Question 1

The effective interest amortization method:

Accepted Answer

A)   Allocates bond interest expense over the bond's life using a changing interest rate.
B)   Allocates bond interest expense over the bond's life 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 interest period.
E)   Is not allowed by the FASB.F) B) and C)
G) None of the above

Question 2

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Accepted Answer

A) True 
 B)False

Question 3

A discount reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 4

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

Accepted Answer

A bond premium occurs when bonds are sol...

Question 5

Collateral agreements for a note or bond can:

Accepted Answer

A)   Reduce the risk of loss in comparison with unsecured debt.
B)   Increase the risk of loss in comparison with unsecured debt.
C)   Have no effect on risk.
D)   Reduce the issuer's assets.
E)   Increase total cost for the borrower.F) A) and B)
G) C) and D)

Question 6

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Accepted Answer

A)   Debit Bond Interest Expense $14,000; credit Cash $14,000.
B)   Debit Bond Interest Expense $28,000; credit Cash $28,000.
C)   Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200.
D)   Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000.
E)   Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.F) A) and B)
G) All of the above

Question 7

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

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Discount ...

Question 8

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

Accepted Answer

A) True 
 B)False

Question 9

Match each of the following terms with the appropriate definitions.
-Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A)  Secured bonds
B)  Sinking fund bonds
C)  Carrying value
D)  Serial bonds
E)  Bond indentureF) AnnuityG) Premium on bondsH) Contract rateI) Debt-to-equity ratioJ) Callable bondsK) E) and F)
L) D) and E)

Question 10

On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the payment on the note on December 31,Year 2 is:

Accepted Answer

A)   Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
B)   Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.
C)   Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238.
D)   Debit Notes Payable $14,238; credit Cash $14,238.
E)   Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.F) B) and D)
G) A) and E)

Question 11

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 12

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date 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 Payable.F) A) and C)
G) C) and D)

Question 13

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806.Each annual payment equals $75,000.The present value of the note is:

Accepted Answer

A)   $56,352.84.
B)   $18,784.28.
C)   $375,000.00
D)   $299,452.50.
E)   $110,196.89.F) A) and E)
G) B) and C)

Question 14

How are bond issue prices determined?

Accepted Answer

The issue price of bonds is found by com...

Question 15

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Accepted Answer

A)   $3,500.00.
B)   $3,679.49.
C)   $3,673.01.
D)   $7,000.00.
E)   $7,346.03.F) A) and B)
G) A) and C)

Question 16

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Accepted Answer

A) True 
 B)False

Question 17

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

Accepted Answer

A)   Debit Cash $2,000,000; credit Bonds Payable $2,000,000.
B)   Debit Cash $1,864,097; credit Bonds Payable $1,864,097.
C)   Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.
D)   Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.
E)   Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000.F) B) and C)
G) A) and C)

Question 18

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s) is:

Accepted Answer

A)   $3,200.
B)   $2,800.
C)   $1,600.
D)   $1,400.
E)   $0.F) B) and E)
G) None of the above

Question 19

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

Accepted Answer

$3,000 * 4...

Question 20

Strider Corporation issued 14%,5-year bonds with a par value of $5,000,000 on January 1,Year 1.Interest is to be paid semiannually on each June 30 and December 31.The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1,year 1.
(b)Show how the bonds would be reported on Strider's balance sheet at January 1,Year 1.
(c)Assume that Strider uses the effective interest method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.
(d)Assume instead that Strider uses the straight-line method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.

Accepted Answer

The answer of Strider Corporation issued 14%,5-year bonds with a...

Exam 10: Accounting for Long-Term Liabilities

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

Correct Answer
verified
Discount ...
View Answer

Match each of the following terms with the appropriate definitions. -Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Correct Answer
verified

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Correct Answer
verified

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

Correct Answer
verified

Correct Answer
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On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the payment on the note on December 31,Year 2 is:

Correct Answer
verified

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Correct Answer
verified

The effective interest amortization method:

Correct Answer
verified

A company's ability to issue unsecured debt depends on its credit standing.

Correct Answer
verified

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Correct Answer
verified

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

Correct Answer
verified

How are bond issue prices determined?

Correct Answer
verified
The issue price of bonds is found by com...
View Answer

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

Correct Answer
verified

Collateral agreements for a note or bond can:

Correct Answer
verified

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Correct Answer
verified

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806.Each annual payment equals $75,000.The present value of the note is:

Correct Answer
verified

A discount reduces the interest expense of a bond over its life.

Correct Answer
verified

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

Correct Answer
verified
A bond premium occurs when bonds are sol...
View Answer

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

Correct Answer
verified
$3,000 * 4...
View Answer

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s) is:

Correct Answer
verified

Exam 10: Accounting for Long-Term Liabilities

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

Correct Answerverified Discount ...View AnswerShow Answer

Match each of the following terms with the appropriate definitions. -Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.

Correct AnswerverifiedShow Answer

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Correct AnswerverifiedShow Answer

A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the payment on the note on December 31,Year 2 is:

Correct AnswerverifiedShow Answer

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Correct AnswerverifiedShow Answer

The effective interest amortization method:

Correct AnswerverifiedShow Answer

A company's ability to issue unsecured debt depends on its credit standing.

Correct AnswerverifiedShow Answer

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Correct AnswerverifiedShow Answer

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

Correct AnswerverifiedShow Answer

How are bond issue prices determined?

Correct AnswerverifiedThe issue price of bonds is found by com...View AnswerShow Answer

On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

Correct AnswerverifiedShow Answer

Collateral agreements for a note or bond can:

Correct AnswerverifiedShow Answer

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Correct AnswerverifiedShow Answer

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806.Each annual payment equals $75,000.The present value of the note is:

Correct AnswerverifiedShow Answer

A discount reduces the interest expense of a bond over its life.

Correct AnswerverifiedShow Answer

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

Correct AnswerverifiedA bond premium occurs when bonds are sol...View AnswerShow Answer

A company enters into an agreement to make 5 annual year-end payments of $3,000 each,starting one year from now.The annual interest rate is 6%.The present value of an annuity factor for 5 periods at 6% is 4.2124.What is the present value of these five payments?

Correct Answerverified$3,000 * 4...View AnswerShow Answer

A company issues 8% bonds with a par value of $40,000 at par on January 1.The market rate on the date of issuance was 7%.The bonds pay interest semiannually on January 1 and July 1.The cash paid on July 1 to the bond holder(s) is:

Correct AnswerverifiedShow Answer

Correct Answer
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Discount ...
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The issue price of bonds is found by com...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A bond premium occurs when bonds are sol...
View Answer

Correct Answer
verified
$3,000 * 4...
View Answer

Correct Answer
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