Question 1

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

Question 2

Bonds with a face amount $1,000,000,are sold at 96.The entry to record the issuance is

Accepted Answer

A)  Cash 1,000,000 Premium on Bonds Payable 40,000Bonds Payable 960,000
B)  Cash 960,000 Premium on Bonds Payable 40,000Bonds Payable 1,000,000
C)  Cash 960,000 Discount on Bonds Payable 40,000Bonds Payable 1,000,000
D)  Cash 960,000 Bonds Payable 960,000E) All of the above
F) A) and C)

Question 3

Sinking Fund Income is reported in the income statement as

Accepted Answer

A)  income from operations
B)  extraordinary
C)  gain on sinking fund transactions
D)  other incomeE) B) and C)
F) A) and B)

Question 4

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000.If the issuing corporation redeems the bonds at 101,what is the amount of gain or loss on redemption?

Accepted Answer

A)  $3,000 loss
B)  $3,000 gain
C)  $7,000 loss
D)  $7,000 gainE) A) and C)
F) A) and D)

Question 5

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 103,what is the amount of gain or loss on redemption?

Accepted Answer

A)  $1,200 loss
B)  $1,200 gain
C)  $17,000 loss
D)  $17,000 gainE) A) and B)
F) A) and C)

Question 6

The effective-interest method of amortizing a bond discount or premium is the preferred method.

Accepted Answer

A) True 
 B)False

Question 7

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Accepted Answer

A) True 
 B)False

Question 8

When the effective interest method of amortization is used,the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Accepted Answer

A) True 
 B)False

Question 9

A bond indenture is

Accepted Answer

A)  a contract between the corporation issuing the bonds and the underwriters selling the bonds
B)  the amount due at the maturity date of the bonds
C)  a contract between the corporation issuing the bonds and the bond trustee,who is acting on behalf of the bondholders.
D)  the amount for which the corporation can buy back the bonds prior to the maturity dateE) C) and D)
F) A) and B)

Question 10

Debenture bonds are

Accepted Answer

A)  bonds secured by specific assets of the issuing corporation
B)  bonds that have a single maturity date
C)  issued only by the federal government
D)  issued on the general credit of the corporation and do not pledge specific assets as collateral.E) B) and D)
F) A) and C)

Question 11

The journal entry a company records for the payment of interest,interest expense,and amortization of bond discount is

Accepted Answer

A)  debit Interest Expense,credit Cash and Discount on Bonds Payable
B)  debit Interest Expense,credit Cash
C)  debit Interest Expense and Discount on Bonds Payable,credit Cash
D)  debit Interest Expense,credit Interest Payable and Discount on Bonds PayableE) B) and C)
F) All of the above

Question 12

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) C) and D)
F) A) and B)

Question 13

If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98,the gain on redemption of bonds is $10,000.

Accepted Answer

A) True 
 B)False

Question 14

The Merchant Company issued 10-year bonds on January 1,2011.The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1.The bonds were sold for $117,205 based on the market interest rate of 12%.Merchant uses the effective-interest method to amortize bond discounts and premiums.On July 1,2011,Merchant should record interest expense (round to the nearest dollar) of

Accepted Answer

A)  $7,032
B)  $7,500
C)  $8,790
D)  $14,065E) B) and D)
F) B) and C)

Question 15

On January 1,2014,the Horton Corporation issued 10% bonds with a face value of $200,000.The bonds are sold for $192,000.The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31,2018.Horton records straight-line amortization of the bond discount.The bond interest expense for the year ended December 31,2014,is

Accepted Answer

A)  $10,800
B)  $18,400
C)  $21,600
D)  $28,000E) B) and D)
F) B) and C)

Question 16

The face value of bonds is quoted as a percentage of the bonds' market value.

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 ´ 7% ´ 1/2),receiving cash of $884,171.Journalize the first interest payment and the amortization of the related bond discount using the straight-line method.Round answer to the nearest dollar.

Accepted Answer

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

Question 18

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 periodE) C) and D)
F) All of the above

Question 19

Sorenson Co. ,is considering the following alternative plans for financing their company:
  
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans,assuming income before bond interest and income tax is $1,000,000.

Accepted Answer

The answer of Sorenson Co. ,is considering the following alternative...

Question 20

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

Accepted Answer

A)  less than face value.
B)  equal to the face value.
C)  greater than face value.
D)  that cannot be determined.E) B) and C)
F) A) and D)

Exam 12: Long-Term Liabilities: Bonds and Notes

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

Correct Answer
verified

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Correct Answer
verified

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000.If the issuing corporation redeems the bonds at 101,what is the amount of gain or loss on redemption?

Correct Answer
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Correct Answer
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The effective-interest method of amortizing a bond discount or premium is the preferred method.

Correct Answer
verified

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

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

Sorenson Co. ,is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans,assuming income before bond interest and income tax is $1,000,000.

Correct Answer
verified

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 103,what is the amount of gain or loss on redemption?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

A bond indenture is

Correct Answer
verified

The journal entry a company records for the payment of interest,interest expense,and amortization of bond discount is

Correct Answer
verified

The face value of bonds is quoted as a percentage of the bonds' market value.

Correct Answer
verified

When the effective interest method of amortization is used,the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Correct Answer
verified

Sinking Fund Income is reported in the income statement as

Correct Answer
verified

Debenture bonds are

Correct Answer
verified

Bonds with a face amount $1,000,000,are sold at 96.The entry to record the issuance is

Correct Answer
verified

If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98,the gain on redemption of bonds is $10,000.

Correct Answer
verified

Correct Answer
verified

Exam 12: Long-Term Liabilities: Bonds and Notes

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

Correct AnswerverifiedShow Answer

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Correct AnswerverifiedShow Answer

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000.If the issuing corporation redeems the bonds at 101,what is the amount of gain or loss on redemption?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The effective-interest method of amortizing a bond discount or premium is the preferred method.

Correct AnswerverifiedShow Answer

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

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

Sorenson Co. ,is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans,assuming income before bond interest and income tax is $1,000,000.

Correct AnswerverifiedShow Answer

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 103,what is the amount of gain or loss on redemption?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bond indenture is

Correct AnswerverifiedShow Answer

The journal entry a company records for the payment of interest,interest expense,and amortization of bond discount is

Correct AnswerverifiedShow Answer

The face value of bonds is quoted as a percentage of the bonds' market value.

Correct AnswerverifiedShow Answer

When the effective interest method of amortization is used,the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Correct AnswerverifiedShow Answer

Sinking Fund Income is reported in the income statement as

Correct AnswerverifiedShow Answer

Debenture bonds are

Correct AnswerverifiedShow Answer

Bonds with a face amount $1,000,000,are sold at 96.The entry to record the issuance is

Correct AnswerverifiedShow Answer

If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98,the gain on redemption of bonds is $10,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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