Question 1

A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer?

Accepted Answer

A)   $750
B)   $5,250
C)   $1,500
D)   $3,000
E)   $6,000F) B) and D)
G) A) and B)

Question 2

A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5 months after the most recent interest date. How much total cash interest is received on May 1 by the bond issuer?

Accepted Answer

A)   $0
B)   $2,916.66
C)   $100,000.00
D)   $14,583.33
E)   $35,000.00F) C) and D)
G) All of the above

Question 3

A company retires its bonds at 105. The carrying value of the bonds at the date of is $103,745. The issuer's journal entry to record the retirement will include a:

Accepted Answer

A)   Debit to Premium on Bonds
B)   Credit to Premium on Bonds
C)   Debit to Discount on Bonds
D)   Credit to Gain on Bond Retirement
E)   Credit to Bonds PayableF) None of the above
G) All of the above

Question 4

On January 1, 2010, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102½. Six years later, on January 1, 2016, Jacob retires 30% of these bonds by buying them on the open market at 98½. All interest is accounted for and paid through December 31, 2015, the day before the purchase. The straight-line method is used to amortize any bond discount. What is the total interest expense for the life of the bond?

Accepted Answer

A)   $975,000
B)   $964,000
C)   $936,000
D)   $772,000
E)   $990,000F) D) and E)
G) A) and D)

Question 5

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Accepted Answer

A) True 
 B)False

Question 6

A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Accepted Answer

A)   $3,294.70
B)   $3,500.00
C)   $3,705.30
D)   $7,000.00
E)   $7,410.60F) B) and C)
G) A) and B)

Question 7

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

Accepted Answer

A)   $1,000 gain
B)   $1,000 loss
C)   $2,700 loss
D)   $2,700 gain
E)   $3,700 gainF) A) and E)
G) B) and C)

Question 8

_______________ bonds have specific assets of the issuing company pledged as collateral.

Accepted Answer

The answer of _______________ bonds have specific assets of the...

Question 9

The carrying value of a long-term note payable:

Accepted Answer

A)   Is computed as the future value of all remaining future payments, using the market rate as interest
B)   Is the face value of the long-term note less the total of all future interest payments
C)   Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance
D)   Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest
E)   Decreases each time period the discount on the note is amortizedF) B) and E)
G) All of the above

Question 10

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is true regarding the effective interest amortization method?

Accepted Answer

A)   Allocates bond interest expense using a changing interest rate
B)   Allocates bond interest expense using a constant interest rate
C)   Allocates a decreasing amount of interest over the life of a discounted bond
D)   Allocates bond interest expense using the current market rate for each period
E)   Is not allowed by the FASBF) A) and D)
G) C) and E)

Question 12

A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the issuance of the bonds.

Accepted Answer

The answer of A company issued 10-year, 9% bonds, with...

Question 13

On January 1, 2010, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102½. Six years later, on January 1, 2016, Jacob retires 30% of these bonds by buying them on the open market at 98½. All interest is accounted for and paid through December 31, 2015, the day before the purchase. The straight-line method is used to amortize any bond discount. What is the carrying value of the bond on January 1, 2016?

Accepted Answer

A)   $472,000
B)   $531,076
C)   $584,924
D)   $609,000
E)   $600,000F) C) and D)
G) A) and B)

Question 14

Target Company issues bonds with a par value of $900,000 on their stated issue date. The bonds mature in 10 years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. What is the selling price of the bond?

Accepted Answer

The answer of Target Company issues bonds with a par...

Question 15

On January 1, 2010, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96½. Six years later, on January 1, 2016, Jacob retires 20% of these bonds by buying them on the open market at 105½. All interest is accounted for and paid through December 31, 2015, the day before the purchase. The straight-line method is used to amortize any bond discount. What is the journal entry to record the first interest payment on June 30, 2010?

Accepted Answer

A)    Interest Expense 36,000 Cash 36,000\begin{array} { | c | r | r | } \hline 	ext { Interest Expense } & 36,000 & \\hline 	ext { Cash } & & 36,000 \\hline\end{array} Interest Expense  Cash ​36,000​36,000​​ 
B)    Cash 36,000 Interest Expense 36,000\begin{array} { | c | r | r | } \hline 	ext { Cash } & 36,000 & \\hline 	ext { Interest Expense } & & 36,000 \\hline\end{array} Cash  Interest Expense ​36,000​36,000​​ 
C)    Interest Expense 36,000 Discount on Bonds Payable 1,077 Cash 37,077\begin{array} { | l | r | r | } \hline 	ext { Interest Expense } & 36,000 & \\hline 	ext { Discount on Bonds Payable } & 1,077 & \\hline 	ext { Cash } & & 37,077 \\hline\end{array} Interest Expense  Discount on Bonds Payable  Cash ​36,0001,077​37,077​​ 
D)    Interest Expense 36,000 Premium on Bonds Payable 1,077 Cash 37,077\begin{array} { | l | r | r | } \hline 	ext { Interest Expense } & 36,000 & \\hline 	ext { Premium on Bonds Payable } & 1,077 & \\hline 	ext { Cash } & & 37,077 \\hline\end{array} Interest Expense  Premium on Bonds Payable  Cash ​36,0001,077​37,077​​ 
E)    Interest Expense 37,077 Discount on Bonds Payable 1,077 Cash 36,000\begin{array} { | l | r | r | } \hline 	ext { Interest Expense } & 37,077 & \\hline 	ext { Discount on Bonds Payable } & & 1,077 \\hline 	ext { Cash } & & 36,000 \\hline\end{array} Interest Expense  Discount on Bonds Payable  Cash ​37,077​1,07736,000​​F) A) and B)
G) A) and C)

Question 16

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What journal entry would the issuer record for the first payment?

Accepted Answer

A)    Interest Expense 2,250 Notes Payable 25,000 Cash 27,250\begin{array} { | l | r | r | } \hline 	ext { Interest Expense } & 2,250 & \\hline 	ext { Notes Payable } & 25,000 & \\hline 	ext { Cash } & & 27,250 \\hline\end{array} Interest Expense  Notes Payable  Cash ​2,25025,000​27,250​​ 
B)    Notes Payable 27,250 Interest Payable 2,250 Cash 25,000\begin{array} { | l | r | r | } \hline 	ext { Notes Payable } & 27,250 & \\hline 	ext { Interest Payable } & & 2,250 \\hline 	ext { Cash } & & 25,000 \\hline\end{array} Notes Payable  Interest Payable  Cash ​27,250​2,25025,000​​ 
C)    Interest Expense 11,250 Notes Payable 25,000 Cash 36,250\begin{array} { | l | r | r | } \hline 	ext { Interest Expense } & 11,250 & \\hline 	ext { Notes Payable } & 25,000 & \\hline 	ext { Cash } & & 36,250 \\hline\end{array} Interest Expense  Notes Payable  Cash ​11,25025,000​36,250​​ 
D)    Notes Payable 25,000 Cash 25,000\begin{array} { | c | r | r | } \hline 	ext { Notes Payable } & 25,000 & \\hline 	ext { Cash } & & 25,000 \\hline\end{array} Notes Payable  Cash ​25,000​25,000​​ 
E)    Notes Payable 11,250 Cash 11,250\begin{array} { | c | r | r | } \hline 	ext { Notes Payable } & 11,250 & \\hline 	ext { Cash } & & 11,250 \\hline\end{array} Notes Payable  Cash ​11,250​11,250​​F) B) and E)
G) B) and C)

Question 17

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Accepted Answer

A)   $0 gain or loss
B)   $1,500 gain
C)   $1,500 loss
D)   $3,000 gain
E)   $3,000 lossF) None of the above
G) A) and B)

Question 18

The debt to equity ratio helps assess the risks of a company's financing structure.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:
 $$\begin{array} { | l | r | } 
\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \
\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \
\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \
\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756 \
\hline
\end{array}$$

Accepted Answer

The answer of On January 1, a company issues bonds...

Question 20

When the bond contract rate of interest is above the market rate of interest for that bond, the bond sells at a _____________.

Accepted Answer

The answer of When the bond contract rate of interest...

Exam 10: Long-Term Liabilities

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What journal entry would the issuer record for the first payment?

Correct Answer
verified

A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer?

Correct Answer
verified

A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5 months after the most recent interest date. How much total cash interest is received on May 1 by the bond issuer?

Correct Answer
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Correct Answer
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Correct Answer
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A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the issuance of the bonds.

Correct Answer
verified

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct Answer
verified

A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Correct Answer
verified

The carrying value of a long-term note payable:

Correct Answer
verified

_______________ bonds have specific assets of the issuing company pledged as collateral.

Correct Answer
verified

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

Correct Answer
verified

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Correct Answer
verified

Target Company issues bonds with a par value of $900,000 on their stated issue date. The bonds mature in 10 years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. What is the selling price of the bond?

Correct Answer
verified

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

Correct Answer
verified

Correct Answer
verified

When the bond contract rate of interest is above the market rate of interest for that bond, the bond sells at a _____________.

Correct Answer
verified

Correct Answer
verified

The debt to equity ratio helps assess the risks of a company's financing structure.

Correct Answer
verified

Which of the following is true regarding the effective interest amortization method?

Correct Answer
verified

A company retires its bonds at 105. The carrying value of the bonds at the date of is $103,745. The issuer's journal entry to record the retirement will include a:

Correct Answer
verified

Exam 10: Long-Term Liabilities

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What journal entry would the issuer record for the first payment?

Correct AnswerverifiedShow Answer

A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer?

Correct AnswerverifiedShow Answer

A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5 months after the most recent interest date. How much total cash interest is received on May 1 by the bond issuer?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the issuance of the bonds.

Correct AnswerverifiedShow Answer

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct AnswerverifiedShow Answer

A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Correct AnswerverifiedShow Answer

The carrying value of a long-term note payable:

Correct AnswerverifiedShow Answer

_______________ bonds have specific assets of the issuing company pledged as collateral.

Correct AnswerverifiedShow Answer

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

Correct AnswerverifiedShow Answer

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Correct AnswerverifiedShow Answer

Target Company issues bonds with a par value of $900,000 on their stated issue date. The bonds mature in 10 years and pay 10% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. What is the selling price of the bond?

Correct AnswerverifiedShow Answer

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the bond contract rate of interest is above the market rate of interest for that bond, the bond sells at a _____________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The debt to equity ratio helps assess the risks of a company's financing structure.

Correct AnswerverifiedShow Answer

Which of the following is true regarding the effective interest amortization method?

Correct AnswerverifiedShow Answer

A company retires its bonds at 105. The carrying value of the bonds at the date of is $103,745. The issuer's journal entry to record the retirement will include a:

Correct AnswerverifiedShow Answer

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