Chapter 13 Adaptive Practice

On January 1, the Caycee Corporation issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Caycee uses the effective-interest method of amortizing bond discount. At the end of the first year, what amount should Caycee report for the unamortized bond discount? A. $228,400 B. $219,600 C. $206,440 D. $204,000

A. $228,400

Which of the following is not something that needs to be determined to find the loss on redemption? A. Stated interest rate B. Reacquisition price C. Unamortized issue cost D. Unamortized discount

A. Stated interest rate

The Silvio Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, the interest expense to be recognized in 2020 is A. $390,000 B. $784,249. C. $784,166. D. $780,000.

B. $784,249.

Pigeon Corporation retires its $300,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $311,235. Which of the following will be included in the entry to record the redemption? A. A credit of $3,765 to Gain on Bond Redemption B. A debit of $11,235 to Premium on Bonds Payable C. A credit of $11,235 to Loss on Bond Redemption D. A debit of $15,000 to Premium on Bonds Payable

B. A debit of $11,235 to Premium on Bonds Payable

If bonds are issued between interest dates, which of the following could be included on the entry on the books of the issuing corporation? A. Credit to Unearned Interest B. Credit to Interest Expense C. Credit to Interest Receivable D. Debit to Interest Payable

B. Credit to Interest Expense

The 10% bonds payable of Yano Company had a net carrying amount of $950,000 on December 31, 2020. The bonds, which had a face value of $1,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2021, several years before their maturity, Yano retired the bonds at 102. The interest payment on July 1, 2021, was made as scheduled. Ignoring taxes, the loss that Yano should record on the early retirement of the bonds on July 2, 2021, would be A. $70,000 loss. B. $20,000 loss. C. $63,000 loss. D. $56,000 loss.

C. $63,000 loss

"In-substance defeasance" is a term used to refer to an arrangement whereby which of the following occurs? A. A company gets another company to cover its payments due on long-term debt B. A governmental unit issues debt instruments to a corporation C. A company provides for the future repayment of long-term debt by placing purchased securities in an irrevocable trust D. A company legally extinguishes debt before its due date

C. A company provides for the future repayment of long-term debt by placing purchased securities in an irrevocable trust

Penny is interested in investing in corporate bonds, but she is not sure what type would be the best choice for her. She tells you that she is especially interested in buying a relatively low level of risk bond and offers a steady income stream. Which of the following pieces of advice would be most appropriate for you to provide? A. "I would recommend avoiding term bonds. Because these bonds all mature on a single date, you will not receive any interest payments until that maturity date is reached." B. "Any type of debenture bond should be a solid choice. These bonds are backed by collateral, which means your risk of loss is low or even nonexistent." C. "I think an income bond is the best choice for you because, with this type of bond, the issuing corporation must pay you a set amount of money every year until the bond reaches maturity." D. "Given your desire for a low level of risk and a steady income stream, you will want to avoid debenture bonds that are not secured by collateral. Also avoice deep-discount bonds that do not provide a steady income stream, even if their price makes them seem like an appealing option."

D. "Given your desire for a low level of risk and a steady income stream, you will want to avoid debenture bonds that are not secured by collateral. Also avoice deep-discount bonds that do not provide a steady income stream, even if their price makes them seem like an appealing option.