Chapter 9
Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.
Amortization of the premium for the first interest period will be $613
Which of the following statements regarding leases is false?
If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.
Bonds are sold at a premium if the?
Market rate of interest was less than the stated rate at the time of issue
If bonds are issued at 101.25, this means that
a $1,000 bond sold for $1,012.50
The result of using the effective interest method of amortization of the discount on bonds is that?
a constant interest rate is charged against the debt carrying value
Bonds are popular source of financing because?
bond interest expense is deductible for tax purposes, while dividends paid on stock are not.
When bonds are issued at a discount, the interest expense for the period is amount of interest payment for period?
plus the discount amortization for the period
When bonds are issued at a premium, the interest expense for the period is amount of interest payment for the period
plus the discount amortization for the period
Sean Corp. issued a $40,000, 10-year bond, with a stated rate 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?
$1,600
What best describes the discount on bonds payable account?
A contra liability
Which of the following statements regarding bonds payable is true?
The entire principal amount of most bonds mature on a single date.
The premium on bonds payable account is shown on the balance sheet as?
an addition to a long term liability
When bonds are issued by a company, the accounting entry typically shows an?
increase in assets and an increase in liabilities.
Installment bonds differ from typical bonds in what way?
A portion of each installment bond payment pays down the principal balance.
In 2013, Drew Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and yield was 6.73%, how would Drew calculate the interest expense for first year on the bonds using the effective interest method?
$189,640 x 6.73%
Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds
$60,000
Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted)
Interest Expense Discount on Bonds Payable Cash
