capable of honoring the agreement, and there have been no violations of the agreement's provisions. On the December 31, 2011, balance sheet, the amount of the notes payable that Kaiser should classify as noncurrent obligations is

A) $100,000.
B) $250,000.
C) $350,000.
D) $650,000.

Question 28

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year. If the bonds were issued to yield 12 percent, the entry to account for the discount amortization and accrual of interest on December 31, 2011, would include a

A) debit to Discount on Bonds Payable.
B) credit to Cash.
C) credit to Interest Payable.
D) debit to Bonds Payable.

Question 29

Which of the following is true of a premium on bonds payable?

A) It is a contra-stockholders' equity account.
B) It is an account that appears only on the books of the investor.
C) It increases when amortization entries are made until it reaches its maturity value.
D) It decreases when amortization entries are made until its balance reaches zero at the maturity date.

Question 30

On July 1, 2011, Riviera Manufacturing Co. issued a five-year note payable with a face amount of $250,000 and an interest rate of 10 percent. The terms of the note require Riviera to make five annual payments of $50,000 plus accrued interest, with the first payment due June 30, 2012. With respect to the note, the current liabilities section of Riviera's December 31, 2011, balance sheet should include

A) $12,500.
B) $50,000.
C) $62,500.
D) $75,000.

Question 31

Bonds usually sell at a discount when

A) investors are willing to invest in the bonds at the stated interest rate.
B) investors are willing to invest in the bonds at rates that are lower than the stated interest rate.
C) investors are willing to invest in the bonds only at rates that are higher than the stated interest rate.
D) a capital gain is expected.

Question 32

In an effort to increase sales, Blue Razor Blade Company inaugurated a sales promotion campaign on June 30, 2011, whereby Blue placed a coupon in each package of razor blades sold, the coupons being redeemable for a premium. Each premium costs Blue $.50, and five coupons must be presented by a customer to receive a premium. Blue estimated that only 60 percent of the coupons issued will be redeemed. For the six months ended December 31, 2011, the following information is available:

What is the estimated liability for premium claims outstanding at December 31, 2011?

A) $10,000
B) $14,000
C) $18,000
D) $24,000

Question 33

The effective-interest method of amortizing bond premiums

A) is too complicated for practical use.
B) uses a constant rate of interest.
C) is another name for the straight-line method.
D) is needed to determine the amount of cash to be paid to bondholders at each interest date.

Question 34

When bonds are sold between interest dates, any accrued interest is credited to

A) Interest Payable.
B) Interest Revenue.
C) Interest Receivable.
D) Bonds Payable.

Question 35

The effective interest rate on bonds is higher than the stated rate when bonds sell

A) at face value.
B) above face value.
C) below face value.
D) at maturity value.

Question 36

To compute the price to pay for a bond, you use

A) only the present value of $1 concept.
B) only the present value of an annuity of $1 concept.
C) both of these.
D) neither of these.

Question 37

Which of the following is true of accrued interest on bonds that are sold between interest dates?

A) It is computed at the effective market rate.
B) It will be paid to the seller when the bonds mature.
C) It is extra income to the buyer.
D) None of these is true.

Question 38

The effective interest rate on bonds is lower than the stated rate when bonds sell

A) at maturity value.
B) above face value.
C) below face value.
D) at face value.

Question 39

The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the

A) issuance price of the bond plus any unamortized discount or minus any unamortized premium.
B) face value of the bond plus any unamortized premium or minus any unamortized discount.
C) face value of the bond plus any unamortized discount or minus any unamortized premium.
D) maturity value of the bond plus any unamortized discount or minus any unamortized premium.

Question 40

The issuance price of a bond does not depend on the

A) face value of the bond.
B) riskiness of the bond.
C) method used to amortize the bond discount or premium.
D) effective interest rate.

Question 41

On October 1, 2011, Westridge Inc. issued, at 101 plus accrued interest, 800 of its 10 percent, $1,000 bonds. The bonds are dated July 1, 2011, and mature on July 1, 2018. Interest is payable semiannually on January 1 and July 1. At the time of issuance, Westridge would receive cash of

A) $800,000.
B) $808,000.
C) $820,000.
D) $828,000.

Question 42

Swanson Inc. purchased $400,000 of Malone Corp. ten-year bonds with a stated interest rate of 8 percent payable quarterly. At the time the bonds were purchased, the market interest rate was 12 percent. Determine the amount of premium or discount on the purchase of the bonds.

A) $92,442 premium
B) $92,442 discount
C) $81,143 premium
D) $81,143 discount

Question 43

Miller Enterprises had the following long-term debt:

The total of the serial bonds amounted to

A) $900,000.
B) $1,500,000.
C) $2,000,000.
D) $2,400,000.

Question 44

At December 31, 2011, Reed Corp. owed notes payable of $1,000,000 with a maturity date of April 30, 2012. These notes did not arise from transactions in the normal course of business. On February 1, 2012, Reed issued $3,000,000 of ten-year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable. Reed's December 31, 2011, financial statements were issued on March 29, 2012. How much of the $1,000,000 notes payable should be classified as current in Reed's balance sheet at December 31, 2011?

A) $0
B) $100,000
C) $900,000
D) $1,000,000

Question 45

On June 30, 2011, Country Inc. had outstanding 10 percent, $1,000,000 face amount, 15-year bonds maturing on June 30, 2016. Interest is paid on June 30 and December 31, and bond discount and bond issue costs are amortized on these dates. The unamortized balances on June 30, 2011, of bond discount and bond issue costs were $55,000 and $20,000, respectively. Country reacquired all of these bonds at 96 on June 30, 2011, and retired them. Ignoring income taxes, how much gain or loss should Country record on the bond retirement?

A) Loss of $15,000
B) Loss of $35,000
C) Gain of $5,000
D) Gain of $40,000

Question 46

On January 1, MAX issued ten-year bonds with a face amount of $1,000,000 and a stated interest rate of 8 percent payable annually each January 1. The bonds were priced to yield 10 percent. The total issue price (rounded) of the bonds was

A) $1,000,000.
B) $980,000.
C) $920,000.
D) $880,000.

Question 47

Madison Corporation had two issues of securities outstanding-- common stock and a 5 percent convertible bond issue in the face amount of $10,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2011, the holders of $1,800,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $500,000. What amount should Madison credit to the account "Paid-In Capital in Excess of Par" as a result of this conversion assuming Madison does not want to recognize any gain (or loss) on the conversion?

A) $0
B) $270,000
C) $360,000
D) $920,000

Question 48

On January 1, 2011, $50,000 of 20-year, 6 percent debentures were issued for $56,275.20. Interest payment dates on the bonds are January 1 and July 1. The amount of premium to be amortized on July 1, 2011, when using the straight-line method is

A) $313.76.
B) $156.88.
C) $776.50.
D) $93.11.

Question 49

During the year, Hancock Corporation incurred the following costs in connection with the issuance of bonds:

The amount recorded as a deferred charge to be amortized over the term of the bonds is

A) $0.
B) $30,000.
C) $300,000.
D) $510,000.

Question 50

On January 1, 2011, Lisbon Corp. issued 2,000 of its 9 percent, $1,000 bonds at 95. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2021. Lisbon paid bond issue costs of $80,000, which are appropriately recorded as a deferred charge. Lisbon uses the straight-line method of amortizing bond discount and bond issue costs. On Lisbon's December 31, 2011, balance sheet, how much would be shown as the carrying amount of the bonds payable?

A) $2,110,000
B) $2,090,000
C) $1,982,000
D) $1,910,000

Question 51

On July 1, 2011, Houston Company purchased as a long-term investment Essex Company's ten-year, 9 percent bonds, with a face value of $100,000 for $95,200. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2015. Houston uses the straight-line method of amortization. What is the amount of interest revenue that Houston should report in its income statement for the year ended December 31, 2011?

A) $3,900
B) $4,500
C) $5,100
D) $5,700

Question 52

On July 1, 2005 Cooper Corporation issued for $960,000 one thousand of its 9 percent, $1,000 callable bonds. The bonds are dated July 1, 2005, and mature on July 1, 2015. Interest is payable semiannually on January 1 and July 1. Cooper uses the straight-line method of amortizing bond discount. The bonds can be called by the issuer at 101 at any time after June 30, 2010. On July 1, 2011, Cooper called in all of the bonds and retired them. Ignoring income taxes, how much loss should Cooper report on this early extinguishment of debt for the year ended December 31, 2011?

A) $50,000
B) $34,000
C) $26,000
D) $10,000

Question 53

Selected financial data of Alexander Corporation for the year ended December 31, 2011, is presented below:

Common stock dividends were $120,000. The times-interest-earned ratio is

A) 2.8 to 1.
B) 4.8 to 1.
C) 6.0 to 1.
D) 9.0 to 1.

Question 54

Littleton Corp. had the following long-term debt at December 31:

The debenture bonds amounted to

A) $0.
B) $150,000.
C) $250,000.
D) $400,000.

Question 55

On July 1, 2011, TJR issued 2,000 of its 8 percent, $1,000 bonds for $1,752,000. The bonds were issued to yield 10 percent. The bonds are dated July 1, 2011, and mature on July 1, 2021. Interest is payable semiannually on January 1 and July 1. Using the effective-interest method, how much of the bond discount should be amortized for the six months ended December 31, 2011?

A) $15,200
B) $12,400
C) $9,920
D) $7,600

Question 56

On January 1, 2011, Matlock Inc. issued its 10 percent bonds in the face amount of $1,500,000. They mature on January 1, 2021. The bonds were issued for $1,329,000 to yield 12 percent, resulting in bond discount of $171,000. Matlock uses the effective-interest method of amortizing bond discount. Interest is payable July 1 and January 1. For the six months ended June 30, 2011, Matlock should report bond interest expense of

A) $75,000.
B) $79,740.
C) $83,550.
D) $85,260.

Question 57

White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 12 percent, what will be the issuance price of the bonds?

A) $114,699
B) $177,059
C) $190,079
D) $224,926

Question 58

Laker, Inc. had outstanding 10 percent, $1,000,000 face value, convertible bonds maturing on December 31, 2014. Interest is paid December 31 and June 30. After amortization through June 30, 2011, the unamortized balance in the bond premium account was $30,000. On that date, bonds with a face amount of $500,000 were converted into 20,000 shares of $20 par common stock. Recording the conversion by using the carrying value of the bonds, Laker should credit Additional Paid-In Capital for

A) $0.
B) $85,000.
C) $100,000.
D) $115,000.

Question 59

White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds?

A) $175,078
B) $211,283
C) $215,902
D) $227,183

Question 60

On February 1, 2012, Lantern Corp. issued 12 percent, $2,000,000 face value, ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 2011, and interest is payable on May 1 and November 1. Lantern reacquired all of these bonds at 102 on May 1, 2015, and retired them. Unamortized bond premium on that date was $156,000. Ignoring the income tax effect, what was Lantern's gain on the bond retirement?

A) $116,000
B) $194,000
C) $234,000
D) $236,000

Question 61

The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be

A) $190,000.
B) $195,000.
C) $200,000.
D) $210,000.

Question 62

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year.
If the bonds were issued at 97 on April 1, 2011, plus accrued interest, the amount of cash received by RCM Corporation would be

A) $200,000.
B) $194,000.
C) $199,000.
D) none of these.

Question 63

On January 1, 2011, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, how much interest expense should be recorded on June 30, 2011?

A) $11,935.14
B) $12,500.00
C) $13,896.06
D) $14,729.82

Question 64

If a $6,000, 10 percent, 10-year bond was issued at 104 plus accrued interest two months after the authorization date, how much cash was received by the issuer?

A) $6,000
B) $6,240
C) $6,340
D) $6,600

Question 65

The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately

A) 7.6 percent.
B) 7.8 percent.
C) 8.0 percent.
D) 8.2 percent.

Question 66

On January 1, 2011, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much cash was paid for interest in 2011?

A) $44,250
B) $50,000
C) $53,100
D) $60,000

Question 67

On January 1, 2011, Williams Company lent $17,800 cash to Stone Company. The promissory note made by Stone for $20,000 did not bear explicit interest and was due on December 31, 2013. No other rights or privileges were exchanged. The prevailing interest rate for a loan of this type was six percent.
Assume that the present value of $1 for two periods at six percent is .89. Stone should recognize interest expense in 2011 of

A) $0.
B) $1,068.
C) $1,100.
D) $1,200.

Question 68

If a $1,000, 9 percent, 10-year bond was issued at 96 plus accrued interest one month after the authorization date, how much cash was received by the issuer?

A) $967.50
B) $960.00
C) $1,007.50
D) $992.50

Question 69

Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

A) $26,750.
B) $27,500.
C) $28,250.
D) $29,500.

Question 70

If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive?

A) $1,037.50
B) $1,030.00
C) $1,007.50
D) $992.50

Question 71

A $50,000 bond with a carrying value of $52,000 was called at 103 and retired. In recording the retirement, the issuing company should record

A) no gain or loss.
B) a $1,500 loss.
C) a $2,000 gain.
D) a $500 gain.

Question 72

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year.
If the bonds were issued on April 1, 2011, the amount of accrued interest on the date of sale is

A) $20,000.
B) $10,000.
C) $5,000.
D) $2,500.

Question 73

Foster Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2010, for $112,000. Foster uses the straight-line method of amortization. On April 1, 2013, Foster reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Foster recognize on the retirement of the bonds?

A) $2,000 loss
B) $3,900 gain
C) $6,100 gain
D) $8,200 loss

Question 74

ABC Corporation is authorized to issue $500,000 of 6 percent, 10-year bonds dated July 1, 2011, with interest payments on December 31 and June 30. When the bonds are issued on November 1, 2011, ABC Corporation receives cash of $515,000, including accrued interest. The journal entry to record the issuance of the bonds would include

A) $15,000 bond premium.
B) $5,000 bond premium.
C) $15,000 bond discount.
D) no bond premium or discount.

Question 75

Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1, 2011, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts.
How much premium or discount should be amortized on June 30, 2011?

A) $2,790
B) $2,280
C) $2,000
D) $1,970

Question 76

Bonds that were authorized on January 1, 2011, and that pay interest on January 1 and July 1 of each year were issued on October 1, 2011. If the issuer's accounting year ends on December 31, how many months would any discount or premium be amortized in 2011?

A) 3 months
B) 6 months
C) 9 months
D) 12 months

Question 77

On January 1, 2011, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, approximately how much discount will be amortized on December 31, 2011?

A) $2,230
B) $1,480
C) $1,396
D) $987

Question 78

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year.
If the bonds were issued at 97 on April 1, 2011, the amount of the discount amortized on July 1 (using the straight-line method) would be approximately

A) $25.
B) $76.
C) $67.
D) $152.

Question 79

Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1, 2011, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts.
How much interest expense should Kiyabu record on December 31, 2011?

A) $25,000.00
B) $23,810.15
C) $22,628.80
D) $19,920.10

Question 80

The annual interest expense on a $50,000, 15-year, 10 percent bond issued for $45,650 plus accrued interest 6 months after authorization, assuming straight-line amortization, would be

A) $4,975.
B) $5,000.
C) $5,025.
D) $5,472.