Chp 10 smartbook homework Acct 1

A company issues $500,000 of 9%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $480,000, yielding a discount of $20,000. Using the straight-line amortization method, the company will amortize the discount by Blank______ on each semiannual interest payment. Multiple choice question.

$1,000 ($500,000-$480,000)=$20,000/20 periods=$1,000.

Bonds are securities that can be readily bought and sold. A bond issue consists of a number of bonds, usually in denominations of Blank______ or Blank______ and is sold to many different lenders. Multiple choice question.

$1,000; $5,000

Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is? Multiple choice question.

$1,500

A company issues $50,000 of 5%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $48,000. Using the straight-line amortization method, the company will amortize the discount by $ BLANK on each semiannual interest payment.

$100

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of

$200 $15,000 x .08 x (60/360) = $200.

A company issued $50,000 of 8%, 10-year bonds on January 1. The bonds pay semi annual interest. The present value factor of a single amount of 20 periods at 8% is 0.2145.The present value of 10 periods at 4% is 0.6756. The present value of 20 periods at 4% is 0.4564. Determine the present value of the par value of the bonds.

$22,820 Use the present value of 20 periods at 4%: $50,000 x 0.4564 = $22,820.

A company issues $100,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually. The bonds are issued when the market rate is 8%. The present value tables indicate the present value factor of an annuity for 3% at 10 periods is 8.5302; and for 4% at 10 periods is 8.1109. To find the present value of the interest payments, multiply Blank______ by the present value factor Blank______.

$3,000; 8.1109 Interest payment = $100,000 x 6% x 1/2 = $3,000. Present value=1/2 of the market rate (4%) and double the number of periods (10).

A company sells a 5-year, 8% bond with a par value of $100,000 when the market is 10% for $96,454. The bond requires semi-annual interest payments of $4,000. Using the effective interest amortization method, the company will recognize Blank______ interest expense on the first semi-annual interest payment.

$4,823 $4,000 is the cash payment. The initial discount is $100,000 - 96,454=$3,546. Bond interest expense = $96,454 x .05 = 4,823. The discount of $823 is added to the cash payment to determine the Bond Interest Expense ($4,000 + 823)=$4823.

A company sells a 6-year, 6% bond with a par value of $100,000 when the market is 8% for $90,615 The bond requires semi-annual interest payments of $3,000. Using the effective interest amortization method, the company will recognize Blank______ for the amortization of the discount on the first semi-annual interest payment. Multiple choice question.

$625 $3,000 is the cash payment. $3,000 is the semiannual cash payment. Carrying value of $90,615 x semiannual market rate of 4% = bond interest expense of $3,625. Discount amortization = $3,625 - $3,000 = $625.

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by: Multiple choice question.

$9,542 $15,142-5,600=$9,542.

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $BLANK.

8179

Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is sold at 93 will trade at $

930

A company enters into an operating lease for a piece of machinery. The company calculates amortization on the equipment of $2,000 per year. The entry to record amortization expense the first year will include a credit to:

Accumulated Amortization - Right-of-Use Asset

The journal entry for a right-of-use asset to record the periodic amortization includes a credit to:

Accumulated Amortization-Right-of-Use Asset

A company enters into an operating lease for a piece of machinery. The company calculates amortization on the equipment of $2,000 per year. The entry to record amortization expense the first year will include a debit to:

Amortization Expense

When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to Blank______ in the amount of Blank______. Multiple choice question.

Bonds Payable; $50,000 When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to Bonds Payable in the amount of $50,000.

Bilos Co. enters into a 6-year finance lease for a copy machine. The lease requires six annual payments of $25,000. Interest expense is recorded with a credit to the following account:

Cash

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts? Multiple choice question.

Cash and Discount on Bonds Payable

A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to BLANK In the amount of $ BLANK

Cash, 100,000

A company issues $500,000 of 6%, 10-year bonds dated January 1, 2017 that mature on December 31, 2026. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the sale with which of the following entries? Multiple choice question.

Debit to Cash $500,000; and credit to Bond Payable $500,000.

Which of the following agreements would require amortization expense?

Finance lease

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much? (Check all that apply.)

Interest Expense $5,600 Notes Payable; $9,542 Debit Interest Expense for $5,600 and debit Notes Payable for $9,542.

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $8,179. The journal entry to record this payment will include a debit to which of the following accounts and in what amount? (Check all that apply.)

Interest Expense; $4,800 Notes Payable; $8,179 Debit Interest Expense for $4,800 and Notes Payable for $8,179.

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $8,179. The journal entry to record this payment will include a debit to which of the following accounts and in what amount? (Check all that apply.) Multiple select question.

Interest Expense; $4,800 Notes Payable; $8,179 Debit Interest Expense for $4,800 and Notes Payable for $8,179.

Bilos Co. enters into a 6-year finance lease for a copy machine. The lease requires six annual payments of $25,000. Interest expense is recorded with a debit to the following accounts: (Check all that apply.)

Lease Liability Interest Expense

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much? (Check all that apply.)

Notes Payable; $9,542 Interest Expense $5,600

The bond carrying value can be determined by which of the following formulas?

Par value - discount on bonds payable

______ bonds (and notes) have specific assets of the issuer pledged (or mortgaged) as collateral.

Secured

______ bonds (and notes) mature at more than one date (often in series) and, thus, are usually repaid over a number of periods.

Serial

______ bonds (and notes) are scheduled for maturity on one specified date.

Term

Forever, Inc. announces an offer to issue bonds with a $100,000 par value, an 8% annual contract rate (paid semiannually) and a two-year life. The market rate is 10%, so the bonds will be sold at: Multiple choice question.

a discount

Most bonds require par value to be repaid Blank______ and interest to be paid Blank______.

at the maturity date; semiannually

Bonds payable to whomever holds them are called Blank______ bonds or unregistered bonds. Multiple choice question.

bearer

The Blank______ rate is the interest rate specified, sometimes referred to as the coupon rate, stated rate, or nominal rate. Multiple choice question.

contract

When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a (debit/credit) BLANK to Cash in the amount of $ BLANK.

credit 60000

When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a (debit/credit) BLANK to Cash in the amount of $ BLANK

credit, 60000

A company issues $80,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $84,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of $4,000.

credit, Premium

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) Blank______ to Bond Payable in the amount of Blank______.

credit; $100,000 A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a credit to Bond Payable in the amount of $100,000.

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) Blank______ to Bond Payable in the amount of Blank______. Multiple choice question.

credit; $100,000 A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a credit to Bond Payable in the amount of $100,000.

A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a (debit/credit) BLANK o Discount on Bonds Payable in the amount of $ BLANK

debit, 1000

A company issues $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $85,000 for the bonds, the issuer will record the sale with a (debit/credit) BLANK to Discount on Bonds Payable in the amount of $ BLANK

debit, 5000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/credit) BLANK to Bonds Payable in the amount of $ BLANK

debit, 50000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/credit) BLANK to Bonds Payable in the amount of $ BLANK.

debit, 50000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/credit) to Bonds Payable in the amount of $

debit, 50000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the $5,000 premium on bonds payable will Blank______ total interest expense recognized over the life of the bond.

decrease A premium will reduce total interest expense.

A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) BLANK total interest expense recognized over the life of the bond by $ BLANK

decrease, 2000

A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) total interest expense recognized over the life of the bond by $.

decrease, 2000

A(n) BLANK on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

discount

The Blank______ method allocates total bond interest expense over the bonds' life in a way that yields a constant rate of interest.

effective interest The effective interest method allocates total bond interest expense over the bonds' life, which yields a constant rate of interest.

Total bond interest is the sum of the interest payments plus the bond discount.

expense

The legal contract between the bondholders and the issuer is called the bond (issuance/indenture/certificate)

indenture

The legal contract between the bondholders and the issuer is called the bond Blank______.

indenture

A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principal plus interest. This is an example of a(n) BLANK note.

installment

A bond discount increases Blank______ at each semi-annual interest payment. Multiple choice question.

interest expense

While the straight-line method of amortizing bond premium or discounts keeps the amortization equal over the life of the bond, the effective interest method keeps the Blank______ equal over the life of the bond. Multiple choice question.

interest rate

A(n) is a contractual agreement between a lessor (asset owner) and a lessee (asset renter or tenant) that grants the lessee the right to use the asset for a period of time in return for cash (rent) payments.

lease

A finance lease is a long-term lease which meets one or more of the following criteria: (Check all that apply.)

lease term is for major part of asset's remaining economic life has a purchase option that lessee is reasonably certain to exercise transfers ownership to lessee

The Blank______ is the owner of a lease and the Blank______ is the tenant of a lease.

lessee; lessor

The bond's Blank______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

market

The rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level is called the bond's BLANK rate.

market

The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's BLANK date.

maturity

A(n) Blank______ is a legal agreement that helps to protect a lender if a borrower does not make required payments on notes or bonds. This agreement gives the lender the right to be paid from the cash proceeds of the sale of the borrower's assets, as identified in the agreement. Multiple choice question.

mortgage

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a(n) (mortgage/installment/bond) note payable, which allows the bank to be paid by the cash proceeds of the sale of the building if Brown fails to pay on the note.

mortgage

A Blank______ Blank______ is similar to a bond payable but is normally transacted with a single lender such as a bank.

note payable A note payable is similar to a bond payable but is normally transacted with a single lender such as a bank.

Lyle Co. borrowed $20,000 from First Bank by signing a written promise to pay a definite sum of money on a specific future date. Lyle will record this in the general ledger as a(n) BLANK payable.

notes

Typical examples of asset's leased as a finance lease include all of the following except:

office supplies

A(n) Blank______ lease is a long-term lease in which the present value of the lease payments is less than the asset's fair value.

operating

A(n) Blank______ lease is a long-term lease that does not meet any of the five criteria for a finance lease.

operating

The Blank______ value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bond's maturity date.

par

The bond carrying value can be determined by taking the bond value minus the discount on bonds payable.

par

The bond contract rate determines the annual interest paid by multiplying the bond Blank______ value by the contract rate. Multiple choice question.

par

Most bonds require (interest/par) BLANK value to be repaid at maturity and (interest/par) BLANK to be paid

par, interest

When the contract rate of the bonds is higher than the market rate, the bond sells at a higher price than par value. The amount by which the bond price exceeds par value is the Blank______ on bonds. Multiple choice question.

premium

Bonds issued in the names and addresses of their holders are Blank______ bonds.

registered

Many bonds are (sinking/secured) sinkingBlank 1Blank 1 sinking , Correct Unavailable fund bonds, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

sinking

Many bonds are Blank______, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

sinking fund bonds