Accounting II Exam 1

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. Is there a gain or loss on this retirement, and how much is the gain or loss?

$1,500 loss

A company has bonds outstanding with a par value of $400,000. The unamortized premium on these bonds is $2,000. The company retired these bonds by buying them on the open market at 97. Is there a gain or loss on this retirement, and how much is the gain or loss?

$14,000 gain

A company issues 6%, 20-year bonds with a par value of $700,000. The current market rate is 5%. The amount of interest owed to the bondholders for each semiannual interest payment ishow much?

$21,000

A company issued five-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

$3,286.95

A company issued five-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is how much?

$3,386.30

A company issued 7%, five-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is how much?

$3,673.01

A company issued five-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is how much?

$3,705.30

A company borrowed cash from the bank by signing a five-year, 8% installment note. Annual payments are required. Each annual annuity payment equals $75,136.94. How much cash did the company receive from the bank on the day they borrowed this money? Your answer should be rounded to the nearest dollar.

$300,000

A company purchased equipment and signed a seven-year installment loan at 9% annual interest. The annual payments equal $9,000. What value for this equipment should be recorded on the company's books on the day the contract is signed? Your answer should be rounded to the nearest dollar.

$45,297

A company must repay the bank $10,000 cash in three years for a loan. The loan agreement specifies 8% interest compounded annually. How much cash did the company receive from the bank on the day they borrowed this money? Your answer should be rounded to the nearest dollar.

$7,938

On January 1, 2019, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96½. Six years later, on January 1, 2025, Jacob retires 20% of these bonds by buying them on the open market at 105½. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount or premium. What is the carrying value of the bond on January 1,2025?

$784,924

A company has bonds outstanding with a par value of $600,000. The unamortized discount on these bonds is $3,000. The company retired these bonds by buying them on the open market at 98. Is there a gain or loss on this retirement, and how much is the gain or loss?

$9,000 gain

On January 1, 2019, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102½. The straight-line method is used to amortize any bond premium or discount. What is the total interest expense for the life of these bonds?

$975,000

A company borrowed $300,000 cash from the bank by signing a five-year, 8% installment note. Monthly payments are required. How much is each monthly payment? Your answer should be rounded to the nearest dollar.

($6,083)

When a bond sells at a premium: A. The contract rate is above the market rate. B. The contract rate is equal to the market rate. C. The contract rate is below the market rate. D. It means that the bond is a zero coupon bond. E. The bond pays no interest.

a. the contract rate is above market rate

On October 1, a $30,000, 6%, three-year installment note payable is issued by a company. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year on September 30. The issuer's journal entry to record the second annual interest payment would include: A. A debit to Interest Expense for $1,800. B. A debit to Interest Expense for $1,200. C. A credit to Cash for $11,800. D. A credit to Cash for $10,000. E. A debit to Notes Payable for $1,200.

b. a debit to interest expense for $1,200

The Premium on Bonds Payable account is a(n): A. Revenue account. B. Adjunct or accretion liability account. C. Contra revenue account. D. Asset account. E. Contra expense account.

b. adjunct or accretion liability account

Which of the following is true regarding the effective interest amortization method? A.Allocates bond interest expense using a changing interest rate. B.Allocates bond interest expense using a constant interest rate. C.Allocates a decreasing amount of interest over the life of a discounted bond. D.Allocates bond interest expense using the current market rate for each period. E.Is not allowed by the FASB.

b. allocates bond interest expense using a constant interest rat

Secured bonds: A. Are also referred to as debentures. B. Have specific assets of the issuing company pledged as collateral. C. Are backed by the issuer's bank. D. Are subordinated to those of other unsecured liabilities. E. Are the same as sinking fund bonds.

b. have specific assets of the issuing company pledged as collateral

Adidas issued 10-year, 8% bonds with a par value of $200,000, where interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true? A. Adidas must pay $200,000 at maturity and no interest payments. B. Adidas must pay $206,948 at maturity and no interest payments. C. Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. D. Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each. E. Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.

c. adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: A. Convertible bonds B. Sinking fund bonds C. Callable bonds D. Serial bonds E. Junk bonds

c. callable bonds

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a: A. Credit to Interest Income. B. Credit to Discount on Bonds Payable. C. Credit to Premium on Bonds Payable. D. Debit to Premium on Bonds Payable. E. Debit to Discount on Bonds Payable.

c. credit to premium on bonds payable

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: A. Debentures B. Discounted notes C. Installment notes D. Indentures E. Investment notes

c. installment notes

The carrying value of a long-term note payable: A.Is computed as the future value of all remaining future payments, using the market rate as interest. B.Is the face value of the long-term note less the total of all future interest payments. C.Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance. D.Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest. E. Decreases each time period the discount on the note is amortized.

c. is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance

A bond sells at a discount when the: A. Market rate is below the contractrate. B. Market rate is equal to the contractrate. C. Market rate is above the contract rate. D. Bond has a short-term life. E. Bond pays interest only once a year.

c. market rate is above the contract rate

A bondholder that owns a $1,000, 10%, 10-year bond has: A. Ownership rights in the company who issued the bond. B. The right to receive $10 per year until maturity. C. The right to receive $1,000 at maturity. D. The right to receive $10,000 at maturity.E. The right to receive dividends of $1,000 per year.

c. the right to receive $,1,000 at maturity

Amortizing a bond discount: A. Decreases interest expense each period. B. Increases the market value of the Bonds Payable. C. Decreases the Bonds Payable account. D. Allocates a part of the total discount to each interest period. E. Increases cash flows from the bond.

d. allocates a part of the total discount to each interest period

A company retires its bonds at 105. The carrying value of the bonds at the date of its retirement is $103,745. The issuer's journal entry to record the retirement will include a: A. Credit to Gain on Bond Retirement. B. Credit to Premium on Bonds. C. Debit to Discount on Bonds. D. Debit to Premium on Bonds. E. Credit to Bonds Payable.

d. debit to premium on bonds

Which of the following statements is true? For the issuer: A. Bonds are assets. B. Interest paid on bonds is not tax deductible. C. Dividends paid to stockholders are tax deductible. D. Interest paid on bonds is tax deductible. E. Bonds always decrease return on equity.

d. interest paid on bonds is tax deductible

The market value of a bond is equal to: A. The future value of all future cash payments provided by a bond. B. The present value of all future interest payments provided by a bond. C. The present value of the principal for an interest-bearing bond. D. The present value of all future cash payments provided by a bond. E. The future value of all future interest payments provided by a bond.

d. the present value of all future cash payments provided by a bond

On January 1, 2019, a company issued and sold a $400,000, 7%, 10-year bond payable and received proceeds of $406,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the premium. What is the journal entry to record the first interest payment?

debit: bond interest expense $13,700, premium on bonds payable $300 credit: cash $14,000

On January 1, 2019, a company issued and sold a $400,000, 7%, 10-year bond payable and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. What is the journal entry to record the first interest payment?

debit: bond interest expense $14,200 credit: cash $14,000, discount on bonds payable $200

A company issued 5%, 30-year bonds with a par value of $900,000. The current market rate is 5.5%. What is the journal entry to record each semiannual interest payment?

debit: bond interest expense $22,500 credit: cash $22500

On January 1, 2019, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96½. Six years later, on January 1, 2025, Jacob retires 20% of these bonds by buying them on the open market at 105½. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount or premium. What is the journal entry to record the issuance of the bonds on January 1, 2019?

debit: cash $772,000, discount on bonds payable $28,000 credit: bonds payable $800,000

A corporation borrowed $125,000 cash by signing a five-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What is the journal entry for the issuer to record the first payment?

debit: interest expense $11,250, notes payable $25,000 credit: cash $36,250

The Discount on Bonds Payable account is: A. A liability B. A contra equity C. An expense D. A contra expense E. A contra liability

e. a contra liability

Bonds that mature at different dates and end up with the total principal repaid gradually over a number of periods are referred to as: A. Registered bonds B. Bearer bonds C. Callable bonds D. Sinking fund bonds E. Serial bonds

e. serial bonds

A bond traded at 102½ means that: A. The bond pays 2.5% interest. B. The market rate of interest is 2½% above the contract rate. C. The market rate of interest is 2.5%. D. The bonds were retired at $1,025 each. E. Thebond traded at $1,025 per $1,000 bond.

e. the bond traded at $1,025 per $1,000 bond

If an issuer sells a bond at any other date than the interest payment date: A.This means the bond sells at a premium. B.This means the bond sells at a discount. C.The issuing company will report a loss on the sale of the bond. D.The issuing company will report a gain on the sale of the bond. E.The buyer normally pays the issuer the purchase price plus any interest accrued since the last interest payment date.

e. the buyer normally pays the issuer the purchase price plus any interest accrued sine the last interest payment date

The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called the bond ____________.

indenture