Question 1

On July 1,2013,Avery Services issued a 4% long-term note payable for $10,000.It is payable over a 5-year term in $2,000 principal installments on July 1 of each year.Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period.
-What happens on July 1,2014?

Accepted Answer

A)  Avery pays out $400 of interest only. 
B)  Avery pays out $400 of interest plus $2,000 of principal. 
C)  Avery pays out $2,000 of principal only. 
D)  Avery pays out the $200 of interest that was accrued at year-end.

Question 2

On October 15,2013,Rural Sales has a bond with balances as shown below.  Rural Sales retires the bonds for $82,000.Please provide the journal entry to retire the bonds.
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Accepted Answer

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Question 3

The time value of money is based on the concept that money earns interest over time.

Accepted Answer

A) True 
 B)False

Question 4

On November 1,2015,Archangel Services issued $200,000 of 10-year bonds with a stated rate of 3%.The bonds were sold at par,and make semiannual payments on April 30 and October 31.At December 31,2015,Archangel made an adjusting entry to accrue interest at year-end.No further entries were made until April 30,2016,when the first payment was sent out.At that time,how much interest expense was recorded for the period of January through April,2016?

Accepted Answer

A)  $2,000 
B)  $1,000 
C)  $6,000 
D)  $3,000

Question 5

Interest payable would normally be shown on the balance sheet in current liabilities.

Accepted Answer

A) True 
 B)False

Question 6

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.Immediately after issue of the bonds,the ledger balances appeared as follows: 
- After the first interest payment on June 30,2014,what was the balance in the discount account?

Accepted Answer

A)  Debit of $540 
B)  Debit of $600 
C)  Debit of $660 
D)  Credit of $60

Question 7

The Amazing Widget Company issues $500,000 of 6%,10-year bonds at 103 on March 31,2014.The bond pays interest on March 31 and September 30.The market rate of interest on the issuance date was 4%.Assume the company uses the straight-line method for amortization.The journal entry to record the issuance would include a:

Accepted Answer

A)  debit to Cash for $500,000. 
B)  credit to Bonds payable for $515,000. 
C)  credit to Discount on bonds payable for $15,000. 
D)  debit to Cash for $515,000.

Question 8

The Amazing Widget Company issues $500,000 of 6%,10-year bonds at 103 on March 31,2014.The bond pays interest on March 31 and September 30.The market rate of interest on the issuance date was 4%.Assume the company uses the straight-line method for amortization.What net balance will be reported for the bonds on the balance sheet on September 30,2014?

Accepted Answer

A)  $500,000. 
B)  $515,000. 
C)  $514.250. 
D)  $515,250.

Question 9

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

Accepted Answer

A)  A premium on bonds payable is added to the bonds payable balance and shown with long-term liabilities on the balance sheet. 
B)  A premium on bonds payable is added to the bonds payable balance and shown with owner's equity on the balance sheet. 
C)  A premium on bonds payable is subtracted from the bonds payable balance and shown with long-term liabilities on the balance sheet. 
D)  A premium on bonds payable is subtracted from the bonds payable balance and shown with the current liabilities on the balance sheet.

Question 10

The balance in the Bonds payable account is a credit of $50,000.The balance in the Discount on bonds payable account is a debit of $1,500.How much is the bond carrying amount?

Accepted Answer

A)  $1,500 
B)  $50,000 
C)  $51,500 
D)  $48,500

Question 11

Discount on bonds payable is considered to be additional interest expense of the company that issues the bond.

Accepted Answer

A) True 
 B)False

Question 12

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $10,900.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond premium.Immediately after issue of the bonds,the ledger balances appeared as follows:  After the first interest payment on June 30,2014,what was the balance in the premium account?

Accepted Answer

A)  Debit of $90 
B)  Debit of $600 
C)  Credit of $990 
D)  Credit of $810

Question 13

Which of the following describes a serial bond?

Accepted Answer

A)  A bond that repays principal in installments 
B)  A bond that gives the bondholder a claim for specific assets if the issuer fails to pay 
C)  A bond that matures at one specified time 
D)  A bond that is not backed by specific assets

Question 14

Blanding Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2012.The bond pays interest on February 28 and August 31.The market rate of interest on the issuance date was 10%.On August 31,2012,how much cash did Blanding pay out to bondholders?

Accepted Answer

A)  $41,000 
B)  $40,000 
C)  $80,000 
D)  $39,000

Question 15

Installment payments for mortgages are normally paid once per year.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is the amount the borrower must pay back to the bondholders?

Accepted Answer

A)  Market value 
B)  Present value 
C)  Stated interest value 
D)  Principal amount

Question 17

If bonds with a face value of $100,000 are sold at par,the amount of cash proceeds is:

Accepted Answer

A)  $108,800. 
B)  $100,000. 
C)  $88,000. 
D)  $99,912.

Question 18

On January 1,2014,Partridge Company issued $50,000 of 6-year bonds with a stated rate of 3%.The market rate at time of issue was 4%,so the bonds were discounted and sold for $47,331.Partridge uses the effective-interest rate of amortization for bond discount.Semiannual interest payments are made on June 30 and December 31 of each year.How much interest expense will be recorded when the first interest payment is made? (Please round to the nearest whole dollar.)

Accepted Answer

A)  $167 
B)  $947 
C)  $750 
D)  $2,000

Question 19

On May 1,2014,Metro Company has bonds with balances as shown below.  Metro retires the bonds for $52,000.Please provide the journal entry to retire the bonds.
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Accepted Answer

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Question 20

Blanding Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2014.The bond pays interest on February 28 and August 31.The market rate of interest on the issuance date was 10%.The journal entry to record the issuance would include a:

Accepted Answer

A)  debit to Cash for $1,000,000. 
B)  credit to Bonds payable for $980,000. 
C)  credit to Discount on bonds payable for $20,000. 
D)  debit to Cash for $980,000.

Exam 11: Long-Term Liabilities, bonds Payable, and Classification of Liabilities on the Balance Sheet

The time value of money is based on the concept that money earns interest over time.

Interest payable would normally be shown on the balance sheet in current liabilities.

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

The balance in the Bonds payable account is a credit of $50,000.The balance in the Discount on bonds payable account is a debit of $1,500.How much is the bond carrying amount?

Discount on bonds payable is considered to be additional interest expense of the company that issues the bond.

Which of the following describes a serial bond?

Blanding Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2012.The bond pays interest on February 28 and August 31.The market rate of interest on the issuance date was 10%.On August 31,2012,how much cash did Blanding pay out to bondholders?

Installment payments for mortgages are normally paid once per year.

Which of the following is the amount the borrower must pay back to the bondholders?

If bonds with a face value of $100,000 are sold at par,the amount of cash proceeds is:

On May 1,2014,Metro Company has bonds with balances as shown below. Metro retires the bonds for $52,000.Please provide the journal entry to retire the bonds. \begin{array} { | l | l | l | } \hline \quad\quad& \quad&\quad \\\hline & & \\\hline & & \\\hline & & \\\hline\end{array}​​​​

Blanding Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2014.The bond pays interest on February 28 and August 31.The market rate of interest on the issuance date was 10%.The journal entry to record the issuance would include a: