Question 1

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is

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 Payable

Question 2

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

Accepted Answer

A)   $26,000
B)   $27,635
C)   $21,642
D)   $28,402

Question 3

If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from the sale is

Accepted Answer

A)   $1,080,000
B)   $965,000
C)   $1,000,000
D)   $1,035,000

Question 4

Bonds with a face amount $1,000,000, are sold at 98. The entry to record the issuance is

Accepted Answer

A)   Cash 1,000,000 Premium on Bonds Payable 20,000Bonds Payable 980,000
B)   Cash 980,000 Premium on Bonds Payable 20,000Bonds Payable 1,000,000
C)   Cash 980,000 Discount on Bonds Payable 20,000Bonds Payable 1,000,000
D)   Cash 980,000 Bonds Payable 980,000

Question 5

The adjusting entry to record the amortization of a discount on bonds payable is

Accepted Answer

A)   debit Discount on Bonds Payable, credit Interest Expense
B)   debit Interest Expense, credit Discount on Bonds Payable
C)   debit Interest Expense, credit Cash
D)   debit Bonds Payable, credit Interest Expense

Question 6

The unamortized Discount on Bonds Payable account is a contra-liability account.

Accepted Answer

A) True 
 B)False

Question 7

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

Accepted Answer

A) True 
 B)False

Question 8

A $500,000 bond issue on which there is an unamortized discount of $20,000 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 9

One potential advantage of financing corporations through the use of bonds rather than common stock is

Accepted Answer

A)   the interest on bonds must be paid when due
B)   the corporation must pay the bonds at maturity
C)   the interest expense is deductible for tax purposes by the corporation
D)   a higher earnings per share is guaranteed for existing common shareholders

Question 10

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

Accepted Answer

A)   Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
B)   Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
C)   Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
D)   Annual interest expense will increase over the life of the bonds with the amortization of bond discount.

Question 11

On January 1, 2011, $1,000,000, 5-year, 10% bonds, were issued for $960,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is

Accepted Answer

A)   $8,000
B)   $6,000
C)   $4,000
D)   $5,000

Question 12

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 Payable

Question 13

Numbers of times interest charges earned is computed as

Accepted Answer

A)   Income before income taxes plus Interest Expense divided by Interest Expense
B)   Income before income taxes less Interest Expense divided by Interest Expense
C)   Income before income taxes divided by Interest Expense
D)   Income before income taxes plus Interest Expense divided by Interest Revenue

Question 14

When the effective-interest method is used, the amortization of the bond premium

Accepted Answer

A)   increases interest expense each period
B)   decreases interest expense each period
C)   increases interest expense in some periods and decreases interest expense in other periods
D)   has no effect on the interest expense in any period

Question 15

Sinking Fund Cash would be classified on the balance sheet as

Accepted Answer

A)   a current asset
B)   a fixed asset
C)   an intangible asset
D)   an investment

Question 16

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $295,000. The entry to record the redemption would include a

Accepted Answer

A)   loss on bond redemption of $5,000.
B)   gain on bond redemption of $5,000.
C)   gain on bond redemption of $1,000.
D)   loss on bond redemption of $1,000.

Question 17

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Accepted Answer

A) True 
 B)False

Question 18

The interest expense recorded on an interest payment date is increased

Accepted Answer

A)   only if the market rate of interest is less than the stated rate of interest on that date.
B)   by the amortization of premium on bonds payable.
C)   by the amortization of discount on bonds payable.
D)   only if the bonds were sold at face value.

Question 19

A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

Accepted Answer

The answer of A company issued $2,000,000 of 30-year, 8%...

Question 20

Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.

Accepted Answer

A) True 
 B)False

Exam 12: Long-Term Liabilities: Bonds and Notes

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

One potential advantage of financing corporations through the use of bonds rather than common stock is

Correct AnswerverifiedShow Answer

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $295,000. The entry to record the redemption would include a

Correct AnswerverifiedShow Answer

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is

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The interest expense recorded on an interest payment date is increased

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A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

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When the effective-interest method is used, the amortization of the bond premium

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Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.

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On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

Correct AnswerverifiedShow Answer

If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from the sale is

Correct AnswerverifiedShow Answer

Bonds with a face amount $1,000,000, are sold at 98. The entry to record the issuance is

Correct AnswerverifiedShow Answer

On January 1, 2011, $1,000,000, 5-year, 10% bonds, were issued for $960,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is

Correct AnswerverifiedShow Answer

Numbers of times interest charges earned is computed as

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The adjusting entry to record the amortization of a discount on bonds payable is

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Sinking Fund Cash would be classified on the balance sheet as

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A $500,000 bond issue on which there is an unamortized discount of $20,000 is redeemed for $475,000. Journalize the redemption of the bonds.

Correct AnswerverifiedShow Answer

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

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If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

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The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

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The unamortized Discount on Bonds Payable account is a contra-liability account.

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