Question 1

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

Accepted Answer

A)   current liabilities
B)   long-term liabilities
C)   current assets
D)   intangible assetsE) All of the above
F) A) and D)

Question 2

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Accepted Answer

A) True 
 B)False

Question 3

The journal entry a company records for the issuance of bonds when the contract rate is greater 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 PayableE) B) and C)
F) A) and D)

Question 4

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 x 8% x 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

Accepted Answer

The answer of On the first day of the fiscal...

Question 5

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Accepted Answer

A)   trading on the equity.
B)   convertible bond.
C)   a bond debenture.
D)   a bond certificate.E) All of the above
F) A) and D)

Question 6

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.

Accepted Answer

A) True 
 B)False

Question 7

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Accepted Answer

A)   equal the interest rate on the note times the carrying amount of the note at the beginning of the period.
B)   remain constant over the term of the note.
C)   equal the interest rate on the note times the face amount.
D)   increase over the term of the note.E) C) and D)
F) A) and B)

Question 8

The balance in Premium on Bonds Payable

Accepted Answer

A)   should be reported on the balance sheet as a deduction from the related bonds payable
B)   should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results obtained by that method materially differ from the results that would be obtained by the interest method
C)   would be added to the related bonds payable on the balance sheet
D)   should be reported in the paid-in capital section of the balance sheetE) None of the above
F) All of the above

Question 9

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Accepted Answer

A) True 
 B)False

Question 10

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

Accepted Answer

A) True 
 B)False

Question 11

On January 1, 2011, Gemstone Company obtained a $280,000, 10-year, 11% installment note from Guarantee Bank. The note requires annual payments of $47,544, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $30,800 and principal repayment of $16,744. The journal entry to record the payment of the first annual amount due on the note would include:

Accepted Answer

A)   a credit to cash of $16,744
B)   a credit to Interest Payable of $30,800
C)   a debit to Notes Payable of $16,744
D)   a debit to Interest Expense of $47,544E) A) and C)
F) A) and B)

Question 12

If bonds are issued at a discount, it means that the

Accepted Answer

A)   bondholder will receive effectively less interest than the contractual rate of interest.
B)   market interest rate is lower than the contractual interest rate.
C)   market interest rate is higher than the contractual interest rate.
D)   financial strength of the issuer is suspect.E) B) and D)
F) B) and C)

Question 13

When callable bonds are redeemed below carrying value

Accepted Answer

A)   Gain on Redemption of Bonds is credited
B)   Loss on Redemption of Bonds is debited
C)   Retained Earnings is credited
D)   Retained Earnings is debitedE) None of the above
F) B) and C)

Question 14

If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.

Accepted Answer

A) True 
 B)False

Question 15

Bonds payable would be listed at their carrying value on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 x 7% x 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

Accepted Answer

The answer of On the first day of the fiscal...

Question 18

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Accepted Answer

A) True 
 B)False

Question 19

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000
(b) Prepare the journal ertry to issue $100,000 bonds which sold for $104,000

Accepted Answer

The answer of (a) Prepare the journal entry to issue...

Question 20

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Accepted Answer

A)   The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginning of the year.
B)   The amount of the annual interest expense gradually decreases over the life of the bonds.
C)   The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
D)   The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.E) B) and D)
F) All of the above

Exam 12: Long-Term Liabilities: Bonds and Notes

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 x 8% x 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

Correct Answer
verified

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Correct Answer
verified

Bonds payable would be listed at their carrying value on the balance sheet.

Correct Answer
verified

When callable bonds are redeemed below carrying value

Correct Answer
verified

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.

Correct Answer
verified

Correct Answer
verified

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 x 7% x 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

Correct Answer
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The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

Correct Answer
verified

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

Correct Answer
verified

If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.

Correct Answer
verified

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000 (b) Prepare the journal ertry to issue $100,000 bonds which sold for $104,000

Correct Answer
verified

The balance in Premium on Bonds Payable

Correct Answer
verified

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Correct Answer
verified

If bonds are issued at a discount, it means that the

Correct Answer
verified

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Correct Answer
verified

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Correct Answer
verified

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

Correct Answer
verified

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Correct Answer
verified

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

Correct Answer
verified

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Correct Answer
verified

Exam 12: Long-Term Liabilities: Bonds and Notes

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 x 8% x 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

Correct AnswerverifiedShow Answer

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Correct AnswerverifiedShow Answer

Bonds payable would be listed at their carrying value on the balance sheet.

Correct AnswerverifiedShow Answer

When callable bonds are redeemed below carrying value

Correct AnswerverifiedShow Answer

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 x 7% x 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.

Correct AnswerverifiedShow Answer

The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.

Correct AnswerverifiedShow Answer

Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.

Correct AnswerverifiedShow Answer

If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.

Correct AnswerverifiedShow Answer

(a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000 (b) Prepare the journal ertry to issue $100,000 bonds which sold for $104,000

Correct AnswerverifiedShow Answer

The balance in Premium on Bonds Payable

Correct AnswerverifiedShow Answer

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Correct AnswerverifiedShow Answer

If bonds are issued at a discount, it means that the

Correct AnswerverifiedShow Answer

A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Correct AnswerverifiedShow Answer

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Correct AnswerverifiedShow Answer

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

Correct AnswerverifiedShow Answer

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Correct AnswerverifiedShow Answer

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