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Exam 10: Liabilities

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Question 31

Multiple Choice

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On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a:

A) debit to Interest Expense of $2,250.
B) credit to Cash of $90,000
C) debit to Interest Payable of $6,750.
D) debit to Notes Payable of $96,750.

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Question 32

Multiple Choice

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Aire Corporation retires its bonds at 106 on January 1, following the payment of annual interest. The face value of the bonds is $800,000. The carrying value of the bonds at the redemption date is $842,000. The entry to record the redemption will include a

A) credit of $42,000 to Loss on Bond Redemption.
B) debit of $48,000 to Premium on Bonds Payable.
C) credit of $7,000 to Gain on Bond Redemption.
D) debit of $42,000 to Premium on Bonds Payable.

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Question 33

Multiple Choice

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Premium on Bonds Payable

Silk Company issued $500,000 of 7%, 10-year bonds on its interest date for $431,850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. Interest is paid annually. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

The current ratio permits analysts to compare the liquidity of different sized companies.

Bonds are a form of interest-bearing notes payable.

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.

The market rate of interest for a bond issue which sells for more than its face value is

A bond with a face value of $200,000 and a quoted price of 102¼ has a selling price of

Bonds that may be exchanged for common stock at the option of the bondholders are called

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

Generally, convertible bonds do not pay interest.

A current liability must be paid out of current earnings.

The current ratio is

If the market interest rate is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount

Beonce Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2013. The bonds had a face value of $200,000, pay interest annually on January 1, and have a call price of 101. Beonce uses the straight-line method of amortization. Beonce Company decided to redeem the bonds on January 1, 2015. What amount of gain or loss would Beonce report on its 2015 income statement?

A corporation issues $500,000, 8%, 5-year bonds on January 1, 2015, for $479,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2015's adjusting entry is

Premium on Bonds Payable is a contra account to Bonds Payable.

A debenture bond is an unsecured bond which is issued against the general credit of the borrower.