Deck 11: Long-Term Liabilities: Notes, Bonds, and Leases

Question 1

If an interest-bearing note payable is issued at par, then the contractual cash payment for interest is

A)equal to interest expense.
B)less than interest expense.
C)greater than interest expense.
D)It cannot be determined from the information given.

Answer 1

A

Question 2

If a company issues a non-interest-bearing note payable, then

A)the cash received will exceed the maturity value of the note.
B)the interest is not accrued.
C)the cash received will be less than the maturity value of the note.
D)the cash received will be more than the maturity value of the note.

Answer 2

C

Question 3

If interest expense is greater than the contractual interest payment, then

A)the note was issued at par.
B)a debt covenant violation occurred.
C)the note was issued at a premium.
D)the note was issued at a discount.

Answer 3

D

Question 4

Interest expense calculated under GAAP is equal to the stated rate of interest times the maturity value if the interest-bearing obligation is issued at

A)a discount.
B)either a discount or a premium.
C)a premium.
D)par.

Question 5

If an interest-bearing note payable is issued at a discount, then the contractual cash payment for interest is

A)less than interest expense.
B)greater than interest expense.
C)equal to interest expense.
D)ignored since no interest payment will be made.

Question 6

If the maximum debt/equity ratio as specified by a debt covenant is close to being violated, which one of the following actions would increase the likelihood of violating the debt covenant?

A)Issuing capital stock
B)Skip current cash dividends
C)Acquire money by issuing a non-interest-bearing note payable
D)Acquire money by collecting accounts receivable

Question 7

Which one of the following is needed in order to find the present value of an obligation?

A)The discount rate of the associated cash flows
B)All debt covenants that are a component of the obligation
C)The gross profit rate of the borrower
D)The rate of inflation during the year

Question 8

If a company issues a note payable when the market rate of interest is less than the stated rate, then

A)the note will be discounted at maturity.
B)the cash received will be equal to the maturity value of the note.
C)the cash received will exceed the maturity value of the note.
D)the note will be issued at a discount.

Question 9

Payments on an installment obligation typically include the payment of

A)principal only.
B)both principal and interest.
C)interest only.
D)interest, but only if collateral is involved.

Question 10

A non-interest-bearing obligation

A)requires recognition of interest expense over the life of the obligation.
B)is an example of an installment obligation.
C)requires collateral.
D)is free of interest expense.

Question 11

If a company issues a note payable when the market rate of interest is equal to the stated rate, then

A)the cash received will exceed the maturity value of the note.
B)the note will be issued at a discount.
C)the note will be issued at a premium.
D)the note will be issued at par.

Question 12

If a company issues a non-interest-bearing note payable, then

A)no interest expense will be recognized over the life of the note.
B)no principal payments will be made over the life of the note.
C)no interest payments will be made over the life of the note.
D)the covenants should be rewritten to conform to GAAP.

Question 13

The debt/equity ratio will increase if a company

A)pays off its long-term debt.
B)decides to pay cash for more of its capital purchases.
C)purchases long-term investments for cash.
D)declares more current cash dividends.

Question 14

The difference in computing the effective interest rate for non-interest-bearing obligations as compared to installment obligations is

A)one has an effective interest rate of zero, while the other is determined using present value factors.
B)one uses the 'present value of a single sum' table and the other uses the 'present value of an ordinary annuity' table.
C)one is based on the market rate of interest, while the other is based on a stated rate of interest.
D)determined by the length of the debt maturity period.

Question 15

How is interest expense calculated according to GAAP?

A)Stated rate of interest x maturity value.
B)Effective interest rate x maturity value.
C)Effective interest rate x book value.
D)Stated rate of interest x book value.

Question 16

If the maximum debt/equity ratio as specified by a debt covenant is close to being violated, which of the following actions would help avoid a violation of the covenant?

A)Purchase long-term investments
B)Increase current cash dividends declared
C)Exchange bonds payable for common stock
D)Acquire money by selling land at its balance sheet value

Question 17

Which one of the following will result from receiving cash upon issuing long-term debt?

A)Increase of the company's indebtedness
B)Decrease of the current ratio
C)Increase of retained earnings
D)Increase of total shareholders' equity

Question 18

If an interest-bearing note payable is issued at a premium, then the contractual cash payment for interest is

A)greater than interest expense.
B)less than interest expense.
C)equal to interest expense.
D)based on the market rate of interest.

Question 19

If a company issues a note payable when the market rate of interest is greater than the stated rate, then

A)the cash received will exceed the maturity value of the note.
B)the note will be issued at a discount.
C)the note will be issued at a premium.
D)the cash received will be equal to the maturity value of the note.

Question 20

Interest expense recognized over the life of an obligation is the difference between cash received at the time of issuance and cash paid over the life of the obligation for

A)dividends declared.
B)convertible bonds.
C)non-interest-bearing obligations.
D)receivables due from customers.

Question 21

On January 1, a 7-year, $8,000, non-interest-bearing note payable was issued when the market rate of interest was 7%. What amount should be recorded for the note on the balance sheet at the issue date?

A)$3,570
B)$4,982
C)$11,241
D)$37,725

Question 22

Companies generate assets in three different ways. They are

A)equity contributed by owners, borrowings, and receivables from affiliates.
B)equity issuances, borrowings, and interest rates.
C)borrowings, profitable operations, and equity issuances.
D)equity issuances, debt issuances, and financial instruments.

Question 23

A five-year, non-interest-bearing, $5,000 note, dated January 1, 2017, has a present value of $3,917. The market rate of interest is 5%. Interest expense for the period ending December 31, 2017, is

A)$392.
B)$196.
C)$250.
D)$217.

Question 24

A coupon payment is

A)the payment of principal that is the 'coupon' of the total payments.
B)the amount of interest expense reported on the income statement.
C)calculated by multiplying the book value of the bonds times the effective rate of interest.
D)the amount paid to bondholders on each interest payment date.

Question 25

Darren Company issued $8,000 of 8% bonds on January 1, 2017, at a discount of $940. The market rate of interest on the issue date was 10%. The carrying value of the bonds on December 31, 2017 is

A)$6,994.
B)$7,060.
C)$8,940.
D)$7,126.

Question 26

Which one of the following is not one of the three contractual kinds of notes?

A)Non-interest-bearing note
B)Interest-bearing notes
C)Installment notes
D)Bank notes

Question 27

RJC Company issued $8,000 of 10% bonds on January 1, 2017. The bonds were issued at a premium. The cash payment for annual interest on the bonds

A)is equal to annual interest expense.
B)is greater than annual interest expense.
C)is less than annual interest expense.
D)equals the balance in Premium on Bonds Payable on the day the bonds were issued.

Question 28

If interest expense is less than the contractual interest payment, then

A)the note was issued at a premium.
B)the note was issued at a discount.
C)the note was issued at par.
D)the company should refinance the note to get a better interest rate.

Question 29

Bonds payable that are redeemed by the issuer

A)typically pay far less interest than the market rate of interest.
B)are considered unsecured.
C)have no market value.
D)are repurchased or retired.

Question 30

A provision of a contractual obligation that is designed to protect the interest of lenders is called

A)a lenders' security provision
B)a restrictive covenant.
C)a non-interest-bearing obligation.
D)collateral.

Question 31

A non-interest-bearing note was recorded in the accounting records. The book value of the note

A)remains the same during the maturity period.
B)decreases during the maturity period.
C)increases throughout the maturity period.
D)is reported on income statement.

Question 32

The amount of amortized bond premium

A)reduces interest expense on the income statement.
B)is reported as a deduction from bonds payable on the balance sheet.
C)is reported as an addition to bonds payable on the balance sheet.
D)is added to the present value of bonds.

Question 33

On January 1, a 3-year, $8,000, non-interest-bearing note payable was issued when the market rate of interest was 11%. To determine the amount at which the note will be valued on the balance sheet on the issue date, use the

A)present value of $1 table.
B)future value of an annuity due table.
C)present value of an annuity table.
D)future value of an annuity table.

Question 34

If interest expense is equal to the contractual interest payment, then

A)the note was issued at a premium.
B)the note was issued at a discount.
C)the note was issued at par.
D)It cannot be determined from the information given.

Question 35

A call provision in a bond contract may specify that the issuing company

A)can issue the bonds at any interest rate it can entice the investors to accept.
B)must make periodic interest payments.
C)must deposit cash in the bank to be available when the bonds mature.
D)may buy back bonds from the investors.

Question 36

Which type of note consists of periodic payments covering both interest and principal?

A)Interest-bearing bond
B)Receivable note
C)Non-interest-bearing note
D)Installment note

Question 37

Which one of the following bonds is considered unsecured?

A)$50,000, 8%, debenture bonds
B)$100,000, 12%, restricted bonds
C)$20,000, 10%, five-year callable bonds
D)$40,000, 6%, collateralized bonds

Question 38

The actual interest rate used to calculate the interest payments by the issuer of the obligation is

A)the market rate of interest.
B)the effective interest rate.
C)the stated interest rate.
D)equal to the actual interest expense rate.

Question 39

On January 1, a 6-year, $5,000, non-interest-bearing note payable was issued when the market rate of interest was 8%. The present value of the note is

A)$3,151.
B)$2,080.
C)$865.
D)$5,000.

Question 40

A debt covenant

A)serves to give assurance to a creditor that the debtor will have the ability to pay interest and principal at maturity.
B)serves to give assurance to the debtor that the interest rate is reasonable.
C)allows the creditor to become an owner of the company if the covenant is violated.
D)allows the debtor to forego any interest on the debt.

Question 41

The following information was extracted from the financial records of Lewis Company.
$$\begin{array} { | l | r | r | } \hline & { 2017 } &{ 2016 } \\\hline \text { Balance Sheet } & & \\\hline \text { Nates payable } & \$ 400,000 & \$ 400,000 \\\hline \text { Less: Discount on notes payable } & 24,000 & 28,000 \\\hline & & \\\hline \text { Income Statement } & & \\\hline \text { Interest expense } & \$ 32,800 & \$ 32,400 \\\hline\end{array}$$
Based on this information, the journal entry Lewis Company should prepare to record interest expense during 2017 would include:

A)a credit to Interest Payable for $32,800.
B)a credit to Discount on Notes Payable for $24,000.
C)a credit to Cash for $28,000.
D)a credit to Notes Payable for $4,800.

Question 42

Gibson Corporation amortizes its bonds using the effective interest method. Which statement is correct?

A)[Interest expense] = [Stated rate] X [Carrying value of the bonds]
B)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a discount]
C)[Cash interest payment] = [Bond face amount] X [Market interest rate]
D)[Interest expense] - [Cash interest paid] = [Increase in carrying value if sold at a premium]

Question 43

Financial instruments that are not listed on the balance sheet of a company

A)may involve significant risks that must be disclosed in the notes to the financial statements.
B)are reported as assets if the company can determine the fair value.
C)must be reported as a liability on the balance sheet at the end of the accounting period.
D)must be reported on the income statement.

Question 44

On September 10, 2016, Humbert Company issued bonds with a face value of $600,000 for a price of 102. During 2017, Humbert exercised a call provision and redeemed the bonds for 101. At the time of the redemption, the bonds had a book value of $607,000. The journal entry to record the redemption includes:

A)a credit to Gain on Bond Redemption for $13,000.
B)a debit to Premium on Bonds for $7,000.
C)a credit to Discount on Bonds for $7,000.
D)a credit to Bonds Payable for $600,000.

Question 45

Which one of the following is not a financial instrument?

A)Commitments to pay dividends
B)Commitments to guarantee indebtedness of third parties
C)Commitments to provide financing to customers
D)Financial arrangements designed to reduce risks

Question 46

Capital leases are rental agreements for which

A)periodic rental payments are recorded as rental revenue on the asset owner's income statement.
B)the contractual arrangements are similar to a purchase.
C)the period of the lease is generally a very small portion of the leased asset's useful life.
D)the lessee has legal ownership of the asset.

Question 47

On September 10, 2016, Humbert Company issued bonds with a face value of $600,000 for a price of 96. During 2017, Humbert exercised a call provision and redeemed the bonds for 101. At the time of the redemption, the bonds had a book value of $590,000. The journal entry to record the redemption includes:

A)a credit to Bonds Payable for $576,000.
B)a debit to Loss on Bond Redemption for $16,000.
C)a credit to Discount on Bonds for $24,000.
D)a debit to Discount on Bonds Payable for $10,000.

Question 48

In a capital lease, GAAP requires the lessee

A)to record the lease on its balance sheet at the present value of future lease payments.
B)to record rental revenue as each lease payment is received.
C)to not depreciate the leased asset.
D)to transfer ownership to the lessee.

Question 49

Operating leases are treated as

A)increases in liabilities for both the lessor and the lessee.
B)a sale if the leased asset has been transferred from the lessor to the lessee.
C)capital leases by the lessee.
D)rental expense by the lessee.

Question 50

Brown Company is about to issue $300,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors.
$\begin{array}{|l|l|l|l|l|}\hline &8 \text { periods, } & 16 \text { periods, } & 8 \text { periods, } & 16 \text { periods, } \\&10 \% & 5 \% & 12 \% & 6 \%\\\hline \text { Present Value of 1 } & 0.46651 & 0.45811 & 0.40388 & 0.39365 \\\hline \text { Future Value of 1 } & 2.14359 & 2.18287 & 2.47596 & 2.54035 \\\hline \text { Present Value of an Annuity of 1 } & 5.33493 & 10.83777 & 4.96764 & 10.10590 \\\hline \text { Future Value of an Annuity of 1 } & 11.43589 & 23.65749 & 12.29969 & 25.67253\\\hline\end{array}$

To the closest dollar, how much can Brown expect to receive for the sale of these bonds?

A)$319,339
B)$229,371
C)$332,513
D)$540,000

Question 51

Stevens Company is about to issue $400,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors that Stevens chooses from to calculate compounded interest.
$\begin{array}{|l|l|l|l|l|}\hline &10 \text { periods, } & 20 \text { periods, } & 10 \text { periods, } & 20 \text { periods, } \\&8 \% & 4 \% & 10 \% & 5 \%\\\hline \text { Present Value of 1 } & 0.46319 & 0.45639 & 0.38554 & 0.37689 \\\hline \text { Future Value of 1 } & 2.15892 & 2.19112 & 2.59374 & 2.65330 \\\hline \begin{array}{l}\text { Present Value of an } \\\text { Annuity of 1 }\end{array} & 6.71008 & 13.59033 & 6.14457 & 12.46221 \\\hline \begin{array}{l}\text { Future Value of an } \\\text { Annuity of 1 }\end{array} & 14.48656 & 29.77808 & 15.93743 & 33.06595 \\\hline\end{array}$
To the closest dollar, how much can Stevens expect to receive for the sale of these bonds?

A)$350,151
B)$292,637
C)$800,000
D)$1,405,503

Question 52

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2017, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2022 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The total annual cash payment for interest on the bonds is:

A)$10,000
B)$12,000
C)$5,000
D)$6,000

Question 53

Investments in bonds are accounted for using

A)historical cost.
B)capital leases.
C)the effective interest method.
D)net realizable value.

Question 54

Crosson Company uses the straight-line method of amortization and had a ten-year, 12 percent, $1,000,000 bond issue outstanding that had been sold at a $12,000 discount in 2015. The bonds pay interest on June 30 and December 31, and the company's fiscal year end is December 31. The journal entry on June 30, 2018, will include:

A)a $6,000 credit to Cash.
B)a $1,200 credit to Premium on Bonds Payable.
C)a $58,800 debit to Interest Expense
D)a $600 credit to Discount on Bonds Payable.

Question 55

Countries throughout the world typically

A)pay extremely large dividends to shareholders.
B)rely heavily on local stock and bond markets.
C)have less comprehensive accounting disclosure requirements than the U.S.
D)carry a normal debt/equity ratio that is less than 25%.

Question 56

The following information was extracted from the financial records of Lewis Company.
$$\begin{array} { | l | r | r | } \hline & { 2017 } &{ 2016 } \\\hline \text { Balance Sheet } & & \\\hline \text { Notes payable } & \$ 400,000 & \$ 400,000 \\\hline \text { Less: Discount on notes payable } & 24,000 & 28,000 \\\hline & & \\\hline \text { Income Statement } & & \\\hline \text { Interest expense } & \$ 32,800 & \$ 32,400 \\\hline\end{array}$$
Based on this information, what is the effective interest rate on the notes payable?

A)8.2%
B)8.8%
C)6.0%
D)2.2%

Question 57

Which one of the following is one of the capital lease criteria?

A)The lease term is 75% or more of the useful life of the leased property.
B)Ownership of the property is transferred back to lessor at the end of the lease term.
C)The present value of the lease payments equals or exceeds 75% of the FMV of the property.
D)The lease does not contain a bargain purchase option.

Question 58

Woodsman Company issued $400,000 of 6-year, 6% bonds with interest payments occurring annually at the end of each year. What additional information is needed in order to determine the selling price of these bonds?

A)The face amount of the bonds
B)The bond covenants
C)The market rate of interest
D)The stated rate of interest

Question 59

McCourt Investment Advisors purchased newly issued bonds on October 1, 2017, paying $108,983. The bonds had a face value of $100,000, maturing on September 30, 2022, and pay interest semiannually on March 31 and September 30. The stated interest rate is 6%. What is the effective interest rate?

A)4%.
B)5%.
C)6%.
D)7%.

Question 60

Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2016. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:

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

Question 61

On January 1, 2016, Precision Corporation issued a 3-year, 7%, $2,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2016 is 10%. If Precision uses the effective interest method, what is the book value of the bond payable on January 1, 2016?

Question 62

On January 1, 2016, Lundell Corporation issued a 5-year, 4%, $2,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The bonds were issued at 105 3/4. How much cash did Lundell receive from issuing the bonds on January 1, 2016?

Question 63

On January 1, 2016, Pacific Corporation issued a 3-year, 8%, $5,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2016 is 10%. The bond was issued at $4,750. Calculate the total interest expense over the 3-year life of the bond independent of the particular accounting method used to recognize interest expense each year.

Question 64

Barkley Brothers Inc. shows the following information on its balance sheet for December 31, 2017.
$$\begin{array} { | l | r | r | } \hline \text { Bonds payable } & \$ 100,000 & \\\hline \text { Less Unamortized discount } & 5,350 & \$ 94,650 \\\hline\end{array}$$
The bonds have a stated annual interest rate of 5 percent and will mature on December 31, 2019. The market value of the bonds as of December 31, 2017, is $98,167. Assume that Barkley retired the bonds by purchasing them on the open market. The journal entry to record this purchase would include:

A)a credit to Bonds Payable for $100,000.
B)a debit to Discount on Bonds Payable for $5,350.
C)a credit to Discount on Bonds Payable for $5,350.
D)a debit to Cash for $98,167.

Question 65

On January 1, a 5-year, $5,000 non-interest-bearing note payable was issued when the market rate of interest was 9%. What are the proceeds from this issue? Round your final answer to the nearest dollar.

Question 66

On January 1, 2017, Lukens Corporation issued 5-year bonds with a $50,000 face amount and a 6% annual coupon rate paid annually on January 1. The bonds were issued at $44,166 when the market rate of interest was 9%.
A. Prepare the journal entry to record the issuance of the bonds on January 1, 2017. Round to the nearest dollar.
B. Were the bonds issued at a premium or discount? How do you know?

Question 67

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2017, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31 and the company uses the effective interest method of amortization. The interest expense for the six months ending December 31, 2017 is:

A)$50,000.00
B)$45,000.00
C)$46,889.50
D)$93,779.00

Question 68

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2017, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2022 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The June 30, 2017 entry will include:

A)A $5,000 debit to Interest Expense.
B)A $5,386.60 debit to Interest Expense
C)A $5,000 credit to Cash
D)A $5,386.60 debit to Premium on Bonds Payable

Question 69

On January 1, a 3-year, $10,000 non-interest-bearing note payable was issued for $7,938 when the market rate of interest was 8%. Interest expense is recognized using the effective interest method. Calculate the book value of the note a year after its issuance. Round your final answer to the nearest dollar.

Question 70

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2017, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The book value of the bonds on December 31, 2017 is:

A)$1,000,000.00
B)$ 944,011.00
C)$ 941,452.90
D)$ 939,679.50

Question 71

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

Question 72

Samuels Corporation issued a $40,000, 3-year, non-interest-bearing note payable on January 1, 2016. Reflecting a market rate of interest of 10%, Garrison received $30,053. Calculate interest expense (to the nearest dollar) for 2016 and 2017.

Question 73

On January 1, 2017, Hooper Corporation issued 3-year bonds with a $40,000 face amount and a 6% annual coupon rate paid annually on December 31. The bonds were issued at $36,021 when the market rate of interest was 10%. Complete the amortization table for the bonds using the effective interest method. Round all amounts to the nearest dollar.
$$\begin{array} { | c | l | l | l | l | } \hline \text { Date } & \text { Cash } & \text { Interest Expense } & \text { Amortization } & \text { Carrying Value } \\\hline 1 / 1 / 17 & & & & \\\hline 12 / 31 / 17 & & & & \\\hline 12 / 31 / 1 \mathrm { a } & & & & \\\hline 12 / 31 / 19 & & & & \\\hline\end{array}$$

Question 74

On January 1, 2016, Sheena Corporation issued a 3-year, 7%, $4,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The bonds were issued at 104¼. Calculate the issue price.

Question 75

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2017, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2022 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The interest expense for 2017 is:

A)$12,000
B)$10,000
C)$10,743
D)$ 9,246

Question 76

On January 1, 2016, Enron Corporation issued a 4-year, 7%, $9,000 bond payable. Beginning in 2017, interest is payable annually every January 1. The market rate of interest at issuance is 9%. How much are the interest payments by Enron? Why is the amount of interest expense different than the cash payments?

Question 77

On January 1, 2016, Mango Corporation issued a 3-year, 4%, $3,000 bond payable. Beginning in 2017, interest is payable every year on January 1 over the life of the bond. The market rate of interest on January 1, 2016 is 6%. What are the proceeds received by Mercer from the issue of this bond on January 1, 2016?

Question 78

Burns Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2017, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Burn's fiscal year ends on December 31 and the company uses the effective interest method of amortization. The journal entry on December 31, 2017 will include:

A)a debit to Interest Expense for $45,000.00
B)a credit to Discount on Bonds Payable for $1,889.50
C)a credit to Interest Payable for $45,000.00
D)a credit to Cash for $46,973.95

Question 79

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

Question 80

On January 1, 2016, Edison Corporation issued a 4-year, 8%, $5,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2016 is 10%.
A. Calculate the contracted cash interest payments by Edison as specified by this bond.
B. Will the total interest expense over the life of the bond be less than or greater than the total cash payments for interest? Explain.