Financial Accounting Chapter 9 Review

The terms "effective interest rate" and "yield rate" refer to the _________ interest rate

Market

Bonds will be issued a premium if the stated interest rate is

greater than the market interest rate.

At the beginning of the year, Petra owes $10,000 on an installment notes payable, which has an interest rate of 6%. At the end of the year, Petra makes a payment of $2,000. After the payment, the carrying value of the installment notes payable will be:

$8,600

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to:

Discount on bonds payable for $2,000 Cash for $98,000

During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct?

The balance is $48,880.

Cabot Inc. has 6%, $100,000 face amount bonds outstanding. The bonds were issued at a premium. At end of the current fiscal period, the balance of premium on bonds payable is $1,200.The balance sheet presentation of Cabot's bonds should include:

Plus premium on bonds payable of $1,200 Bonds payable of $100,000

Glueck Company issues bonds with a stated rate of 5% and a market rate of 4%. Glueck's bonds will issue at

a premium.

Which of the following are typically shown in an amortization schedule related to an installment notes payable? (Select all that apply.)

The cash paid each payment period The carrying value of the note at the end of the period The carrying value of the note at the beginning of the period

Omar Inc. has 6%, $200,000 face amount bonds outstanding. The bonds were issued at a premium. At the end of the current fiscal period, the balance of premium on bonds payable is $4,500. The liability reported on Omar's balance sheet should be:

$204,500

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include:

A credit to bonds payable for $100,000 A debit to discount on bonds payable for $2,000

A bond-related schedule that summarizes cash paid, interest expense, and changes in bond carrying value is referred to as a bond __________ schedule

Amortization

ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?

The issue price will be above the bond's face value.

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______.

a debit to Interest expense of $6,000 a credit to Cash of $6,000

Periodic payments on installment notes typically include (Select all that apply.)

a portion that reflects interest. a portion that reduces the outstanding loan balance.

The bond amortization schedule of Kroken Company shows that cash paid for interest exceeds interest expense. From this information we can infer that the bonds were issued at:

a premium

The __________ rate of interest is used to compute the cash interest paid to bondholders. (Enter one word per blank)

stated

The rate of interest printed on the face of a bond is referred to as the __________ interest rate.

stated

ABC Corporation issued $100,000 of 10%, 5-year bonds on January 1, 2018, for $92,280. The market interest rate when the bonds were issued was 12%. Interest is paid semi-annually on January 1 and July 1. Using the effective-interest amortization method, how much cash will ABC pay bondholders on July 1, 2018 (rounded to the nearest dollar)?

$5000

The__________ rate of interest is an implied rate based on the price investors pay to purchase a bond.

Market

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes ______.

a debit to Interest expense of $500 a credit to Interest payable of $500

Walker Inc. signs a $24,000 installment note, which requires equal monthly payments of $1,100 over the next two years. The journal entry to recognize the note includes a:

credit to Notes Payable for $24,000

The __________ rate of interest on a bond is the interest rate printed on the bond, whereas the __________ rate of interest is the current rate of interest being paid on investments with similar characteristics.

Stated Market

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal? (Select all that apply.)

The carrying value of the note at the end of the period The cash paid each payment period Interest expense based on the beginning period carrying value and the effective rate of the loan The decrease in the carrying value of the note

Which of the following are typically shown in an amortization schedule related to an installment notes payable?

The cash paid each payment period The carrying value of the note at the beginning of the period The carrying value of the note at the end of the period

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?

The decrease in the carrying value of the note Interest expense based on the beginning period carrying value and the effective rate of the loan The carrying value of the note at the end of the period The cash paid each payment period

Common terms used for the market interest rate are:

effective interest rate yield rate