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.Please provide the journal entry needed on July 1,2014 when the first installment payment is made.
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Accepted Answer

The answer of On July 1,2013,Avery Services issued a 4%...

Question 2

On November 1,2015,Archangel Services issued $200,000 of 10-year bonds with a stated rate of 3%.The bonds were sold at discount for $191,000,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.How much interest expense is recorded at December 31,2015?

Accepted Answer

A)  $1,075 
B)  $2,000 
C)  $1,150 
D)  $2,150

Question 3

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will be which of the following?

Accepted Answer

A)  Debit Bond discount for $1,000 and credit Cash for $1,000. 
B)  Debit Bonds payable for $19,000 and credit Cash for $1,000. 
C)  Debit Bonds payable for $20,000 and credit Cash for $20,000. 
D)  Debit Bonds payable for $19,000, debit Bond discount for $1,000 and credit Cash for $19,000.

Question 4

McDonald Sales prepared a bond issue of $20,000 dated January 1,2013.The bonds have a stated rate of 3% and a term of 6 years.The bond issue was delayed,and the bonds were finally sold on March 1,2013 at par.How much cash will McDonald receive for the bonds?

Accepted Answer

A)  $19,900 
B)  $20,000 
C)  $20,100 
D)  $20,300

Question 5

Using the present value tables,please compute the present value of an annuity which pays $2,000 per year for 10 years,discounted at 7%.

Accepted Answer

A)  $14,048 
B)  $19,240 
C)  $18,180 
D)  $16,440

Question 6

If a company wishes to retire bonds early,they may call the bonds if the bonds are callable,but they may not purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is TRUE about a bond that is issued at a premium?

Accepted Answer

A)  It will be sold above par. 
B)  Its interest rate lower than the prevailing market rate. 
C)  It will repay principal at more than the face value. 
D)  It will be sold at par.

Question 8

The Cases Company issues $800,000 of 7%,10-year bonds on March 31,2013.The bond pays interest on March 31 and September 30.Which of the following statements is TRUE?

Accepted Answer

A)  If the market rate of interest is 8%, the bonds will issue at a premium. 
B)  If the market rate of interest is 8%, the bonds will issue at a discount. 
C)  If the market rate of interest is 8%, the bonds will issue at par. 
D)  If the market rate of interest is 8%, the bonds will issue above par.

Question 9

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying semiannual interest payments.

Accepted Answer

A) True 
 B)False

Question 10

The company will repay the principal amount of the bond on the maturity date.

Accepted Answer

A) True 
 B)False

Question 11

The balance in the Bonds payable is a credit of $50,000.The balance in the Premium on bonds payable is a credit of $900.The balance sheet will report the bond balance as $49,100.

Accepted Answer

A) True 
 B)False

Question 12

Accounts payable is always shown on the balance sheet in current liabilities.

Accepted Answer

A) True 
 B)False

Question 13

On January 1,2013,Diab Services issued $140,000 of 4-year bonds with a stated rate of 9%.The market rate at time of issue was 8%,so the bonds were issued with a premium and sold for $144,758.Diab uses the effective-interest method to amortize bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.Which of the following is the correct journal entry to record the first interest payment?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 5,600 & \
\hline \text { Cash } & & 5,600 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 5,600 & \
\hline \text { Discount on bond payable } & 700 & \
\hline \text { Cash } & & 6,300 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Interest expense } & 5,790 & \
\hline \text { Premium on bonds payable } & 510 & \
\hline \text { Cash } & & 6,300 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 6,300 & \
\hline \text { Premium on bonds payable } & & 700 \
\hline \text { Interest expense } & & 5,600 \
\hline
\end{array}$$

Question 14

A mortgage payable is a debt that is backed with a security interest in property.

Accepted Answer

A) True 
 B)False

Question 15

McDonald Sales prepared a bond issue of $20,000 dated January 1,2013.The bonds have a stated rate of 3% and a term of 6 years.The bond issue was delayed,and the bonds were finally sold on March 1,2013 at par.On June 30,2013,the first semiannual interest payment is made.How much will be paid out to bondholders on June 30,2013?

Accepted Answer

A)  $100 
B)  $200 
C)  $300 
D)  $600

Question 16

McDonald Sales prepared a bond issue of $20,000 dated January 1,2013.The bonds have a stated rate of 3% and a term of 6 years.The bond issue was delayed,and the bonds were finally sold on March 1,2013 at par.On June 30,2013,the first semiannual interest payment is made.The journal entry to record that interest payment will include which of the following line items?

Accepted Answer

A)  Credit Cash for $200 
B)  Debit Cash for $300 
C)  Credit Interest payable for $100 
D)  Debit Interest expense for $200

Question 17

The issue price of a bond-whether it is sold at par,premium,or discount-has no effect on the required principal repayment at maturity.

Accepted Answer

A) True 
 B)False

Question 18

On November 1,2013,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 31,2013,Archangel made an adjusting entry to accrue interest at year-end.No further entries were made until April 30,2014,when the first payment was sent out.Please provide the journal entry for this payment.
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Accepted Answer

The answer of On November 1,2013,Archangel Services issued $200,000 of...

Question 19

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 20

On January 1,2013,Thames Company purchases property and signs a 6-year mortgage note for $60,000 at 4%.Please see the partial amortization schedule below.  For the year 2013,what will be the total interest expense recorded by Thames Company for this mortgage?

Accepted Answer

A)  $200.00 
B)  $9,533.52 
C)  $11,760.00 
D)  $2,226.48

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

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will be which of the following?

McDonald Sales prepared a bond issue of $20,000 dated January 1,2013.The bonds have a stated rate of 3% and a term of 6 years.The bond issue was delayed,and the bonds were finally sold on March 1,2013 at par.How much cash will McDonald receive for the bonds?

Using the present value tables,please compute the present value of an annuity which pays $2,000 per year for 10 years,discounted at 7%.

If a company wishes to retire bonds early,they may call the bonds if the bonds are callable,but they may not purchase them on the open market.

Which of the following statements is TRUE about a bond that is issued at a premium?

The Cases Company issues $800,000 of 7%,10-year bonds on March 31,2013.The bond pays interest on March 31 and September 30.Which of the following statements is TRUE?

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying semiannual interest payments.

The company will repay the principal amount of the bond on the maturity date.

The balance in the Bonds payable is a credit of $50,000.The balance in the Premium on bonds payable is a credit of $900.The balance sheet will report the bond balance as $49,100.

Accounts payable is always shown on the balance sheet in current liabilities.

A mortgage payable is a debt that is backed with a security interest in property.

The issue price of a bond-whether it is sold at par,premium,or discount-has no effect on the required principal repayment at maturity.

The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.

On January 1,2013,Thames Company purchases property and signs a 6-year mortgage note for $60,000 at 4%.Please see the partial amortization schedule below. For the year 2013,what will be the total interest expense recorded by Thames Company for this mortgage?