ACCOUNTING CH 9 TEST REVIEW

Evans Corporation sells $400,000, 12%, 10-year bonds for 98 on January 1. Compute the semiannual interest expense recorded on July 1 using the effective interest method. The market rate is 15%. A. $60,000 B. $58,800 C. $29,400 D. $48,000

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If a $15,000, 8 percent, 20-year bond was issued at 95 on November 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) A. $1,900 B. $2,190 C. $1,810 D. $2,000

?

On October 1, 2015, German Company issued 11%, 10-year, $800,000 bonds at 108. Interest dates are April 1 and October 1. The amount of straight-line amortization for 2015 is: A. $6,400. B. $1,600. C. $800. D. $3,200.

?

Simple interest means that interest is calculated on A. principal only. B. the installment of an annuity. C. only interest earned to date. D. principal AND all interest earned to date.

A

The Future Value of $1 table is used to calculate how much $100 in hand today would be worth in 5 years. A. True B. False

A

The amount that a borrower must pay back to the bondholders on the maturity date is the: A. principal. B. stated value. C. interest. D. market value.

A

The principal amount, the interest rate, and the number of periods are all factors needed to calculate the time value of money. A. True B. False

A

The term ________ is best described as a relationship among principal, interest rate, and time. A. time value of money B. annuity C. capital budgeting D. payback period

A

The three factors that affect the time value of money are principal, number of periods, and the interest rate. A. True B. False

A

The journal entry to record $400,000 of bonds that were issued at 107 would be to: A. debit Cash, $428,000; credit Bonds payable, $400,000; credit Premium on bonds payable, $28,000. B. debit Cash, $428,000; credit Bonds payable, $428,000. C. debit Cash, $400,000; credit Bonds payable, $400,000. D. debit Cash, $400,000; debit Discount on bonds payable, $28,000; credit Bonds payable, $428,000.

B

The present value of an investment is affected by all of the following except? A. The type of investment (annuity versus lump sum) B. The value of a past investment C. The interest rate D. The number of time periods (length of the investment)

B

The rate of interest that investors are willing to receive for similar bonds of equal risk at the current time is the ________ rate of interest. A. stated B. market C. maturity D. variable

B

The rate of interest that is printed on the bond is called the ________ rate of interest. A. market B. stated C. maturity D. variable

B

The term ________ is best described as "a stream of equal installments made at equal time intervals." A. capital budgeting B. annuity C. payback period D. time value of money

B

What is the purpose of a bond discount? A. It increases the periodic cash interest payments paid to those who purchased the bond. B. It raises the bond interest rate to the market interest rate at the time the bond was issued. C. It decreases the bond interest rate to the market interest rate at the time the bond was issued. D. It decreases the periodic cash interest payments paid to those who purchased the bond.

B

Bonds payable minus the Discount on bonds payable yields the: A. principle amount. B. maturity value. C. carrying amount. D. annual interest.

C

Bonds that are backed only by the credit of the issuing company are: A. collateral bonds. B. callable bonds. C. debenture bonds. D. term bonds.

C

$300,000 of 6%, 20-year bonds were sold for $330,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to: (Amortize using Straight Line. Round your final answer to the nearest dollar.) A. debit Interest Expense $9,000; credit Cash, $9,000. B. debit Interest Expense $8,250; credit Cash, $8,250. C. debit Interest Expense $9,750; credit Premium on bonds payable, $750; credit Cash, $9,000. D. debit Interest Expense $8,250; debit Premium on bonds payable, $750; credit Cash, $9,000.

D

A $260,000 issue of bonds that sold for $255,000 matures on June 25, 2020. The journal entry to record the payment of the bond on the maturity date is to: A. debit Bonds payable, $255,000; credit Cash, $255,000. B. debit Cash, $260,000; credit Bonds payable, $260,000. C. debit Cash, $255,000; credit Bonds payable, $255,000. D. debit Bonds payable, $260,000; credit Cash, $260,000.

D

A $30,000 bond issue with a stated rate of interest of 6%, when the market rate of interest is 7%, means that the bond will be sold for: A. the maturity value. B. more than $30,000. C. $30,000 D. less than $30,000.

D

A company finds that the residual value of $8,000 for the equipment in a capital budgeting project has been inadvertently omitted from the calculation of the net present value (NPV) for that project. How does this omission affect the NPV of that project? A. The project's NPV should be $8,000 higher with the residual value included. B. The project's NPV should be $8,000 lower with the residual value included. C. The project's NPV should be lower, but be less than $8,000 lower, with the residual value included. D. The project's NPV should be higher, but be less than $8,000 higher, with the residual value included.

D

Bonds from the same bond issue that mature at different times are called: A. term bonds. B. unsecured bonds. C. convertible bonds. D. serial bonds.

D

Bonds that can be exchanged for stock are called: A. serial bonds. B. callable bonds. C. debenture bonds. D. convertible bonds.

D

Compound interest means that interest is calculated on A. the installment of an annuity. B. principal only. C. only interest earned to date. D. principal AND all interest earned to date.

D

Debenture bonds are the same as: A. secured bonds. B. serial bonds. C. term bonds. D. unsecured bonds.

D

If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at: A. a premium. B. par. C. maturity value. D. a discount.

D

When a company issues bonds, what are they doing? A. The company is guaranteeing the products they sell. B. The company is loaning money to third parties. C. The company is selling part of itself. D. The company is borrowing money from third parties.

D

When making the adjustment for accrued interest, the Bond Discount account was not taken into consideration. This error would cause: A. the period end assets to be overstated. B. the period end liabilities to be understated. C. the period's net income to be overstated. D. Both B and C are correct.

D

On October 31, 2016, Renoir, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $2,600. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar.) A. $1,742 B. $1,300 C. $2,600 D. $867

D?

Moab Corporation sells $600,000 of 7%, 20-year bonds for 98 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. What is the amount of the discount at issuance? A. $30,000 B. $42,000 C. $6,000 D. $12,000

D? (600,000 x .98= 588,000) (600,000 x .02= 12,000)

On October 1, Indiana Company issued $70,000, 10%, 5-year bonds at 106. What is the adjusting entry on December 31 using the straight-line method? A. Bond Interest Expense 6,160 Bond Interest Payable 6,160 B. Bond Interest Expense 1,540 Premium on Bonds Payable 210​ Bond Interest Payable 1,750 C. Bond Interest Expense 7,000​ Bond Interest Payable 7,000​ D. Bond Interest Expense 1,750 Premium on Bonds Payable 210​ Bond Interest Payable 1,540

?

Tanko Financing leases phones to various companies for business use. Tanko has just signed a 2-year lease agreement that requires annual year-end lease payments of $340,000. The present value of $1 for 2 periods at 5% is 0.907. The present value of an ordinary annuity of $1 for 2 periods at 5% is 1.859. What is the present value of the lease when the lease commences using a 5% interest rate? A. $632,060 B. $308,380 C. $680,000 D. $340,000

?

The carrying value for bonds sold at a premium: A. increases as time passes until it matures at face value. B. equals face value at all times. C. decreases as time passes until it matures at face value. D. None of these answers is correct.

?

The carrying value of bonds is calculated by: A. subtracting the Discount on Bonds Payable account balance from the Bonds Payable account balance. B. subtracting the Premium on Bonds Payable account balance from the Bonds Payable account balance. C. subtracting the Premium on Bonds Payable account balance from the Bonds Payable account balance. D. adding the Bonds Payable account balance to the Bond Interest Payable account balance.

?

The entry to record the semiannual payment and amortization of the discount using the straight-line method on a 11%, $500,000, 9-year bond issued at 96 would be to: A. debit Bond Interest Expense $28,611; credit Cash $27,500; credit Discount on Bonds Payable $1,111. B. debit Bond Interest Expense $28,611; credit Cash $28,611. C. debit Bond Interest Expense $13,750; credit Cash $13,750. D. debit Bond Interest Expense $28,056; credit Cash $27,500; credit Discount on Bonds Payable $556.

?

The real or actual rate of interest to the borrowing corporation is called the: A. stated rate of interest. B. premium rate of interest. C. effective rate of interest. D. discount rate of interest.

?

The time value of money is explained by which of the following? A. Money is more valuable over time. B. A stream of payments is received over time. C. Invested money earns income over time. D. Interest is always compounded over time.

?

When interest payments are made on a discounted bond, a portion of the discount is: A. transferred to reduce the interest expense. B. depreciated. C. depleted. D. amortized.

?

When making the adjustment for accrued interest, the Bond Premium account was not taken into account. This error would cause: A. the period end liabilities to be understated. B. the period's net income to be understated. C. the period end assets to be overstated. D. None of the above is correct.

?

You have been awarded a scholarship that will pay you $300 per semester at the end of each of the next 8 semesters that you earn a GPA of 3.5 or better. You are a very serious student and you anticipate receiving the scholarship every semester. Using a discount rate of 5% per semester, which of the following is the correct calculation for determining the present value of the scholarship? A. PV = $300 × (Annuity FV factor, i = 10%, n = 4) B. PV = $300 × 5% × 8 C. PV = $600 × (PV factor, i = 5%, n = 4) D. PV = $300 × (Annuity PV factor, i = 5%, n = 8)

?

Your grandfather has promised to give you $1300 a year at the end of each of the next four years if you earn Cs or better in all of your courses each year. Using a discount rate of 3%, which of the following is correct for determining the present value of the gift? A. PV = $1300 × 3% × 4 B. PV = $1300 × (Annuity PV factor, i = 3%, n = 4) C. PV = $1300 × (PV factor, i = 4%, n = 3) D. PV = $1300 × (Annuity FV factor, i = 3%, n = 4)

?

Your hard work in college paid off, quite literally, and you received a graduate assistantship for your MBA program. The assistantship pays a stipend of $7000 at the end of each of the next 2 years. Using an average discount rate of 4%, the future value of your assistantship can be calculated by A. PV = $7000 (PV factor, i = 4%, n = 2). B. PV = $7000 × 4% × 2. C. PV = $7000 (Annuity FV factor, i = 4%, n = 2). D. PV = $7000 (Annuity PV factor, i = 4%, n = 2).

?

Your wealthy neighbor has promised to give you $1000 a year at the end of each of the next four years to help with college. Using a discount rate of 4%, the present value of the gift can be stated as A. PV = $1000 (Annuity FV factor, i = 4%, n = 4). B. PV = $1000 × 4% × 5. C. PV = $1000 (PV factor, i = 2%, n = 4). D. PV = $1000 (Annuity PV factor, i = 4%, n = 4).

?

A $45,000 bond issue with a stated interest rate of 10%, when the market rate of interest is 7%, means that the bond will sell for: A. more than $45,000. B. $31,500. C. less than $45,000. D. $45,000.

A

A $9,000 bond issue with a stated interest rate of 9%, when the market rate of interest is 9%, means that the bond will sell for: A. $9,000 B. $9,810. C. less than $9,000. D. more than $9,000.

A

Bond Interest Payable is reported as a: A. current liability on the balance sheet. B. contra-liability on the income statement. C. current liability on the income statement. D. contra-liability on the balance sheet.

A

Bonds that mature all at the same time are: A. term bonds. B. serial bonds. C. callable bonds. D. secured bonds.

A

Bonds that may be retired at a prearranged price are called: A. callable bonds. B. term bonds. C. convertible bonds. D. secured bonds.

A

Calculating interest on the principal and on all the interest earned to date is called compound interest. A. True B. False

A

Hefley Corporation issued a 10%, $800,000 8-year bond at 104. The entry to record the issuance transaction is to: A. debit Cash $800,000; debit Premium on Bonds Payable $32,000; credit Bonds Payable $832,000. B. debit Cash $832,000; credit Bonds Payable $800,000 credit Premium on Bonds Payable $32,000. C. debit Cash $832,000; credit Bonds Payable $832,000. D. debit Cash $800,000; credit Bonds Payable $800,000.

A

Using the straight-line method, the semiannual interest expense of a 11%, $500,000 bond for 10 years at 105 would be: A. $27,500. B. $28,750. C. $26,250. D. $55,000.

A? form: coupon rate x face value= annual interest paid (.11 x 500,000= 55,000 is annual interest) (55,000/2= 27,500 is semiannual interest)

A $30,000 bond issue with a stated interest rate of 5%, when the market rate of interest is 6%, means that the bond will sell for: A. $30,000 B. less than $30,000. C. $40,000 D. more than $30,000.

B

Bonds are issued for $200,000 at face value on September 1. The stated interest is 14% and interest is paid on September 1 and March 1. What is the adjusting entry on December 31? A. Bond Interest Expense 9,333​ Bond Interest Payable 9,333​ B. Bond Interest Payable 28,000​ Bond Interest Expense 28,000​ C. Bond Interest Expense 7,000​ Bond Interest Payable 7,000​ D. Bond Interest Expense 4,666.5​ Bond Interest Payable 4,666.5​

B

Bonds are issued for $80,000 at face value with 6% interest on October 1. What is the adjusting entry on December 31? A. Bond Interest Expense 1,200​ Bond Interest Payable 1,200​ B. Bond Interest Expense 4,800​ Bond Interest Payable 4,800​ C. Bond Interest Payable 4,800​ Bond Interest Expense 4,800​ D. Bond Interest Payable 1,200​ Bond Interest Expense 1,200​

B

Bonds that are backed by collateral are: A. callable bonds. B. secured bonds. C. convertible bonds. D. unsecured bonds.

B

Corbin Corporation issued $800,000, 12% bonds at 97. The entry to record this transaction is: A. debit Cash $776,000; credit Bonds Payable $776,000. B. debit Cash $800,000; credit Bonds Payable $776,000; credit Discount on Bonds Payable $24,000. C. debit Cash $776,000; debit Discount on Bonds Payable $24,000; credit Bonds Payable $800,000. D. debit Cash $800,000; credit Bonds Payable $800,000.

B

If a $6,000, 10 percent, 10-year bond was issued at 106 on October 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) A. $150 B. $106 C. $168 D. $132

B

If the market rate of interest is less than the bond's stated rate of interest, the bond will be issued at: A. par. B. a premium. C. maturity value. D. a discount.

B

One dollar to be received in the future is worth more than one dollar today. A. True B. False

B

Davis Corporation sells $200,000, 12%, 10-year bonds for 104 on January 1. Compute the semiannual interest expense recorded on July 1 using the effective interest method. The market rate is 8%. A. $8,320 B. $12,000 C. $4,160 D. $6,000

B? (.12/2= 6%) (.06 x 200,000= 12,000)

$200,000 of 6%, 25-year bonds were sold for $160,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to: (Amortize using Straight Line) A. debit Interest Expense $6,000; credit Cash, $6,000. B. debit Interest Expense $5,200; debit Discount on bonds payable, $800; credit Cash, $6,000. C. debit Interest Expense $6,800; credit Discount on bonds payable, $800; credit Cash, $6,000. D. debit Interest Expense $6,800; credit Cash, $6,800.

C

An annuity is best described as which of the following statements? A. A stream of interest payments on a principal amount invested B. Another term used for present value C. A stream of equal installments made at equal time intervals D. Another term used for future value

C

Casey issued bonds for $30,000 at face value on July 1. 14% interest payments are due January 1 and July 1. What is the adjusting entry on December 31? A. Bond Interest Payable 4,200​ Bond Interest Expense 4,200​ B. Bond Interest Expense 969​ Bond Interest Payable 969​ C. Bond Interest Expense 2,100​ Bond Interest Payable 2,100​ D. Bond Interest Payable 1,750​ Bond Interest Expense 1,750​

C

Discount on Bonds Payable is a: A. contra-asset account. B. liability account. C. contra-liability account. D. None of these answers is correct.

C

If a bond is issued at a discount, the effective interest rate is most likely ________ the contract interest rate. A. the same as B. lower than C. higher than D. Cannot be determined based on information given.

C

If a bond's stated rate of interest is equal to the market rate of interest, the bond will be issued at: A. a discount. B. maturity value. C. par. D. a premium.

C

Interest expense will be less than the interest payment when bonds are issued at: A. a discount. B. face value. C. a premium. D. the contract rate.

C

Manning Corporation sells $900,000, 13%, 10-year bonds for 98 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The entry to record the issuance of the bonds on January 1 is: A. Cash 900,000​ Bonds Payable 900,000​ B. Cash 882,000​ Bonds Payable 882,000​ C. Cash 900,000​ Discount on Bonds Payable 18,000​ Bonds Payable 882,000​ D. Cash 882,000​ Discount on Bonds Pay. 18,000​ Bonds Payable 900,000​

C

Miranda Corporation issued $400,000 of 14%, 10-year bonds for $380,000. The entry to record the issuance of the bonds includes a: A. debit to Bonds Payable for $400,000. B. credit to Premium on Bonds Payable for $20,000. C. credit to Bonds Payable for $420,000. D. debit to Discount on Bonds Payable $20,000.

C

On October 1, Indiana Company issued $60,000, 9%, 5-year bonds at 96. What is the adjusting entry on December 31 using the straight-line method? A. Bond Interest Expense 1,470​ Discount on Bonds Payable 120​ Bond Interest Payable 1,350​ B. Bond Interest Expense 1,230​ Discount on Bonds Payable 120​ Bond Interest Payable 1,350​ C. Bond Interest Expense 5,400​ Bond Interest Payable 5,400​ D. Bond Interest Expense 1,350​ Bond Interest Payable 1,350​

C

The journal entry to record $230,000 of bonds that were issued at 98 would be to: A. debit Cash, $225,400; debit Discount on bonds payable, $4,600; credit Bonds payable, $230,000. B. debit Cash, $230,000; credit Bonds payable, $225,400; credit Premium on bonds payable, $4,600. C. debit Cash, $225,400; credit Bonds payable, $225,400. D. debit Cash, $230,000; credit Bonds payable, $230,000.

C

Which of the following areas does not make significant use of time value of money concepts? A. Lending and borrowing B. Personal finance planning C. Marketing research D. Capital investment analysis

C

A $170,000 bond issue sold at 97 will cost: (Round your final answer to the nearest dollar.) A. whatever cost is negotiated. B. $175,258 C. $164,900 D. $170,000

C (170,000x.97=164,900)

A $330,000 bond issue sold at 110 will cost: (Round your final answer to the nearest dollar.) A. $330,000 B. $300,000 C. $363,000 D. whatever cost is negotiated.

C (330,000x1.10=363,000)

On October 1, Allan Company issued 8%, 10-year, $400,000 bonds at 108. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is: A. $0. B. $32,000. C. $16,000. D. $8,000.

C? (.08/2=.04) (.04 x 400,000= 16,000)

Applegate Corporation sells $170,000, 9%, 20-year bonds for 96 on January 1. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of interest expense recorded on July 1, six months after issuance is: A. $7,820. B. $7,735. C. $7,650. D. $15,470.

C? (.09/2= 4.5%) (.045 x 170,000= 7,650)

On September 30, 2016, Illusions, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $1,800. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round your final answer to the nearest dollar.) A. $1,800 B. $450 C. $900 D. $338

C? (1800/2=900)

Company issued $ 500,000​, 9​%, ten​-year bonds for 107​, with interest paid annually. Assuming​ straight-line amortization, what is the carrying value of the bonds after one​ year?

Face value x Issue price = Cash received on issue -----> $500,000 x 1.07 = $535,000 Premium​ = $ 535,000 ​- $ 500,000 ​= $ 35,000 Premium/ Time (years) = Amortization per year -----> $35,000 / 10 = $3,500 Carrying Value= face value + premium - amortization per year -------> 500,000 + 35,000 - 3,500 = 531,500