Chapter 9 MC accounting

What best describes the discount on bonds payable account?

A contra liability

Installment bonds differ from typical bonds in what way?

A portion of each installment bond payment pays down the principal balance.

If bonds are issued at 101.25, this means that

a $1,000 bond sold for $1,012.50.

The premium on bonds payable account is shown on the balance sheet as

an addition to a long-term liability.

Bonds are a popular source of financing because

bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

When bonds are issued by a company, the accounting entry typically shows an

increase in assets and an increase in liabilities.

When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period

minus the premium amortization for the period.

When bonds are issued at a discount, the interest expense for the period is the 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 of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?

$1,600

In 2019, Drew Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Drew calculate the interest expense for the first year on the bonds using the effective interest method?

$189,640 × 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

Kinsella Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the long-term debt to equity ratio?

0.125

Willow Corporation's balance sheet showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total stockholders' equity was $6,000. The debt to equity ratio is

0.63

McLaughlin Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the debt to total assets ratio?

1

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 the new accounting rules, which take effect in 2019, for leases is false?

If the lease term is less than one year, an asset must be recognized.

Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid 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

Which of the following statements regarding bonds payable is true?

The entire principal amount of most bonds mature on a single date.

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 sold at a premium if the

market rate of interest was less than the stated rate at the time of issue.

The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount.