Intermediate Accounting II: Chapter 14 Multiple Choice

On January 1, 2021, Swifty Corporation sold $5050000 of its 10% bonds for $4470740 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Swifty report as interest expense for the six months ended June 30, 2021? A. $268244 B. $223543 C. $303000 D. $252500

A. $268244

On June 30, 2021, Sheridan Company had outstanding 7%, $7940000 face amount, 15-year bonds maturing on June 30, 2031. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2021 was $356000. On June 30, 2021, Sheridan acquired all of these bonds at 93 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A. $7584000. B. $7864000. C. $7384200. D. $7663400.

A. $7584000.

At December 31, 2020 the following balances existed on the books of Crane Company: Bonds Payable $5900000 Discount on Bonds Payable 830000 Interest Payable 140000 If the bonds are retired on January 1, 2021, at 101, what will Crane report as a loss on redemption? A. $889000 B. $1029000 C. $749000 D. $590000

A. $889000

Bond interest paid is equal to the A. face amount of the bonds multiplied by the stated interest rate. B. carrying value of the bonds multiplied by the effective-interest rate. C. carrying value of the bonds multiplied by the stated interest rate. D. face amount of the bonds multiplied by the effective-interest rate.

A. face amount of the bonds multiplied by the stated interest rate.

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be A. greater than if the straight-line method were used. B. greater than the amount of the interest payments. C. less than if the straight-line method were used. D. the same as if the straight-line method were used.

A. greater than if the straight-line method were used.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to A. the market rate multiplied by the beginning-of-period carrying amount of the bonds. B. the stated (nominal) rate of interest multiplied by the face value of the bonds. C. the market rate of interest multiplied by the face value of the bonds. D. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.

A. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from the date of issue. If the bonds were issued at a premium, this indicates that A. the nominal rate of interest exceeded the market rate. B. no necessary relationship exists between the two rates. C. the effective yield or market rate of interest exceeded the stated (nominal) rate. D. the market and nominal rates coincided.

A. the nominal rate of interest exceeded the market rate.

On July 1, 2021, Bramble Corp. issued 3800 of its 9%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2021 and mature on April 1, 2031. Interest is payable semiannually on April 1 and October 1. What amount did Bramble receive from the bond issuance? A. $3662000 B. $3847500 C. $3800000 D. $3762000

B. $3847500

On January 1, Bonita Industries issued $6900000, 9% bonds for $7348500. The market rate of interest for these bonds is 8%. Interest is payable annually on December 31. Bonita uses the effective-interest method of amortizing bond premium. At the end of the first year, Bonita should report unamortized bond premium of: A. $393380 B. $415380 C. $416640 D. $310500

B. $415380

In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize A. no gain or loss on the restructuring. B. a gain on the restructuring. C. a loss on the restructuring. D. none of these answers are correct.

B. a gain on the restructuring.

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, A. no interest expense or revenue should be recognized in the future. B. a new effective-interest rate must be computed. C. a gain should be recognized by the debtor. D. a loss should be recognized by the debtor.

B. a new effective-interest rate must be computed.

A company issues $16600000, 9.8%, 20-year bonds to yield 10% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16315159. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? A. $16600000 B. $16317517 C. $16319993 D. $16329355

C. $16319993

A company issues $17000000, 9.8%, 20-year bonds to yield 10% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16708295. Using effective-interest amortization, how much interest expense will be recognized in 2020? A. $1670827 B. $833000 C. $1670951 D. $1666000

C. $1670951

Bonita Industries issues $19500000 of 10-year, 12% bonds on March 1, 2020 at 98 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date? A. $19110000 B. $20475000 C. $19500000 D. $18900000

C. $19500000

The 10% bonds payable of Sheridan Company had a carrying amount of $4100000 on December 31, 2020. The bonds, which had a face value of $3940000, were issued at a premium to yield 8%. Sheridan uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2021, several years before their maturity, Sheridan retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is A. $48200. B. $157600. C. $30600. D. $0.

C. $30600.

On July 1, 2019, Crane Company issued 8% bonds in the face amount of $10100000, which mature on July 1, 2025. The bonds were issued for $9646922 to yield 9%, resulting in a bond discount of $453078. Crane uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2021, Crane's unamortized bond discount should be A. $356812. B. $314812. C. $327212. D. $344812.

C. $327212.

On January 1, 2021, Sheridan Company sold property to Carla Vista Company. There was no established exchange price for the property, and Carla Vista gave Sheridan a $4400000 zero-interest-bearing note payable in 5 equal annual installments of $880000, with the first payment due December 31, 2021. The prevailing rate of interest for a note of this type is 8%. The present value of the note at 8% was $3513576 at January 1, 2021. What should be the balance of the Discount on Notes Payable account on the books of Carla Vista at December 31, 2021 after adjusting entries are made, assuming that the effective-interest method is used? A. $886424. B. $0. C. $605338. D. $631038.

C. $605338.

Long-term debt that matures within one year and is to be converted into stock should be reported A. as a current liability. B. as noncurrent. C. as noncurrent and accompanied with a note explaining the method to be used in its liquidation. D. in a special section between liabilities and stockholders' equity.

C. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be A. decreased by accrued interest from May 1 to June 1. B. decreased by accrued interest from June 1 to November 1. C. increased by accrued interest from May 1 to June 1. D. increased by accrued interest from June 1 to November 1.

C. increased by accrued interest from May 1 to June 1.

Note disclosures for long-term debt generally include all of the following except A. restrictions imposed by the creditor. B. assets pledged as security. C. names of specific creditors. D. call provisions and conversion privileges.

C. names of specific creditors.

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a A. loss, net of income taxes. B. gain, net of income taxes. C. part of continuing operations. D. deferred credit to be amortized over the life of the new debt.

C. part of continuing operations.

On January 1, 2020, Ann Price loaned $174391 to Joe Kiger. A zero-interest-bearing note (face amount, $245000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 12%. The present value of $245000 at 12% for three years is $174391. What amount of interest income should Ms. Price recognize in 2020? A. $88200. B. $29400. C. $69550. D. $20927.

D. $20927.

On January 1, 2020, Vaughn Manufacturing sold 11% bonds with a face value of $3000000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $3237400 to yield 9%. Using the effective-interest method of amortization, interest expense for 2020 is A. $291316. B. $330000. C. $270000. D. $290497.

D. $290497.

At the beginning of 2020, Marigold Corp. issued 10% bonds with a face value of $6500000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $6021600 to yield 12%. Marigold uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2020? (Round your answer to the nearest dollar.) A. $744072 B. $720752 C. $722752 D. $724770

D. $724770

On January 1, 2021, Sunland Company issued its 11% bonds in the face amount of $8110000, which mature on January 1, 2031. The bonds were issued for $9150940 to yield 9%, resulting in bond premium of $1040940. Sunland uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2021, Sunland's adjusted unamortized bond premium should be A. $926437. B. $1040940. C. $778025. D. $972425.

D. $972425.

Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements? A. The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. B. The amount of scheduled interest payments on long-term debt during each of the next five years. C. The present value of scheduled interest payments on long-term debt during each of the next five years. D. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

D. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

The interest rate written in the terms of the bond indenture is known as the A. coupon rate. B. nominal rate. C. stated rate. D. coupon rate, nominal rate, or stated rate.

D. coupon rate, nominal rate, or stated rate.

Concord Corporation retires its $620000 face value bonds at 103 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $596750. The entry to record the redemption will include a A. credit of $23250 to Loss on Bond Redemption. B. debit of $18600 to Premium on Bonds Payable. C. debit of $41850 to Gain on Bond Redemption. D. credit of $23250 to Discount on Bonds Payable.

D. credit of $23250 to Discount on Bonds Payable.

An example of an item which is not a liability is A. advances from customers on contracts. B. accrued estimated warranty costs. C. the portion of long-term debt due within one year. D. dividends payable in stock.

D. dividends payable in stock.

A troubled debt restructuring will generally result in a A. loss by the debtor and a gain by the creditor. B. gain by both the debtor and the creditor. C. loss by both the debtor and the creditor. D. gain by the debtor and a loss by the creditor.

D. gain by the debtor and a loss by the creditor.

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place A. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. B. it should not be recorded on the books of either party until the fair value of the property becomes evident. C. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property. D. the present value of the debt instrument must be approximated using an imputed interest rate.

D. the present value of the debt instrument must be approximated using an imputed interest rate.