132)
A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds
were issued was 6.5%. The company received $102,105 cash for the bonds. Using the effective
interest method, the amount of recorded interest expense for the first semiannual interest period is:
A) $7,000.00. B) $1,750.00. C) $3,318.41. D) $6,573.90. E) $3,500.00.
133)
A company may retire bonds by all but which of the following means?
A)
Paying them off at maturity.
B)
The holders converting them to stock.
C)
Purchasing the bonds on the open market.
D)
Paying all future interest and cancelling the debt.
E)
Exercising a call option.
134)
Bonds that give the issuer an option of retiring them before they mature are:
A)
Registered bonds.
B)
Sinking fund bonds.
C)
Serial bonds.
D)
Callable bonds.
E)
Debentures.
135)
A company has bonds outstanding with a par value of $100,000. The unamortized discount on
these bonds is $4,500. The company retired these bonds by buying them on the open market at 97.
What is the gain or loss on this retirement?
A) $1,500 loss.
B) $3,000 loss.
C) $3,000 gain.
D)
$0 gain or loss.
E) $1,500 gain.
136)
Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of
$97,300. If the company calls these bonds at a price of $95,000, the gain or loss on retirement is:
A) $2,700 loss.
B) $2,300 loss.
C) $2,300 gain.
D) $5,000 loss.
E) $2,700 gain.
137)
A company has bonds outstanding with a par value of $100,000. The unamortized premium on
these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on
this retirement is:
A) $1,000 loss.
B) $3,700 gain.
C) $2,700 gain.
D) $1,000 gain.
E) $2,700 loss.
138)
Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of
$203,000. If the company calls these bonds at a price of $201,000, the gain or loss on retirement is:
A) $1,000 loss.
B) $3,000 gain.
C) $2,000 loss.
D) $2,000 gain.
E) $1,000 gain.
139)
A company retires its bonds at 105. The face value is $100,000 and the carrying value of the bonds
at the retirement date is $103,745. The issuer’s journal entry to record the retirement will include a:
A)
Credit to Gain on Bond Retirement.
B)
Credit to Bonds Payable.
C)
Debit to Premium on Bonds.
D)
Debit to Discount on Bonds.
E)
Credit to Premium on Bonds.
140)
A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On
the interest date 5 years later, after the bond interest was paid and after 40% of the premium had
been amortized, the corporation purchased the entire issue on the open market at 99 and retired it.
The gain or loss on this retirement is:
A) $10,000 loss.
B) $22,000 gain.
C) $0.
D) $10,000 gain.
E) $22,000 loss.
141)
On August 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note
requires equal payments of principal plus accrued interest be paid each year on July 31. The present
value of an annuity factor for 3 years at 6% is 2.6730. The present value of a single sum factor for
3 years at 6% is 0.8396. The payment each July 31 will be:
A) $80,190,00.
B) $10,000.00.
C) $10,400.00.
D) $11,223.34.
E) $1,223.34.
142)
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note
requiring equal payments each June 30 of $37,258. What is the appropriate journal entry to record
the issuance of the note?
A)
Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258.
B)
Debit Cash $37,258; credit Notes Payable $37,258.
C)
Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable $250,000.
D)
Debit Cash $250,000; credit Notes Payable $250,000.
E)
Debit Notes Payable $250,000; credit Cash $250,000.
143)
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note
requiring equal payments each June 30 of $37,258. What amount of interest expense will be
included in the first annual payment?
A) $37,258 B) $20,000 C) $232,742 D) $25,000 E) $17,258
144)
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note
requiring equal payments each June 30 of $37,258. What amount of principal will be included in
the first annual payment?
A) $17,258 B) $232,742 C) $20,000 D) $37,258 E) $25,000
145)
On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note
requiring equal payments each June 30 of $37,258. What is the journal entry to record the first
annual payment?
A)
Debit Interest Expense $20,000; debit Interest Payable $17,258; credit Cash $37,258.
B)
Debit Interest Expense $20,000; credit Cash $20,000.
C)
Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258.
D)
Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258.
E)
Debit Interest Expense $37,258; credit Cash $37,258.
146)
A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal
annual payments each December 31 of $32,136. What journal entry would the issuer record for the
first payment?
A)
Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
B)
Debit Notes Payable $11,250; credit Cash $11,250.
C)
Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
D)
Debit Notes Payable $32,136; credit Cash $32,136.
E)
Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
147)
On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note
payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each
December 31 for 10 years. The required general journal entry to record the first payment on the
note on December 31, Year 1 is:
A)
Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
B)
Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.
C)
Debit Notes Payable $14,238; credit Cash $14,238.
D)
Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
E)
Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.
148)
On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note
payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each
December 31 for 10 years. The required general journal entry to record the payment on the note on
December 31, Year 2 is:
A)
Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238.
B)
Debit Notes Payable $14,238; credit Cash $14,238.
C)
Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
D)
Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
E)
Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.
149)
On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds
mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and
December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to
record the issuance of the bond is:
A)
Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable
$312,177.
B)
Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable
$300,000.
C)
Debit Cash $312,177; credit Bonds Payable $312,177.
D)
Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177.
E)
Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable
$300,000.
77
150)
On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds
mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and
December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to
record the first interest payment using straight-line amortization is:
A)
Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit
Cash $13,500.00.
B)
Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit
Cash $13,500.00.
C)
Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit
Cash $13,500.00.
D)
Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit
Cash $13,500.00.
E)
Debit Interest Payable $13,500; credit Cash $13,500.00.
151)
On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds
mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and
December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to
record the first interest payment using the effective interest method of amortization is:
A)
Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit
Cash $13,500.00.
B)
Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit
Cash $13,500.00.
C)
Debit Interest Payable $13,500; credit Cash $13,500.00.
D)
Debit Bond Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit
Cash $13,500.00.
E)
Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash
$13,500.00.
152)
Marwick Corporation issues 8%, 5-year bonds with a par value of $1,000,000 and semiannual
interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond’s
issue (selling) price, assuming the following Present Value factors:
Present Value of an
n=
i=
Annuity
Present value of $1
5
8 %
3.9927
0.6806
10
4 %
8.1109
0.6756
5
6 %
4.2124
0.7473
10
3 %
8.5302
0.7441
A) $1,085,308
B) $658,792
C) $1,341,208
D) $1,000,000
E) $789,244
153)
Sharmer Company issues 5%, 5-year bonds with a par value of $1,000,000 and semiannual interest
payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond’s issue
(selling) price, assuming the following factors:
Present Value of an
n=
i=
Annuity
Present value of $1
5
5 %
4.3295
0.7835
10
3 %
8.7521
0.7812
5
6 %
4.2124
0.7473
10
3 %
8.5302
0.7441
A) $1,213,255
B) $957,355
C) $1,000,000
D) $786,745
E) $1,250,000