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Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 31
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
78. The journal entry a company records for the interest payment and amortization of bond discount is
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 Payable
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
79. The journal entry a company records for the interest payment and amortization of bond premium is
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 Payable
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
80. On January 1, the Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 32
$46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten
years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year
ended December 31 of the first year is
a.
$5,000
b.
$5,200
c.
$5,800
d.
$5,400
ANSWER:
d
RATIONALE:
Bond interest expense = {[(Face value of bonds × 10% × 1/2 year)] + [Discount on
issue ÷ (10 years × 2)]} × 2 = {[$50,000 × 10% × 1/2 year] + [($50,000 – $46,000) /
(10 years × 2)]} × 2 = $5,400
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
81. Eddie Industries issues $1,500,000 of 8% bonds at 105. The amount of cash received from the sale is
a.
$1,425,000
b.
$1,080,000
c.
$1,000,000
d.
$1,575,000
ANSWER:
d
RATIONALE:
The amount of cash received from the sale of bonds = Face value of bonds × Bond
quote = $1,500,000 × 1.05 = $1,575,000
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
82. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a.
at a premium
b.
at face value
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 33
c.
at a discount
d.
only after the stated rate of interest is increased
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
83. The interest expense recorded on an interest payment date is increased
a.
only if the market rate of interest is less than the stated rate of interest on that date
b.
by the amortization of premium on bonds payable
c.
by the amortization of discount on bonds payable
d.
only if the bonds were sold at face value
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
84. On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. Interest is paid semiannually on January 1
and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual
amortization amount is
a.
$8,000
b.
$2,000
c.
$4,000
d.
$10,000
ANSWER:
c
RATIONALE:
Semiannual discount amortization amount = (Face value – Issue price) / (5 × 2) =
($2,000,000 – $1,960,000) / 10 = $4,000
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Copyright Cengage Learning. Powered by Cognero.
Page 36
89. The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the
issuance will show a
a.
debit to Discount on Bonds Payable for $80,000
b.
debit to Cash of $2,000,000
c.
credit to Bonds Payable for $1,920,000
d.
credit to Cash for $1,920,000
ANSWER:
a
RATIONALE:
Discount on Bonds Payable = Face value of bond – Cash received from the issuance of
bonds = ($2,000 × 1,000) – ($2,000 × 1,000 × 0.96) = $2,000,000 – $1,920,000 =
$80,000
The journal entry to record the issuance will show a debit to Discount on Bonds
Payable for $80,000.
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
90. The 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
a.
credit to Discount on Bonds Payable for $160,000
b.
debit to Cash of $2,000,000
c.
credit to Bonds Payable for $2,000,000
d.
credit to Cash for $1,840,000
ANSWER:
c
RATIONALE:
Credit to Bonds Payable = Face value of bond × Number of bonds = $2,000 × 1,000 =
$2,000,000
The journal entry to record the issuance will show a credit to Bonds Payable for
$2,000,000.
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
Copyright Cengage Learning. Powered by Cognero.
Page 37
91. Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is
a.
Cash 1,000,000
Premium on Bonds Payable 60,000
Bonds Payable 1,060,000
b.
Cash 1,060,000
Premium on Bonds Payable 60,000
Bonds Payable 1,000,000
c.
Cash 1,060,000
Discount on Bonds Payable 60,000
Bonds Payable 1,000,000
d.
Cash 1,060,000
Bonds Payable 1,060,000
ANSWER:
b
RATIONALE:
Premium on issue of bonds = Cash received from the issuance of bonds – Face value
of bonds = ($1,000,000 × 1.06) – ($1,000,000) = $60,000
The journal entry to record the issuance is
Debit
Credit
Cash
1,060,000
Premium on Bonds Payable
60,000
Bonds Payable
1,000,000
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
92. Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is
a.
Cash 1,000,000
Premium on Bonds Payable 20,000
Bonds Payable 980,000
b.
Cash 980,000
Premium on Bonds Payable 20,000
Bonds Payable 1,000,000
c.
Cash 980,000
Discount on Bonds Payable 20,000
Bonds Payable 1,000,000
d.
Cash 980,000
Bonds Payable 980,000
ANSWER:
c
RATIONALE:
Discount on bonds payable = Face value of bonds – Cash received from the issuance
