Question 1

If bonds are issued at a premium,the stated interest rate is

Accepted Answer

A)  higher than the market rate of interest
B)  lower than the market rate of interest
C)  too low to attract investors
D)  adjusted to a higher rate of interestE) A) and B)
F) C) and D)

Question 2

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization,the effective interest rate method should be used.

Accepted Answer

A) True 
 B)False

Question 3

Calculate the total amount of interest expense over the life of the bonds for the following independent situations.​
(a)$100,000 face value,10%,10-year bonds issued at 101
(b)$240,000 face value,5%,five-year bonds issued at 100
(c)$300,000 face value,9%,six-year bonds issued at 98

Accepted Answer

(a)$100,000 × 0.01 = $1,000 premium$100,...

Question 4

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

Accepted Answer

A)  debit Interest Expense, credit Cash and Premium on Bonds Payable
B)  debit Interest Expense, credit Cash
C)  debit Interest Expense and Premium on Bonds Payable, credit Cash
D)  debit Interest Expense, credit Interest Payable and Premium on Bonds PayableE) A) and B)
F) None of the above

Question 5

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 6

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000.Journalize the redemption of the bonds.

Accepted Answer

The answer of A $375,000 bond issue on which there...

Question 7

To determine the six-month interest payment amount on a bond,you would take one-half of the market rate times the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 8

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Accepted Answer

A) True 
 B)False

Question 9

A bond is usually divided into a number of individual bonds of $500 each.

Accepted Answer

A) True 
 B)False

Question 10

Hayden Corporation issues 1,000,10-year,8%,$2,000 bonds dated January 1 at 92.The journal entry to record the issuance will show a

Accepted Answer

A)  credit to Discount on Bonds Payable for $160,000
B)  debit to Cash for $2,000,000
C)  credit to Bonds Payable for $2,000,000
D)  credit to Cash for $1,840,000E) A) and C)
F) None of the above

Question 11

Luke Corp.issued $2,000,000 of 20-year,9% callable bonds on July 1,Year 1,with interest payable on June 30 and December 31.The fiscal year of the company is the calendar year.Journalize the entries to record the following selected transactions:

Accepted Answer

The answer of Luke Corp.issued $2,000,000 of 20-year,9% callable bonds...

Question 12

Balance sheet and income statement data indicate the following:​  Based on the data presented above,what is the times interest earned ratio (round to two decimal places) ?

Accepted Answer

A)  5.72
B)  6.83
C)  4.72
D)  4.83E) A) and C)
F) B) and C)

Question 13

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 PayableE) A) and B)
F) B) and C)

Question 14

Balance sheet and income statement data indicate the following:​

Accepted Answer

The answer of Balance sheet and income statement data indicate...

Question 15

The higher the times interest earned ratio,the better the creditors' protection.

Accepted Answer

A) True 
 B)False

Question 16

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 bondholders
D)  the amount for which the corporation can buy back the bonds prior to the maturity dateE) A) and C)
F) All of the above

Question 17

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $316,000.The entry to record the redemption would include a

Accepted Answer

A)  loss on bond redemption of $3,000
B)  gain on bond redemption of $3,000
C)  gain on bond redemption of $4,000
D)  loss on bond redemption of $4,000E) A) and B)
F) B) and C)

Question 18

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 19

The present value of $60,000 to be received in one year,at 6% compounded annually,is (rounded to nearest dollar)

Accepted Answer

A)  $56,604
B)  $63,396
C)  $60,000
D)  $3,396E) All of the above
F) B) and C)

Question 20

Bonds Payable has a balance of $1,000,000,and Discount on Bonds Payable has a balance of $15,500.If the issuing corporation redeems the bonds at 98.5,what is the amount of gain or loss on redemption?

Accepted Answer

A)  $500 loss
B)  $15,500 loss
C)  $15,500 gain
D)  $500 gainE) C) and D)
F) A) and B)

Exam 14: Long-Term Liabilities: Bonds and Notes

Balance sheet and income statement data indicate the following:​ Based on the data presented above,what is the times interest earned ratio (round to two decimal places) ?

Correct AnswerverifiedShow Answer

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Correct AnswerverifiedShow Answer

A bond indenture is

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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

To determine the six-month interest payment amount on a bond,you would take one-half of the market rate times the face value of the bond.

Correct AnswerverifiedShow Answer

Bonds Payable has a balance of $1,000,000,and Discount on Bonds Payable has a balance of $15,500.If the issuing corporation redeems the bonds at 98.5,what is the amount of gain or loss on redemption?

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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

Hayden Corporation issues 1,000,10-year,8%,$2,000 bonds dated January 1 at 92.The journal entry to record the issuance will show a

Correct AnswerverifiedShow Answer

Luke Corp.issued $2,000,000 of 20-year,9% callable bonds on July 1,Year 1,with interest payable on June 30 and December 31.The fiscal year of the company is the calendar year.Journalize the entries to record the following selected transactions:

Correct AnswerverifiedShow Answer

Calculate the total amount of interest expense over the life of the bonds for the following independent situations.​ (a)$100,000 face value,10%,10-year bonds issued at 101 (b)$240,000 face value,5%,five-year bonds issued at 100 (c)$300,000 face value,9%,six-year bonds issued at 98

Correct Answerverified(a)$100,000 × 0.01 = $1,000 premium$100,...View AnswerShow Answer

A bond is usually divided into a number of individual bonds of $500 each.

Correct AnswerverifiedShow Answer

If bonds are issued at a premium,the stated interest rate is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The higher the times interest earned ratio,the better the creditors' protection.

Correct AnswerverifiedShow Answer

The present value of $60,000 to be received in one year,at 6% compounded annually,is (rounded to nearest dollar)

Correct AnswerverifiedShow Answer

Balance sheet and income statement data indicate the following:​

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.

Correct AnswerverifiedShow Answer

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000.Journalize the redemption of the bonds.

Correct AnswerverifiedShow Answer

When there are material differences between the results of using the straight-line method and using the effective interest rate method of amortization,the effective interest rate method should be used.

Correct AnswerverifiedShow Answer

A $300,000 bond was redeemed at 104 when the carrying value of the bond was $316,000.The entry to record the redemption would include a

Correct AnswerverifiedShow Answer

Balance sheet and income statement data indicate the following: Based on the data presented above,what is the times interest earned ratio (round to two decimal places) ?

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Calculate the total amount of interest expense over the life of the bonds for the following independent situations. (a)$100,000 face value,10%,10-year bonds issued at 101 (b)$240,000 face value,5%,five-year bonds issued at 100 (c)$300,000 face value,9%,six-year bonds issued at 98

Correct Answer
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(a)$100,000 × 0.01 = $1,000 premium$100,...
View Answer

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Balance sheet and income statement data indicate the following:

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