53) Assuming no adjusting journal entries have been made, the journal entry to record the cash
interest payment on the due date for bonds issued at a discount results in which of the following?
A) An increase in expenses and a decrease in liabilities.
B) An increase in expenses and an increase in liabilities.
C) A decrease in both liabilities and stockholders’ equity.
D) A decrease in both assets and liabilities.
54) Zero coupon bonds are bonds that are issued:
A) With a zero effective interest rate.
B) At a rate that provides a large discount at issuance.
C) At a rate that has zero difference between the coupon rate and the market rate of interest.
D) As bonds that will have zero amortization recorded over the life of the bond.
55) On November 1, 2019, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The
bonds were dated November 1, 2019, and interest is payable each November 1 and May 1. Davis
uses the straight-line method of amortization.
How much is the amount of discount amortization on each semiannual interest date?
A) $90.
B) $45.
C) $900.
D) $450.
56) On November 1, 2019, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The
bonds were dated November 1, 2019, and interest is payable each November 1 and May 1. Davis
uses the straight-line method of amortization.
How much is the semiannual interest expense when the straight-line method of amortization is
utilized?
A) $2,010.
B) $2,190.
C) $1,095.
D) $2,055.
57) On November 1, 2019, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The
bonds were dated November 1, 2019, and interest is payable each November 1 and May 1. Davis
uses the straight-line method of amortization.
How much is the book value of the bonds after the November 1, 2020 interest payment was
recorded using the straight-line method of amortization?
A) $29,010.
B) $29,100.
C) $29,190.
D) $29,280.
58) On November 1, 2019, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The
bonds were dated November 1, 2019, and interest is payable each November 1 and May 1. Davis
uses the straight-line method of amortization.
Which of the following is incorrect with regard to the Davis bonds when the straight-line
method of amortization is utilized?
A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued.
B) The semiannual interest expense is $1,095.
C) The book value of the bonds increases $45 every six months.
D) The semiannual interest expense is less than the semiannual cash interest payment.
59) On January 1, 2019, Tonika Company issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective
interest rate. Tonika uses the effective-interest amortization method.
The interest expense on the income statement for the year ended December 31, 2019 is closest
to:
A) $677.
B) $883.
C) $773.
D) $700.
60) On January 1, 2019, Tonika Company issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective
interest rate. Tonika uses the effective-interest amortization method.
Rounding calculations to the nearest whole dollar, which of the following journal entries
correctly records the 2019 interest expense?
A)
Interest expense
700
Cash
700
B)
Interest expense
883
Bond discount
183
Cash
700
C)
Interest expense
773
Bond discount
73
Cash
700
D)
Interest expense
676
Bond discount
24
Cash
700
61) On January 1, 2019, Tonika Company issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective
interest rate. Tonika uses the effective-interest amortization method.
The book value of the bonds as of December 31, 2019 is closest to:
A) $8,968.
B) $9,945.
C) $9,641.
D) $9,741.
62) On January 1, 2019, Tonika Company issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective
interest rate. Tonika uses the effective-interest amortization method.
The 2020 interest expense is closest to:
A) $779.
B) $796.
C) $677.
D) $700.
63) On January 1, 2019, Tonika Company issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective
interest rate. Tonika uses the effective-interest amortization method.
The December 31, 2020 book value after the December 31, 2020 interest payment was made is
closest to:
A) $9,662.
B) $9,820.
C) $9,668.
D) $9,723.
64) On January 1, 2019, Broker Corp. issued $3,000,000 par value 12%, 10-year bonds which
pay interest each December 31. If the market rate of interest was 14%, what was the issue price
of the bonds? (The present value factor for $1 in 10 periods at 12% is 0.3220 and at 14% is
0.2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14%
is 5.2161.)
A) $3,339,084.
B) $2,843,172.
C) $3,000,000.
D) $2,686,896.
65) On January 1, 2019, Jason Company issued $5 million of 10-year bonds at a 10% coupon
interest rate to be paid annually. The following present value factors have been provided:
Time Period
Interest
PV of $1
PV of a $1 Annuity
10
10%
0.386
6.140
10
8%
0.463
6.710
10
12%
0.322
5.650
What was the issuance price of the bonds if the market rate of interest was 8%?
A) $5,000,000.
B) $5,670,000.
C) $5,387,500.
D) $5,712,500.
66) On January 1, 2019, Jason Company issued $5 million of 10-year bonds at a 10% coupon
interest rate to be paid annually. The following present value factors have been provided:
Time Period
Interest
PV of $1
PV of a $1 Annuity
10
10%
0.386
6.140
10
8%
0.463
6.710
10
12%
0.322
5.650
Calculate the issuance price if the market rate of interest is 12%.
A) $4,427,500.
B) $4,477,500.
C) $4,435,000.
D) $5,000,000.
67) On January 1, 2019, Jason Company issued $5 million of 10-year bonds at a 10% coupon
interest rate to be paid annually. The following present value factors have been provided:
Time Period
Interest
PV of $1
PV of a $1 Annuity
10
10%
0.386
6.140
10
8%
0.463
6.710
10
12%
0.322
5.650
Calculate the issuance price if the market rate of interest was 10%.
A) $5,427,000.
B) $4,477,000.
C) $4,435,000.
D) $5,000,000.
68) Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds
mature in ten years. The bonds were issued at $48,000. Gammell Company uses the straight-line
method of amortization.
What is the amount of the annual interest expense?
A) $4,700.
B) $4,300.
C) $4,500.
D) $4,680.
69) Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds
mature in ten years. The bonds were issued at $48,000. Gammell Company uses the straight-line
method of amortization.
Which of the following statements is incorrect?
A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued.
B) The annual interest expense exceeds the annual cash interest payment by $200.
C) The annual increase in the bond book value is $200.
D) The annual interest expense is $4,300.
70) Which of the following statements incorrectly describes the accounting for bonds that were
issued at a premium?
A) The market rate of interest is less than the coupon interest rate.
B) The interest expense over the life of the bonds will be less than the cash interest payments.
C) The present value of the bonds’ future cash flows is less than the bonds’ maturity value.
D) The book value of the bond liability decreases when interest payments are made on the due
dates.
71) Which of the following statements correctly describes the accounting for bonds that were
issued at a premium?
A) The interest expense over the life of the bond is less than the total cash interest payments.
B) The interest expense over the life of the bonds increases as the bonds mature when the
effective interest method is used.
C) The amount of amortization of the premium on bonds payable decreases as the bonds mature
when the effective interest method is used.
D) The book value of the bond liability increases when interest payments are made on the due
dates when the effective interest method of amortization is used.
72) Assuming no adjusting journal entries have been made during the year, the journal entry on
the due date of the cash interest payment for bonds issued at a premium has just been prepared.
Which of the following is not an effect of the entry?
A) An increase in expenses and a decrease in liabilities.
B) An increase in expenses and an increase in liabilities.
C) A decrease in both liabilities and stockholders’ equity.
D) A decrease in both assets and liabilities.
73) On July 1, 2019, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000.
The bonds were dated July 1, 2019, and semiannual interest will be paid each December 31 and
June 30. Garden Works Inc. uses the straight-line method of amortization.
What is the amount of the semiannual interest expense?
A) $14,000.
B) $14,150.
C) $10,350.
D) $11,000.
74) On July 1, 2019, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000.
The bonds were dated July 1, 2019, and semiannual interest will be paid each December 31 and
June 30. Garden Works Inc. uses the straight-line method of amortization.
What is the net amount of the bond liability to be reported on the December 31, 2019 balance
sheet?
A) $300,000.
B) $302,850.
C) $302,700.
D) $303,000.
75) On July 1, 2019, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000.
The bonds were dated July 1, 2019, and semiannual interest will be paid each December 31 and
June 30. Garden Works Inc. uses the straight-line method of amortization.
What is the net amount of the bond liability to be reported on the December 31, 2020 balance
sheet?
A) $300,000.
B) $302,550.
C) $302,700.
D) $303,000.
76) On July 1, 2019, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000.
The bonds were dated July 1, 2019, and semiannual interest will be paid each December 31 and
June 30. Garden Works Inc. uses the straight-line method of amortization. Which of the
following statements is incorrect?
A) The market rate of interest was less than the coupon rate of interest on July 1, 2019.
B) The interest expense during the life of the bonds is $3,000 less than the cash interest payments
during the life of the bonds.
C) The book value of the bond liability decreases by $300 per year.
D) The semiannual interest expense is $300 less than the semiannual interest payment.
77) Mayberry, Inc., issued $100,000 of 10-year, 12% bonds dated April 1, 2019, for $102,360 on
April 1, 2019. The bonds pay interest annually on April 1, beginning in 2020. Straight-line
amortization is used by the company. What entry is required at April 1, 2020 for the first interest
payment?
A)
Interest expense
11,764
Premium on bonds payable
236
Cash
12,000
B)
12,236
236
12,000
C)
12,000
236
12,236
D)
12,000
12,000
78) On January 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is
payable semiannually on June 30 and December 31. The issue price was $413,153 based on a
10% market interest rate. The effective-interest method of amortization is used.
Rounding all calculations to the nearest whole dollar, what is the interest expense for the six-
month period ending June 30, 2019?
A) $24,000.
B) $24,789.
C) $20,000.
D) $20,658.
79) On January 1, 2019, a company issued $400,000 of 10-year, 12% bonds. The interest is
payable semiannually on June 30 and December 31. The issue price was $413,153 based on a
10% market interest rate. The effective-interest method of amortization is used.
What is the book value of the bond liability as of June 30, 2019 (to the nearest dollar)?
A) $400,000.
B) $416,495.
C) $403,342.
D) $409,811.