Deck 14: Financing Liabilities

Question 1

Short-term debt typically carries a higher interest rate than long-term notes.

Answer 1

False

Question 2

Short-term notes payable are reported on the balance sheet as current liabilities when they are due and payable within one year from the balance sheet date or operating cycle, whichever is longer.

Answer 2

True

Question 3

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $280,000 on December 31, 2020 and asked for a 5% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the selling price of the machine given the terms and rates provided? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.)

A) $316,740
B) $265,304
C) $280,000
D) $270,563

Answer 3

B

Question 4

A company records interest expense by debiting the expense account and crediting notes payable.

Question 5

On January 1, the Hudson Company borrowed $160,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $30,522 and is due on the last day of the year. How much interest will Hudson report for the first year of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $30,522
B) $6,400
C) $24,122
D) $1,221

Question 6

Harrison Corporation borrowed $36,000 from F&M Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $0
B) $2880
C) $1680
D) $1440

Question 7

Harrison Corporation borrowed $30,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the amount that will be paid upon maturity of the note? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $30,450
B) $32,700
C) $30,000
D) $32,025

Question 8

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the carrying value of the note at the end of 2018? (Round any intermediary calculations and your final answer to the nearest dollar.)

A) $272,879
B) $260,635
C) $285,981
D) $300,000

Question 9

Jacobsen, Inc. borrowed $700,000 from F&M Bank on June 15 of the current year. The bank required 6% interest. Interest will be paid when the 12-month note becomes due. What amount should be accrued as Interest Payable for the December 31 year-end of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $19,250
B) $21,000
C) $22,750
D) $42,000

Question 10

Morrison Corporation borrowed $49,000 from Commercial Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid every three months until the 9-month note is paid. What is the total Interest Expense and the Interest Payable at December 31 of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest cent.)

A) Interest Expense $2286.67; Interest Payable $2286.67
B) Interest Expense $326.67; Interest Payable $326.67
C) Interest Expense $2286.67; Interest Payable $326.67
D) Interest Expense $3920.00; Interest Payable $2286.67

Question 11

The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $47,690. How much interest is Hudson paying over the life of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $50,000
B) $36,140
C) $23,845
D) $60,000

Question 12

On January 1, the Hudson Company borrowed $190,000 to purchase machinery and agreed to pay 8% interest for six years on an installment note. Each note payment is $41,100 and is due on the last day of the year. What is the carrying value of the loan at the end of the first year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $148,900
B) $190,000
C) $164,100
D) $205,200

Question 13

While the payment on an installment loan is the same each period, the amount applied to principal decreases each period.

Question 14

Interest payments are classified as cash flows from financing activities on the statement of cash flows.

Question 15

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

Question 16

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $260,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the amount of cash interest paid at the end of 2018?

A) $0
B) $26,000
C) $5,200
D) $20,800

Question 17

Proceeds on the issuance and repayment of the principal on short-term notes payable are generally reported as financing activities on the statement of cash flows.

Question 18

Notes payable are formal credit arrangements that require the payment of a specified face amount of principal at a fixed maturity date.

Question 19

If a long-term note does not have a stated rate of interest, the note is discounted at the market rate of interest.

Question 20

Harrison Corporation borrowed $31,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the subsequent year in which the note is due and paid? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $465
B) $2,093
C) $1,628
D) $1,395

Question 21

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 6% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the carrying value of the note at the end of the second year? (Round any intermediary calculations and your final answer to the nearest dollar.)

A) $279,174
B) $270,158
C) $289,091
D) $300,000

Question 22

The contract between a corporation and its bondholders is a ________.

A) bond indenture
B) bond covenant
C) restriction for compensating balances
D) secured bond

Question 23

Secured bonds are also referred to as debenture bonds.

Question 24

Debt covenants include all of the following except ________.

A) restrictions for holding compensating balances of cash
B) restrictions on purchase of supplies
C) maintaining set ratios or working capital values
D) restrictions on future borrowings

Question 25

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had a market value of $300,000. Hornet agreed to pay for the press in three equal installments beginning December 31, 2018. At the time, Hornet's incremental borrowing rate was 7%.
Required: Compute the installment payments and prepare the three-year amortization table for the note payable. Prepare the journal entries to record the purchase of the machine, the first annual payment, and the final payment on the note.

Question 26

Actual default by a bond issuer occurs when the debtor ________.

A) violates one of the debt covenants
B) fails to meet working capital ratio requirement
C) fails to make interest payments
D) allows the retained earnings balance to fall below required levels

Question 27

Bonds typically have a face value of $1,000.

Question 28

On January 2, Zhang Company borrowed $2,000,000 on a 10-year, 7%, term loan from its bank.
Required: Compute the annual interest expense and total interest expense for the loan.

Question 29

The face value of a bond is also referred to as its par value.

Question 30

Callable bonds can be paid off and retired at the option of the issuing company at specified dates.

Question 31

When a company issues bonds, there is typically one debtor and one creditor that transact directly.

Question 32

The stated interest rate is also referred to as the yield rate.

Question 33

The highest Standard and Poor credit rating is a AAA rating.

Question 34

A technical default occurs when a debtor misses interest and/or principal payments.

Question 35

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 3% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year.
Required:
1. Compute the selling price of the machine.
2. Prepare the three-year amortization table for the note payable.
3. Prepare the journal entries to record the purchase of the machine, the first annual interest payment, and the final payment of interest and principal.

Question 36

On November 1, Yung Corp. borrowed $50,000 on a six-month note from its bank. Interest at 8% will be paid when the note is due. Record any journal entries necessary to record these transactions. Yung's fiscal year is the calendar year.

Question 37

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press had no known market value. Hornet agreed to pay $300,000 at the end of three years and asked for a 3% interest rate. At the time, Hornet's incremental borrowing rate was 7%. How should the seller and buyer record the transaction?

A) Each should record the sale/purchase at $300,000.
B) The seller should record the sale at $300,000 and Hornet at the present value of $300,000.
C) Each should record the transaction at the present value of the note payable/receivable.
D) Hornet should record the sale at $300,000 and the seller at the present value of $300,000.

Question 38

Georgia International borrowed $1,000,000 for eight months from its bank during the current year. Interest is payable in full on the due date of the note.
Required: Determine the amount of interest expense for the current year based on the following borrowing dates, fiscal year end dates, and interest rates.
$$\begin{array} { | l | c | c | c | } \hline \text { Borrowing Date } & \text { Year-End Date } & \text { Interest Rate } & \text { Interest Expense } \\\hline \text { June 1 } & \text { October 31 } & 10 \% & \\\hline \text { September 30 } & \text { December 31 } & 6 \% & \\\hline \text { August 1 } & \text { December 31 } & 8 \% & \\\hline \text { May 1 } & \text { August 31 } & 9 \% & \\\hline\end{array}$$

Question 39

When a bond sells at 102, this means the bondholder has paid $102 to acquire the bond.

Question 40

When the stated interest rate for bonds is lower than the market rate, the bonds will be issued at a discount.

Question 41

Discuss what causes bonds to sell at par, a premium, or a discount.

Question 42

Premium amortization reduces the carrying value of the bonds.

Question 43

Determine the type of bonds that match the following bond descriptions:
$$\begin{array} { | l | l | } \hline { \text { Bond Descriptions } } & \text { Type of Bonds } \\\hline \text { Bonds that holders can exchange for stock. } & \\\hline \text { Bonds without specific security. } & \\\hline \text { Bonds with options to purchase stock. } & \\\hline \text { Bonds with collateral. } & \\\hline \text { Bonds with multiple maturity dates. } & \\\hline \text { Bonds that the debtor can recall. } & \\\hline\end{array}$$

Question 44

To compute the selling price of the bond, calculate the present value of par value using the present value of $1 ________.

A) and the interest payments using the present value of an ordinary annuity, discounted at the market interest rate for both
B) at the stated rate and the interest payments using the present value of an ordinary annuity discounted at the market rate
C) and the interest payments using the present value of an ordinary annuity, discounted at the stated rate for both
D) at the market rate and the interest payments using the present value of an ordinary annuity discounted at the stated rate

Question 45

Under IFRS, bond discounts are recorded in a separate contra-liability account.

Question 46

A bond's issue price is normally the sum of the present value of the future interest payments plus the present value of the face value of the bonds.

Question 47

$100,000 of five-year bonds are sold for $97,300 on the issue date. Interest of $4,000 is paid each year until the bonds are repaid. What is the total interest expense to the company for issuing these bonds?

A) $17,300
B) $20,000
C) $19,460
D) $22,700

Question 48

When determining how to compute the present value of a bond, the buyer computes the ________.

A) present value of the par value discounted at the market rate and the present value of the interest discounted at the stated rate
B) future value of the par value and interest discounted at the stated interest rate
C) present value of the interest discounted at the market rate and the present value of the par value discounted at the stated rate
D) present value of the par value and the present value of the interest discounted at the market interest rate

Question 49

Under IFRS, a bond's carrying value is the same as reported under U.S. GAAP.

Question 50

Xenia Corporation issued 3,000 term bonds with a face value of $1,000 each and no additional features for $3,200,000. The bonds' selling price indicated that the bonds were paying interest that was ________.

A) lower than the market rate
B) the rate the bond investors wanted
C) equal to par value
D) higher than the market rate

Question 51

What is the main difference in computing the selling price of a zero-coupon bond and the selling price of a traditional bond?

A) There is no difference.
B) Zero coupon bonds have zero interest paid during the term of the bond.
C) No present value calculations are necessary.
D) Zero-coupon bonds typically sell at a premium.

Question 52

The selling price of a bond is the ________.

A) par value of the bond
B) par value plus the discount of the bond or minus the premium of the bond
C) present value of the par value plus the present value of the interest payments
D) present value of the par value minus the present value of the interest payments

Question 53

The effective interest rate method computes interest expense by multiplying the stated interest rate by the beginning balance of the debt.

Question 54

When bonds are issued at par, the market rate is equal to the stated rate.

Question 55

The additional cash received when bonds are issued at a premium is accounted for as an increase of future interest expense.

Question 56

A bond issuer incurs a technical default when it ________.

A) fails to pay interest when due
B) declines to repay the principal when specified
C) fails to meet required debt covenants at year end
D) pays interest before it is due for payment

Question 57

Bonds that do not pay cash interest are referred to as zero-coupon bonds.

Question 58

The effective interest rate properly reflects the effective cost of borrowing at the ________.

A) stated rate for the bonds
B) current market rate each year
C) historical market rate at the date the bonds sold
D) current stated rate for bonds with the same bond rating

Question 59

When bonds are issued at a discount, interest expense will be less than interest paid.

Question 60

The account Discount on Bonds Payable is a contra-liability account.

Question 61

Given the following information from an amortization table, compute the interest expense, discount amortization, and the carrying value for the next line of the table, rounding your answer to the nearest dollar:: $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 6 \% \text { Cash } \\\text { Interest }\end{array} & \begin{array} { c } 7 \% \text { Effective } \\\text { Interest }\end{array} & \begin{array} { c } \text { Discount } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline \$ 42,000 & \$ 47,340 & \$ 5340 & \$ 681,630 \\\hline\end{array}$$

A) Interest Expense $47,340; Discount Amortization $5,340; Carrying Value $676,290
B) Interest Expense $47,714; Discount Amortization $5,714; Carrying Value $687,344
C) Interest Expense $47,714; Discount Amortization $5,340; Carrying Value $676,290
D) Interest Expense $47,340; Discount Amortization $5,340; Carrying Value $681,630

Question 62

Wilson Corp. issued $7,000,000 of 6% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest? (Round your final answer to the nearest dollar.)

A) $420,000
B) $175,000
C) $210,000
D) $140,000

Question 63

When bonds are sold at a discount between interest dates, the buyer ________.

A) pays no interest to the issuer
B) pays the issuer interest from the date on the bonds to the purchase date
C) receives interest from the issuer from the date on the bonds to the purchase date
D) receives a discount from the issuer for the loss of the interest before purchase

Question 64

Given the following information from an amortization table for December 31, 2017, prepare the journal entry to record the accrual of interest at year end if the fiscal year of the company ends on September 30. Assume the last interest payment occurred on 6/30/2017, and the next interest payment on 12/31/2017. Round numbers to two decimal places. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 6 \% \text { Cash } \\\text { Interest }\end{array} & \begin{array} { c } 5 \% \text { Effective } \\\text { Interest }\end{array} & \begin{array} { c } \text { Premium } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline \$ 42,000 & \$ 35,333 & \$ 6,667 & \$ 700,000 \\\hline\end{array}$$

A) Journal Entry $$\begin{array} { | l | l | r | l | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { September 30 } & \text { Interest Expense } & 17,666.50 & \\\hline & \text { Premium on Bonds Payable } & 3,333.50 & \\\hline & \text { Interest Payable } & & 21,000.00 \\\hline\end{array}$$
B) Journal Entry $$\begin{array} { | l | l | r | c | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { September 30 } & \text { Interest Expense } & 17,666.50 & \\\hline & \text { Discount on Bonds Payable } & 3,333.50 & \\\hline & \text { Bonds Payable } & & 21,000.00 \\\hline\end{array}$$
C) Journal Entry $$\begin{array} { | l | l | r | c | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { September 30 } & \text { Interest Expense } & 17,666.50 & \\\hline & \text { Premium on Bonds Payable } & 3,333.50 & \\\hline & \text { Cash } & & 21,000.00 \\\hline\end{array}$$
D) Journal Entry $$\begin{array} { | l | l | r | c | } \hline & \text { Account } & { \text { Debit } } & \text { Credit } \\\hline \text { September 30 } & \text { Interest Expense } & 17,666.50 & \\\hline & \text { Discount on Bonds Payable } & 3,333.50 & \\\hline & \text { Cash } & & 21,000.00 \\\hline\end{array}$$

Question 65

Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 6 \% \text { Cash } \\\text { Interest }\end{array} & \begin{array} { c } 7 \% \text { Effective } \\\text { Interest }\end{array} & \begin{array} { c } \text { Premium } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline \$ 42,000 & \$ 35,651 & \$ 6,349 & \$ 507,567 \\\hline\end{array}$$

A) Journal Entry $$\begin{array} { | l | l | r | r | } \hline & { \text { Account } } & { \text { Debit } } & { \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 35,651 & \\\hline & \text { Discount on Bonds Payable } & 6,349 & \\\hline & \text { Cash } & & 42,000 \\\hline\end{array}$$
B) Journal Entry $$\begin{array} { | l | l | r | r | } \hline &{ \text { Account } } &{ \text { Debit } } & { \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 35,651 & \\\hline & \text { Discount on Bonds Payable } & 6,349 & \\\hline & \text { Bonds Payable } & & 42,000 \\\hline\end{array}$$
C) Journal Entry $$\begin{array} { | l | l | r | r | } \hline & { \text { Account } } &{ \text { Debit } } &{ \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 35,651 & \\\hline & \text { Premium on Bonds Payable } & 6,349 & \\\hline & \text { Cash } & & 42,000 \\\hline\end{array}$$
D) Journal Entry $$\begin{array} { | l | c | r | r | } \hline & \text { Account } &{ \text { Debit } } &{ \text { Credit } } \\\hline \text { December 31 } & \text { Interest Payable } & 42,000 & \\\hline & \text { Premium on Bonds Payable } & & 6,349 \\\hline & \text { Interest Expense } & & 35,651 \\\hline\end{array}$$

Question 66

When bonds are sold between interest dates, the issuer will pay the bondholder a lower amount of interest than the annual interest payment due on the next interest date.

Question 67

When bonds are sold between interest dates, the amount of accrued interest a buyer pays is equal to the face value of the bond times the market interest rate times the portion of a year since the prior interest date.

Question 68

On January 2, Andrew Corp. issued 1,000, $1,000 bonds to finance a new showroom. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 5% interest and the bonds are due December 31, Year 5.
Required:
1. Compute the selling price of the bonds.
2. Prepare the entry to record the sale of the bonds.
3. Prepare the amortization table for the bonds.
4. Prepare the journal entries for the first annual interest payment and the final repayment of the bonds.

Question 69

Wilson Corp. issued $9,000,000 of 4% bonds on April 1 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest at purchase and how much will the buyer receive in interest on June 30?

A) pay April 1, $0; receive June 30 $180,000
B) pay April 1 $360,000; receive June 30 $360,000
C) pay April 1 $360,000; receive June 30 $180,000
D) pay April 1 $90,000; receive June 30 $180,000

Question 70

Walker, Inc. issued $600,000 of 5%, 5-year bonds dated January 1, 2018 on July 1, 2018 when the market required 6% interest for bonds of similar risk. The bonds pay interest on December 31 each year.
Required: Determine the selling price of the bonds and prepare the journal entries for the issuance of the bonds and the payment of the first interest payment.

Question 71

Lincoln, Inc. issued $500,000 of 5%, 5-year bonds dated January 1, 2018 on July 1, 2018 when the market required 6% interest for bonds of similar risk. The bonds pay interest on December 31 each year. The bonds sold at $493,251 including accrued interest..
Required: Prepare the journal entries for the sale of the bonds and the December 31 payment for the interest for these bonds.

Question 72

When bonds are sold between interest dates, the buyer must pay the issuer the amount of accrued interest from the prior interest date.

Question 73

On January 2, Lincoln Motors, Inc. issued 1,000, $1,000 bonds to finance a new showroom. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 7% interest and the bonds are due December 31, Year 5.
Required:
1. Compute the selling price of the bonds.
2. Prepare the entry to record the sale of the bonds.
3. Prepare the amortization table for the bonds.
4. Prepare the journal entries for the first annual interest payment and the final repayment of the bonds.

Question 74

Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest at year end if the fiscal year of the company ends on December 31. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 6 \% \text { Cash } \\\text { Interest }\end{array} & \begin{array} { c } 7 \% \text { Effective } \\\text { Interest }\end{array} & \begin{array} { c } \text { Discount } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline \$ 42,000 & \$ 47,340 & \$ 5340 & \$ 681,630 \\\hline\end{array}$$

A) Journal Entry $$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\\hline & \text { Premium on Bonds Payable } & & 5340 \\\hline & \text { Interest Payable } & & 42,000 \\\hline\end{array}$$
B) Journal Entry $$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\\hline & \text { Premium on Bonds Payable } & & 5340 \\\hline & \text { Cash } & & 42,000 \\\hline\end{array}$$
C) Journal Entry $$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } &{ \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\\hline & \text { Discount on Bonds Payable } & & 5340 \\\hline & \text { Interest Payable } & & 42,000 \\\hline\end{array}$$
D) Journal Entry $$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\\hline \text { December 31 } & \text { Interest Expense } & 47,340 & \\\hline & \text { Discount on Bonds Payable } & & 5340 \\\hline & \text { Cash } & & 42,000 \\\hline\end{array}$$

Question 75

Given the following information from an amortization table, compute the interest expense and the carrying value for the next line of the table, rounding your answer to the nearest dollar: $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } 2 \% \text { Cash } \\\text { Interest }\end{array} & \begin{array} { c } 1 \% \text { Effective } \\\text { Interest }\end{array} & \begin{array} { c } \text { Premium } \\\text { Amortization }\end{array} & \begin{array} { c } \text { Carrying } \\\text { Value }\end{array} \\\hline \$ 800 & \$ 412 & \$ 388 & \$ 40,812 \\\hline\end{array}$$

A) Interest Expense $408; Carrying Value $40,420
B) Interest Expense $408; Carrying Value $41,220
C) Interest Expense $412; Carrying Value $40,420
D) Interest Expense $412; Carrying Value $41,220

Question 76

Hudson, Inc. issued $500,000 of 5%, 5-year bonds dated January 1, 2016 on July 1, 2016 when the market required 4% interest for bonds of similar risk. The bonds pay interest on December 31 each year. The bonds sold at $532,744 including accrued interest.
Required: Prepare the journal entries for the sale of the bonds and the December 31 payment for the interest for these bonds.

Question 77

All companies capitalize bond issue costs which are amortized over the life of the bond issue.

Question 78

Swanson, Inc. issued $600,000 of 5%, 5-year bonds dated January 1, 2018 on July 1, 2018 when the market required 4% interest for bonds of similar risk. The bonds pay interest on December 31 each year.
Required: Determine the selling price of the bonds and prepare the journal entries for the issuance of the bonds and the payment of the first interest payment.

Question 79

When working with bonds issued between interest dates, the accountant must ________.

A) reevaluate the actual interest rate for the entire amortization table
B) assume that the bonds were issued on the intended issue date
C) adjust the first period of the amortization table
D) omit the first interest period from the amortization table

Question 80

Samuel's, Inc. sold $15,000 of 6% bonds to an individual on April 1 at par value. The bonds pay interest on June 30 and December 31 each year. What are the proper entries for the sale of the bonds and the June 30 payment of the interest for these bonds? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

A) $$\begin{array} { | l | c | c | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\\hline \text { April 1 } & \text { Cash } & 15,225 & \\\hline & \text { Interest Payable } & & 225 \\\hline & \text { Bonds Payable } & & 15,000 \\\hline\end{array}$$
$$\begin{array} { | l | l | r | r | } \hline &{ \text { Account } } & { \text { Debit } } & \text { Credit } \\\hline \text { June 30 } & \text { Interest Expense } & 225 & \\\hline & \text { Interest Payable } & 225 & \\\hline & \text { Cash } & & 450 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | r | r | } \hline & { \text { Account } } & \text { Debit } & \text { Credit } \\\hline \text { April 1 } & \text { Cash } & 15,000 & \\\hline & \text { Bonds Payable } & & 15,000 \\\hline\end{array}$$
$$\begin{array} { | l | l | r | r | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { June 30 } & \text { Interest Expense } & 450 & \\\hline & \text { Cash } & & 450 \\\hline\end{array}$$
C) $$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { April 1 } & \text { Cash } & 675 & \\\hline & \text { Interest Payable } & & 450 \\\hline & \text { Bonds Payable } & & 225 \\\hline\end{array}$$
$$\begin{array} { | l | c | r | r | } \hline & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { June 30 } & \text { Interest Expense } & 450 & \\\hline & \text { Interest Payable } & & 450 \\\hline\end{array}$$
D) $$\begin{array} { | l | c | c | r | } \hline & \text { Account } & \text { Debit } & { \text { Credit } } \\\hline \text { April 1 } & \text { Cash } & 15,300 & \\\hline & \text { Interest Payable } & & 300 \\\hline & \text { Bonds Payable } & & 15,000 \\\hline\end{array}$$
$$\begin{array} { | l | l | r | r | } \hline &{ \text { Account } } & { \text { Debit } } & \text { Credit } \\\hline \text { June 30 } & \text { Interest Payable } & 300 & \\\hline & \text { Interest Expense } & 150 & \\\hline & \text { Cash } & & 450 \\\hline\end{array}$$