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Exam 11: Liabilities: Bonds Payable

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Question 91

Multiple Choice

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

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

E) A) and B)
F) B) and D)

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Question 92

Multiple Choice

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If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

A) $2,060,000
B) $2,000,000
C) $2,100,000
D) $1,940,000

E) C) and D)
F) None of the above

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Question 93

Multiple Choice

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On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If Lisbon uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to

When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are

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

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amortization of the premium (by the straight-line method) for the year by Lisbon Co. includes a debit to ​

On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $437,740. Journalize the entry to record the issuance of the bonds.

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

Present entries to record the selected transactions described below: (a) Issued $\$ 2,750,000$ of 10 -year, $8 \%$ bonds at 97 . (b) Amortized bond discount for a full year, using the straight-line method. (c) Called bonds at 98 . Assume the bonds were carried at $\$ 2,692,250$ at the time of the redemption.

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

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Prepare entries to record the following transactions for the current fiscal year. (a) Issuance of the bonds. (b) Second semiannual interest payment. (c) Amortization of bond premium for the first year, using the straight-line method of amortization.

Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest $\begin{array} { | l | c | c | c | c | } \hline \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% \\\hline 1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 \\\hline 2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 \\\hline 3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 \\\hline 4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 \\\hline 5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 \\\hline 6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 \\\hline 7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 \\\hline 8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 \\\hline 9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 \\\hline 10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 \\\hline\end{array}$ ​ Present Value of Annuity of $1 at Compound Interest $\begin{array} { | l | c | c | c | c | } \hline \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% \\\hline 1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 \\\hline 2 & 1.85941 & 1.83339 & 1.80802 & 1.73554 \\\hline 3 & 2.72325 & 2.67301 & 2.62432 & 2.48685 \\\hline 4 & 3.54595 & 3.46511 & 3.38721 & 3.16987 \\\hline 5 & 4.32948 & 4.21236 & 4.10020 & 3.79079 \\\hline 6 & 5.07569 & 4.91732 & 4.76654 & 4.35526 \\\hline 7 & 5.78637 & 5.58238 & 5.38929 & 4.86842 \\\hline 8 & 6.46321 & 6.20979 & 5.97130 & 5.33493 \\\hline 9 & 7.10782 & 6.80169 & 6.51523 & 5.75902 \\\hline 10 & 7.72174 & 7.36009 & 7.02358 & 6.14457 \\\hline\end{array}$