Chapter 10 ACCO
A bond issued at a discount indicates that at the date of issue: a. the contract (stated) rate was lower than the effective rate of interest. b. the contract (stated) rate was higher than the effective rate of interest. c. the bonds were issued at a price greater than their face value. d. Both (b) and (c) are correct answer
A.
Amortizing a discount on bonds payable: a. increases interest expense. b. increases periodic cash payments to bondholders. c. decreases interest expense. d. decreases periodic cash payments to bondholder
A.
Callable bonds can be retired before the bonds maturity date at the option of the : a. issuing company. b. bondholder. c. Only if both the issuing company and the bondholder agree to early retirement
A.
If $4,000,000 of 12% bonds are issued at 98, the amount of cash received from the sale is: a.$3,920,000. b.$4,000,000. c.$4,080,000. d.$4,480,000
A.
On January1, 2019, Jem Co. issued $900,000 of 15-year, 12% bonds at face value. Interest is payable semiannually on June 30 and December31. If Jem Co. has an accounting year ending on December 31, it should report interest expense for 2019 of: a. $108,000. b. $63,000. c. $54,000. d. $36,000. e. $9,000.
A.
The entry to record the amortization of a premium on bonds payable includes a: a. debit Premium on Bonds Payable. b. credit to Premium on Bond Payable. c. debit to Bonds Payable. d. credit to Bonds Payable
A.
Welch Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. The issue price was $77,060. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be: a. $1,147. b. $22,940. c. $1,927. d. $2,294.
A.
Greenwich Company issues $2,000,000 face value, 9%, 10-year bonds payable on January 1, 2019. Interest is paid semi-annually each June 30 and December 31. The bonds sell at $1,960,000; Greenwich uses the straight-line method of amortizing bond discount or premium. The entry made by Greenwich Company to record issuance of the bonds at January 1, 2019, includes: a. a debit to Cash of $2,000,000. b. a debit to Discount on Bonds Payable of $40,000. c. a credit to Bonds Payable of $1,960,000. d. a credit to Bond Interest Payable of $40,000
B.
Harper Co. has outstanding $10,000,000 of 8% bonds, due in 7 years, and callable at 102. These bonds were issued 8 years ago at face value. If Harper calls the bonds, the required journal entry will include a: a. credit to Gain on Redemption of Bonds, $200,000. b. debit to Loss on Redemption of Bonds, $200,000. c. credit to Cash, $10,000,000. d. credit to Bonds Payable, $10,000,000. e. Both (a) and (d) are correct answer
B.
On January 1, 2019 Redwood Company issues $500,000, 14%, 5-year bonds at a market rate of 12%, receiving $536,803. Interest is paid semi-annually each June 30 and December 31. The fiscal year of the company is the calendar year and the effective interest method is used to amortize discount and premium. The total interest expense over the term of these bonds is: a. $350,000. b. $313,197. c. $386,803. d. $300,000. e. $263,197
B.
On January 1, 2019, Thomas Service Co. issued $100,000 of 8%, 10-year bonds at an effective interest rate of 10%, receiving proceeds of $87,538. Interest is payable semiannually on June 30 and December 31. The company uses the effective interest method. Total interest expense to be recorded over the entire term of the bonds is: a.$80,000. b.$92,462. c.$67,538. d.$70,030. e.$100,000.
B.
The Premium on Bonds Payable account: a. is an asset account. b. causes the carrying value of the bonds to be greater than the par value of the bonds. c. is a contra-asset account. d. causes the carrying value of the bonds to be less than the par value of the bonds
B.
When bonds are issued at a discount: a. the annual interest expense will be less than the annual cash payments made to the bondholders. b. the annual interest expense will be more than the annual cash payments made to the bondholders. c. the annual interest expense will equal the annual cash payments made to the bondholders
B.
With regard to bond interest rates, which of the following set of terms contains descriptions that have the same meaning? a. Effective rate, stated rate, market rate. b. Yield rate, effective rate, market rate. c. Contract rate, stated rate, market rate. d. Yield rate, contract rate, stated rate
B.
A corporation issues $2,000,000 of 16%, 10-year bonds, interest payable semi-annually, at a time when the market rate of interest is 18%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? a. The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity. b. The amount of interest expense increases as the bonds approach maturity. c. The carrying amount increases from its amount at issuance date to $2,000,000 at maturity. d. The amount of interest paid to bondholders decreases over the 20-year life of the bonds
C.
ABC Company issued a bond payable at a discount. The journal entry to retire the bond payable on its maturity date includes a: a. credit to Discount on Bonds Payable. b. debit to Discount on Bonds Payable. c. debit to Bonds Payable at face value. d. debit to Bonds Payable at the issue price. e. credit to Cash at the issue price
C.
Greenwich Company issues $2,000,000 face value, 9%, 10-year bonds payable on January 1, 2019. Interest is paid semi-annually each June 30 and December 31. The bonds sell at $1,960,000; Greenwich uses the straight-line method of amortizing bond discount or premium. The carrying value of this liability in Greenwich Company's December 31, 2019 balance sheet is: a. $2,000,000. b. $1,960,000. c. $1,964,000. d. $1,956,000
C.
On January 1, Westview Inc. borrows $220,000 cash from the bank and in return signs a 9% installment note with four annual payments due each December 31. What is the amount of the annual installment payment? (Round to the nearest dollar if necessary.) a.$59,950. b.$155,848. c.$67,908. d.$29,589. e.$74,800
C.
The interest rate that determines the amount of cash paid to bondholders on the interest payment dates is referred to as the: a. effective rate of interest. b. market rate of interest. c. contract (stated) rate of interest. d. Both (a) and (b) are correct answer
C.
When the market rate of interest was 12%, Bergerud Corporation issued $1,000,000, 10%, 5-year bonds that pay interest semiannually. (Present Value tables are on page 12.) The selling price of this bond issue was: a. $892,680. b. $1,073,600. c. $926,405. d. $1,000,000
C.
6. The journal entry a company records for the issuance of bonds when the stated rate and the market rate are the same is: a. debit Bonds payable, credit Cash. b. debit Cash and Discount on Bonds Payable, credit Bonds Payable. c. debit Cash, credit Premium on Bonds Payable and Bonds Payable. d. debit Cash, credit Bonds Payable
D.
Amortizing the premium on a bond payable: a. increases the face value of the bonds. b. decreases the face value of the bonds. c. increases the carrying value of the bonds. d. decreases the carrying value of the bonds. e. does both (a) and (d).
D.
On January 1, $4,000,000 par value bonds of MM Company with a carrying value of $4,000,000 are converted to 1,000,000 shares of $1 par value common stock. The journal entry to record the conversion includes a: a. debit to Paid-in Capital in Excess of Par for $4,000,000. b. debit to Paid-in Capital in Excess of Par for $3,000,000. c. credit to Paid-in Capital in Excess of Par for $4,000,000. d. credit to Paid-in Capital in Excess of Par for$3,000,000
D.
On January 1, 2019 Redwood Company issues $500,000, 14%, 5-year bonds at a market rate of 12%, receiving $536,803. Interest is paid semi-annually each June 30 and December 31. The fiscal year of the company is the calendar year and the effective interest method is used to amortize discount and premium. Interest expense recorded with the December 31, 2019 journal entry is: a. $35,000. b. $30,000. c. $32,208. d. $32,041. e. $32,376
D.
On January 1, 2019 Redwood Company issues $500,000, 14%, 5-year bonds at a market rate of 12%, receiving $536,803. Interest is paid semi-annually each June 30 and December 31. The fiscal year of the company is the calendar year and the effective interest method is used to amortize discount and premium. Redwood's June 30, 2019 entry to record the first semi-annual payment of interest includes a: a. debit to Interest Expense of $35,000. b. credit to Interest Payable of $35,000. c. credit to Premium on Bond Payable of $2,792. d. debit to Premium on Bond Payable of $2,792
D.
On January 1, 2019, Eastwind Company issued $300,000 of 10-year, 12% bonds at an effective interest rate of 10%. Interest on the bonds is payable semiannually on June 30 and December 31. The bonds issue price (rounded to the nearest dollar) is:(Present Value tables are on page 14.) a.$339,970. b.$226,253. c.$351,080. d.$337,390. e.$265,589.
D.
On January 1, 2019, Thomas Service Co. issued $100,000 of 8%, 10-year bonds at an effective interest rate of 10%, receiving proceeds of $87,538. Interest is payable semiannually on June 30 and December 31. The company uses the effective interest method. The December 31, 2019 journal entry to record the second interest payment will record Interest Expense of (round to the nearest dollar): a.$4,000. b.$5,000. c.$4,358. d.$4,396. e.$3,521.
D.
On January 1, 2019, Thomas Service Co. issued $100,000 of 8%, 10-year bonds at an effective interest rate of 10%, receiving proceeds of $87,538. Interest is payable semiannually on June 30 and December 31. The company uses the effective interest method. The June 30, 2019 journal entry to record the first interest payment will record Interest Expense of (round to the nearest dollar): a.$4,000. b.$3,502. c.$5,000. d.$4,377. e.$4,623.
D.
When the market (effective) rate of interest on bonds is higher than the contract (stated) rate of interest, the bonds sell at: a. a premium. b. their face value. c. their maturity value. d. a discount
D.
Bonds Payable of $1,000,000 were issued at face. When the issuing corporation calls the bonds at 101, the journal entry will include a: a. debit to interest expense of $10,000. b. credit to interest revenue of $10,000. c. credit to Bonds Payable of $1,000,000. d. credit to Cash of $990,000. e. debit to Loss on Redemption of $10,000
E.
On January 1, 2019, Baker Co. issued $400,000 of 8% bonds at a discount. Interest is payable semiannually on June 30 and December 31. Which of the following statements is true regarding this discounted bond? a. Using the effective interest method, interest expense recorded in 2019 will be greater than interest expense recorded in 2020. b. The net carrying value of the bond will increase over the term of the bond. c. The straight-line method and the effective interest method will record the same total amount of interest expense over the term of the bonds. d. All of the above are true statements. e. Both (b) and (c) are true statement
E.
On January 1, 2019, Redwood Company issued $1,000,000 of 10-year, 9% bonds, receiving proceeds of $1,020,000. Interest is paid semiannually on June 30 and December 31. Redwood uses the straight-line method of amortizing bond discount or premium. Redwood's journal entry on June 30, 2019to record the first interest payment includes a: a. debit to Interest Expense, $45,000. b. credit to Cash, $46,000 c. debit to Discount on Bonds Payable, $1,000. d. credit to Premium on Bonds Payable, $1,000. e. debit to Interest Expense, $44,000
E.
On January 1, 2019, Williams Corporation issued $500,000 of 10- year, 12% bonds, receiving proceeds of $575,000. Interest is payable semiannually on June 30 and December 31. The journal entry required on January 1, 2019 is: a. Dr. Cash 575,000 Cr. Bond Payable 575,000 b. Dr. Cash 575,000 Cr. Interest Payable 75,000 Cr. Bond Payable 500,000 c. Dr. Cash 500,000 Cr. Interest Revenue 75,000 Cr. Bond Payable 425,000 d. Dr. Cash 500,000 Cr. Bond Payable 500,000 e. Dr. Cash 575,000 Cr. Premium on Bond Payable 75,000 Cr. Bond Payable 500,000
E.
A 10%, 10-year, $1,000 bond quoted at 102.5 would be priced at: a.$975. b.$1,000. c.$1,250. d.$1,025
D.
The carrying value of bonds at any given time is: a. the balance of the Bonds Payable account if the bonds were issued at face value. b. the balance of the Bonds Payable account minus any unamortized discount. c. the balance of the Bonds Payable account minus any unamortized premium. d. All of the above answers are correct. e. Both (a) and (b) are correct answer
E.
