Question 1

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

Accepted Answer

A)   a direct deduction from the face amount of the bonds in the liabilities section
B)   as paid-in capital
C)   a direct deduction from retained earnings
D)   an addition to the face amount of the bonds in the liabilities sectionE) C) and D)
F) All of the above

Question 2

Match each description below to the appropriate term (a-g) .
-If the contract rate is less than the effective rate

Accepted Answer

A)  contract rate
B)  effective rate
C)  bond discount
D)  bond premium
E)  bondF) bond indentureG) principalH) B) and D)
I) None of the above

Question 3

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Accepted Answer

A) True 
 B)False

Question 4

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Accepted Answer

A) True 
 B)False

Question 5

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Accepted Answer

The answer of A $500,000 bond issue on which there...

Question 6

The Merchant Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Merchant should record interest expense (round to the nearest dollar)  of

Accepted Answer

A)   $7,032
B)   $7,500
C)   $8,790
D)   $14,065E) A) and D)
F) C) and D)

Question 7

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

Accepted Answer

A) True 
 B)False

Question 8

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Accepted Answer

A) True 
 B)False

Question 9

The book value of bonds payable

Accepted Answer

A)  carrying amount
B)  face value
C)  callable bond
D)  indenture
E)  term bondF) convertible bondG) serial bondH) A) and D)
I) D) and G)

Question 10

The times interest earned ratio is computed as

Accepted Answer

A)   Income before income taxes + Interest expense ÷ Interest expense
B)   Income before income taxes - Interest expense ÷ Interest expense
C)   Income before income taxes ÷ Interest expense
D)   Income before income taxes + Interest expense ÷ Interest revenueE) B) and C)
F) None of the above

Question 11

Discount on Bonds Payable is a contra liability account.

Accepted Answer

A) True 
 B)False

Question 12

Calculate the total amount of interest expense over the life of the bonds for the following independent situations.
​
(a) $100,000 face value, 10%, 10-year bonds issued at 101.
(b) $240,000 face value, 5%, 5-year bonds issued at 100.
(c) $300,000 face value, 9%, 6-year bonds issued at 98.

Accepted Answer

(a) $100,000 × 0.01 = $1,000 premium
$10...

Question 13

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

Accepted Answer

The answer of Luke Corp. issued $2,000,000 of 20-year, 9%...

Question 14

Brubeck Co. issued $10,000,000 of 30-year, 8% callable bonds on May 1 of Year 1, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:
(a) Issued the bonds for cash at their face amount.
(b) Paid the interest on the bonds on November 1 of Year 3.
(c) Called one-fourth of the bonds at 104, the rate provided in the bond indenture, on May 1 of Year 10. (Omit entry for payment of interest.)

Accepted Answer

The answer of Brubeck Co. issued $10,000,000 of 30-year, 8%...

Question 15

Snickett Corp. issued $5,000,000, five-year bonds on the first day of its fiscal year. The bonds have a stated rate of 11% and an effective (market) rate of 9%. Interest payments are made semiannually. Compute the following:
 
(a) The amount of cash proceeds from the sale of the bonds. Use the present value table and round to the nearest dollar.
(b) The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.
(c) The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.
(d) The amount of the bond interest expense for the first year.
 
Present value of an annuity of $1 at compound interest:
  \(\begin{array}{ccccccc}
\text { Periods}&\mathbf{4 . 0 \%} & \mathbf{4 . 5 \%} & \mathbf{5 . 0 \%} & \mathbf{5 . 5 \%} & \mathbf{6 . 0 \%} & \mathbf{6 . 5 \%} & \mathbf{7 . 0 \%}&10.\%&11.0\%&12.0\%&13.0\% \
&0.961 & 0.956 & 0.952 & 0.947 & 0.943 & 0.938 & 0.934 & 0.909 & 0.900 & 0.892 & 0.884 \
1&54 & 94 & 38 & 87 & 40 & 97 & 58 & 09 & 90 & 86 & 96\&1.886 & 1.872 & 1.859 & 1.846 & 1.833 & 1.820 & 1.808 & 1.735 & 1.712 & 1.690 & 1.668 \
2&09 & 67 & 41 & 32 & 39 & 63 & 02 & 54 & 52 & 05 & 10\&2.775 & 2.748 & 2.723 & 2.697 & 2.673 & 2.648 & 2.624 & 2.486 & 2.443 & 2.401 & 2.361 \
3&09 & 96 & 25 & 93 & 01 & 48 & 32 & 85 & 71 & 83 & 15\&3.629 & 3.587 & 3.545 & 3.505 & 3.465 & 3.425 & 3.387 & 3.169 & 3.102 & 3.037 & 2.974 \
4&90 & 53 & 95 & 15 & 11 & 80 & 21 & 87 & 45 & 35 & 47\&4.451 & 4.389 & 4.329 & 4.270 & 4.212 & 4.155 & 4.100 & 3.790 & 3.695 & 3.604 & 3.517 \
5&82 & 98 & 48 & 28 & 36 & 68 & 20 & 79 & 90 & 78 & 23\&5.242 & 5.157 & 5.075 & 4.995 & 4.917 & 4.841 & 4.766 & 4.355 & 4.230 & 4.111 & 3.997 \
6&14 & 87 & 69 & 53 & 32 & 01 & 54 & 26 & 54 & 41 & 55\&6.002 & 5.892 & 5.786 & 5.682 & 5.582 & 5.484 & 5.389 & 4.868 & 4.712 & 4.563 & 4.422 \
7&05 & 70 & 37 & 97 & 38 & 52 & 29 & 42 & 20 & 76 & 61\&6.732 & 6.595 & 6.463 & 6.334 & 6.209 & 6.088 & 5.971 & 5.334 & 5.146 & 4.967 & 4.798 \
8&74 & 89 & 21 & 57 & 79 & 75 & 30 & 93 & 12 & 64 & 77\&7.435 & 7.268 & 7.107 & 6.952 & 6.801 & 6.656 & 6.515 & 5.759 & 5.537 & 5.328 & 5.131 \
9&33 & 79 & 82 & 20 & 69 & 10 & 23 & 02 & 05 & 25 & 66\&8.110 & 7.912 & 7.721 & 7.537 & 7.360 & 7.188 & 7.023 & 6.144 & 5.889 & 5.650 & 5.426 \
10&90 & 72 & 73 & 63 & 09 & 83 & 58 & 57 & 23 & 22 & 24
\end{array}\)  
Present value of a $1 at compound interest:
 \(\begin{array}{ccccccc}
\text { Periods}&\mathbf{4 . 0 \%} & \mathbf{4 . 5 \%} & \mathbf{5 . 0 \%} & \mathbf{5 . 5 \%} & \mathbf{6 . 0 \%} & \mathbf{6 . 5 \%} & \mathbf{7 . 0 \%}&10.\%&11.0\%&12.0\%&13.0\% \& 0.961 & 0.956 & 0.952 & 0.947 & 0.943 & 0.938 & 0.934 & 0.909 & 0.900 & 0.892 & 0.884 \
1 & 54 & 94 & 38 & 87 & 40 & 97 & 58 & 09 & 90 & 86 & 96\& 0.924 & 0.915 & 0.907 & 0.898 & 0.890 & 0.881 & 0.873 & 0.826 & 0.811 & 0.797 & 0.783 \
2 & 56 & 73 & 03 & 45 & 00 & 66 & 44 & 45 & 62 & 19 & 15\& 0.889 & 0.876 & 0.863 & 0.851 & 0.839 & 0.827 & 0.816 & 0.751 & 0.731 & 0.711 & 0.693 \
3 & 00 & 30 & 84 & 61 & 62 & 85 & 30 & 31 & 19 & 78 & 05\& 0.854 & 0.838 & 0.822 & 0.807 & 0.792 & 0.777 & 0.762 & 0.683 & 0.658 & 0.635 & 0.613 \
4 & 80 & 56 & 70 & 22 & 09 & 32 & 90 & 01 & 73 & 52 & 32\& 0.821 & 0.802 & 0.783 & 0.765 & 0.747 & 0.729 & 0.712 & 0.620 & 0.593 & 0.567 & 0.542 \
5 & 93 & 45 & 53 & 13 & 26 & 88 & 99 & 92 & 45 & 43 & 76\& 0.790 & 0.767 & 0.746 & 0.725 & 0.704 & 0.685 & 0.666 & 0.564 & 0.534 & 0.506 & 0.480 \
6 & 31 & 90 & 22 & 25 & 96 & 33 & 34 & 47 & 64 & 63 & 32\& 0.759 & 0.734 & 0.710 & 0.687 & 0.665 & 0.643 & 0.622 & 0.513 & 0.481 & 0.452 & 0.425 \
7 & 92 & 83 & 68 & 44 & 06 & 51 & 75 & 16 & 66 & 35 & 06\& 0.730 & 0.703 & 0.676 & 0.651 & 0.627 & 0.604 & 0.582 & 0.466 & 0.433 & 0.403 & 0.376 \
8 & 69 & 19 & 84 & 60 & 41 & 23 & 01 & 51 & 93 & 88 & 16\& 0.702 & 0.672 & 0.644 & 0.617 & 0.591 & 0.567 & 0.543 & 0.424 & 0.390 & 0.360 & 0.332 \
9 & 59 & 90 & 61 & 63 & 90 & 35 & 93 & 10 & 92 & 61 & 88\& 0.675 & 0.643 & 0.613 & 0.585 & 0.558 & 0.532 & 0.508 & 0.385 & 0.352 & 0.321 & 0.294 \
10 & 56 & 93 & 91 & 43 & 39 & 73 & 35 & 54 & 18 & 97 & 59
\end{array}\)

Accepted Answer

(a) $5,395,648.00
(b...

Question 16

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Accepted Answer

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 PayableE) A) and C)
F) C) and D)

Question 17

Allows the issuer to redeem bonds before maturity date

Accepted Answer

A)  carrying amount
B)  face value
C)  callable bond
D)  indenture
E)  term bondF) convertible bondG) serial bondH) F) and G)
I) A) and F)

Question 18

Match each description below to the appropriate term (a-g) .
-If the contract rate exceeds the effective rate

Accepted Answer

A)  contract rate
B)  effective rate
C)  bond discount
D)  bond premium
E)  bondF) bond indentureG) principalH) F) and G)
I) C) and F)

Question 19

On June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present entries to record the following transactions.
​ (a) Issuance of bonds.
(b) Payment of first semiannual interest on December 31 (record separate entry from premium amortization).
(c) Amortization by straight-line method of bond premium on December 31.

Accepted Answer

The answer of On June 30, Jamison Company issued $2,500,000...

Question 20

The Levi Company issued $200,000 of 12% bonds on January 1 of the current year at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, and mature in five years, on January 1. The total interest expense related to these bonds for the current year ending on December 31 is

Accepted Answer

A)   $2,000
B)   $6,000
C)   $18,000
D)   $24,000E) A) and B)
F) None of the above

Exam 11: Liabilities: Bonds Payable

Match each description below to the appropriate term (a-g) . -If the contract rate is less than the effective rate

Correct Answer
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Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

Correct Answer
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Correct Answer
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If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Correct Answer
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Correct Answer
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Correct Answer
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Discount on Bonds Payable is a contra liability account.

Correct Answer
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Correct Answer
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Any unamortized premium should be reported on the balance sheet of the issuing corporation as

Correct Answer
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Match each description below to the appropriate term (a-g) . -If the contract rate exceeds the effective rate

Correct Answer
verified

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

Correct Answer
verified

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Correct Answer
verified

Allows the issuer to redeem bonds before maturity date

Correct Answer
verified

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Correct Answer
verified

The times interest earned ratio is computed as

Correct Answer
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Calculate the total amount of interest expense over the life of the bonds for the following independent situations. (a) $100,000 face value, 10%, 10-year bonds issued at 101. (b) $240,000 face value, 5%, 5-year bonds issued at 100. (c) $300,000 face value, 9%, 6-year bonds issued at 98.

Correct Answer
verified
(a) $100,000 × 0.01 = $1,000 premium
$10...
View Answer

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Correct Answer
verified

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Correct Answer
verified

Correct Answer
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(a) $5,395,648.00
(b...
View Answer

The book value of bonds payable

Correct Answer
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Exam 11: Liabilities: Bonds Payable

Match each description below to the appropriate term (a-g) . -If the contract rate is less than the effective rate

Correct AnswerverifiedShow Answer

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Discount on Bonds Payable is a contra liability account.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

Correct AnswerverifiedShow Answer

Match each description below to the appropriate term (a-g) . -If the contract rate exceeds the effective rate

Correct AnswerverifiedShow Answer

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416.

Correct AnswerverifiedShow Answer

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Correct AnswerverifiedShow Answer

Allows the issuer to redeem bonds before maturity date

Correct AnswerverifiedShow Answer

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Correct AnswerverifiedShow Answer

The times interest earned ratio is computed as

Correct AnswerverifiedShow Answer

Calculate the total amount of interest expense over the life of the bonds for the following independent situations. ​ (a) $100,000 face value, 10%, 10-year bonds issued at 101. (b) $240,000 face value, 5%, 5-year bonds issued at 100. (c) $300,000 face value, 9%, 6-year bonds issued at 98.

Correct Answerverified(a) $100,000 × 0.01 = $1,000 premium$10...View AnswerShow Answer

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Correct AnswerverifiedShow Answer

A $500,000 bond issue on which there is an unamortized discount of $35,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Correct AnswerverifiedShow Answer

Correct Answerverified(a) $5,395,648.00(b...View AnswerShow Answer

The book value of bonds payable

Correct AnswerverifiedShow Answer

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Calculate the total amount of interest expense over the life of the bonds for the following independent situations. (a) $100,000 face value, 10%, 10-year bonds issued at 101. (b) $240,000 face value, 5%, 5-year bonds issued at 100. (c) $300,000 face value, 9%, 6-year bonds issued at 98.

Correct Answer
verified
(a) $100,000 × 0.01 = $1,000 premium
$10...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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(a) $5,395,648.00
(b...
View Answer

Correct Answer
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