Question 1

The market rate of interest is the rate of interest shown in the bond indenture.

Accepted Answer

A) True 
 B)False

Question 2

On January 1,20A,Bodner Company agreed to buy some equipment from Adams Company.Bodner signed a note,agreeing to pay Adams $500,000 for the equipment on December 31,20C.The market rate of interest for this note was 10%.
Required:
A.Prepare the journal entry Bodner would record on January 1,20A related to his purchase.
B.Prepare the December 31,20A,adjusting entry to record interest expense related to the note for the first year.
C.Prepare the December 31,20B,adjusting entry to record interest expense related to the note for the second year.
D.Prepare the entry Bodner would record on December 31,20C,the due date of the note to record interest expense for the third year and payment of the note.

Accepted Answer

The answer of On January 1,20A,Bodner Company agreed to buy...

Question 3

If a bond payable is sold (issued)at a premium,the amount of the carrying value (the long-term liability)reported on the subsequent statements of financial position does which of the following?

Accepted Answer

A) Remains constant. 
B) Decreases each year. 
C) Increases each year. 
D) Changes from year to year depending upon the market rate of interest each year.

Question 4

Bonds payable usually are classified on the statement of financial position as which of the following?

Accepted Answer

A) Current liabilities. 
B) Long-term liabilities. 
C) Investments and funds. 
D) Current assets.

Question 5

Bonds sold below par are said to be issued at a discount.

Accepted Answer

A) True 
 B)False

Question 6

On December 31,20A,Dive Company sold $100,000,ten-year,8% bonds at 104.5.The bonds were dated January 1,20A,and interest is payable each June 30 and December 31.The company uses the straight-line amortization method.The company should report the long-term liability (carrying value)for the bonds on the December 31,20A,statement of financial position as which of the following?

Accepted Answer

A) $100,000 
B) $103,400 
C) $104,000 
D) $104,500

Question 7

The debt to equity ratio is calculated by dividing current liabilities by total equities.

Accepted Answer

A) True 
 B)False

Question 8

On January 1,20A,Washer Company sold (issued)600,$1,000,five-year,8% bonds at 95.The bonds were dated January 1,20A,and interest is payable each June 30 and December 31.The company uses the straight-line method of amortization.What is the amount of the net liability for bonds payable that would be reported on the December 31,20A,statement of financial position?

Accepted Answer

A) $573,000 
B) $576,000 
C) $597,000 
D) $600,000

Question 9

A fixed interest rate bond provides greater protection from inflation to the bond investor rather than a variable rate bond.

Accepted Answer

A) True 
 B)False

Question 10

On November 1,20A,Duval Company sold (issued)300,$1,000,ten-year,7% bonds at 97.The bonds were dated November 1,20A,and interest is payable each November 1 and May 1.What would be the amount of discount amortization at each semi-annual interest date (assume straight-line amortization)?

Accepted Answer

A) $50 
B) $100 
C) $450 
D) $600

Question 11

If bonds have been issued at a discount,then over the life of the bonds the

Accepted Answer

A) carrying amount of the bonds will decrease. 
B) carrying amount of the bonds will increase. 
C) interest expense will decrease. 
D) unamortized discount will increase.

Question 12

The present value of an annuity is determined only from the interest (discount)rate and the periodic payment amount.

Accepted Answer

A) True 
 B)False

Question 13

Lamar Company authorized a $500,000,five-year,12% bond issue dated October 1,20A,with semi-annual interest to be paid each September 30 and March 31.On October 1,20A,the bonds were issued (sold)for $497,340.
(a)Give the entry to record the sale of the bonds
(b)It is December 31,20A,the end of the accounting period.Give the required adjusting entry using straight-line amortization
(c)Was the bond sold at par,at a discount or at a premium?
(d)Will interest expense be greater than or less than the cash payments for interest?

Accepted Answer

The answer of Lamar Company authorized a $500,000,five-year,12% bond issue...

Question 14

When the effective-interest amortization method is used,the related interest expense for the period is determined by multiplying the stated interest rate by the book value of the bond at the beginning of the current period.

Accepted Answer

A) True 
 B)False

Question 15

The future value of an annuity is always more than the sum of its payments whereas the present value of an annuity is always less than the sum of its payments.

Accepted Answer

A) True 
 B)False

Question 16

On July 1,20B,WildWorld Inc.sold (issued)300,$1,000,ten-year,7% bonds at 101.The bonds were dated July 1,20B,and semi-annual interest will be paid each December 31 and June 30.WildWorld uses straight-line amortization.What is the bond liability that would be reported on the statement of financial positionat December 31,20B?

Accepted Answer

A) $300,000 
B) $302,700 
C) $302,850 
D) $303,000

Question 17

The end of period adjusting entry required for a bond issued at a premium includes a credit to the account,Premium on Bonds Payable.

Accepted Answer

A) True 
 B)False

Question 18

Either straight-line or effective-interest amortization may be used for bond premiums or discounts,although the latter is preferred.

Accepted Answer

A) True 
 B)False

Question 19

On July 1,20A,GAAP Corporation sold (issued)$100,000 of its ten-year,6% bonds payable at 98.The bonds were dated July 1,20A,and interest is paid each June 30,and December 31.
(a)Give the entry to record the sale of the bonds
(b)Give the entry to record the first interest payment.Assume straight-line amortization

Accepted Answer

The answer of On July 1,20A,GAAP Corporation sold (issued)$100,000 of...

Question 20

Accrued interest was recorded annually.On December 31,20C,the due date of the note,Bennett paid the amount due and recorded the transaction with which of the following?

Accepted Answer

A) A debit to notes payable for $400,000. 
B) A debit to notes payable for $317,520. 
C) A credit to notes payable for $400,000. 
D) A credit to notes payable for $317,520.

Exam 11: Reporting and Interpreting Stockholders Equity

The market rate of interest is the rate of interest shown in the bond indenture.

If a bond payable is sold (issued) at a premium,the amount of the carrying value (the long-term liability) reported on the subsequent statements of financial position does which of the following?

Bonds payable usually are classified on the statement of financial position as which of the following?

Bonds sold below par are said to be issued at a discount.

The debt to equity ratio is calculated by dividing current liabilities by total equities.

A fixed interest rate bond provides greater protection from inflation to the bond investor rather than a variable rate bond.

On November 1,20A,Duval Company sold (issued) 300,$1,000,ten-year,7% bonds at 97.The bonds were dated November 1,20A,and interest is payable each November 1 and May 1.What would be the amount of discount amortization at each semi-annual interest date (assume straight-line amortization) ?

If bonds have been issued at a discount,then over the life of the bonds the

The present value of an annuity is determined only from the interest (discount)rate and the periodic payment amount.

When the effective-interest amortization method is used,the related interest expense for the period is determined by multiplying the stated interest rate by the book value of the bond at the beginning of the current period.

The future value of an annuity is always more than the sum of its payments whereas the present value of an annuity is always less than the sum of its payments.

The end of period adjusting entry required for a bond issued at a premium includes a credit to the account,Premium on Bonds Payable.

Either straight-line or effective-interest amortization may be used for bond premiums or discounts,although the latter is preferred.

Accrued interest was recorded annually.On December 31,20C,the due date of the note,Bennett paid the amount due and recorded the transaction with which of the following?