22) On October 1, Alex Company issued 8%, 10-year, $400,000 bonds at 108. Interest dates are April 1 and
October 1. The amount of cash paid out for interest during the current calendar year is:
A) $0.
B) $32,000.
C) $16,000.
D) $8,000.
23) On April 1, Braintree Corporation issued 10%, 10-year, $800,000 bonds at 110. Interest dates are April
1 and October 1. The amount of cash paid out for interest during the current calendar year is:
A) $0.
B) $40,000.
C) $80,000.
D) $20,000
24) Mansfield Corporation sells $900,000, 13%, 10-year bonds for 98 on January 1. Interest is paid on
January 1 and July 1. Straight-line amortization is used. The entry to record the issuance of the bonds on
January 1 is:
A)
Cash 900,000
Bonds Payable 900,000
B)
Cash 900,000
Discount on Bonds Payable 18,000
Bonds Payable 882,000
C)
Cash 882,000
Bonds Payable 882,000
D)
Cash 882,000
Discount on Bonds Pay. 18,000
Bonds Payable 900,000
25) Bonds are issued for $80,000 at face value with 6% interest on October 1. What is the adjusting entry
on December 31?
A)
Bond Interest Expense 4,800
Bond Interest Payable 4,800
B)
Bond Interest Expense 1,200
Bond Interest Payable 1,200
C)
Bond Interest Payable 1,200
Bond Interest Expense 1,200
D)
Bond Interest Payable 4,800
Bond Interest Expense 4,800
26) Bonds are issued for $100,000 at face value on September 1. The stated interest is 12% and interest is
paid on September 1 and March 1. What is the adjusting entry on December 31? (Do not round any
intermediate calculations. Round your final answer to the nearest dollar.)
A)
Bond Interest Expense 4,000
Bond Interest Payable 4,000
B)
Bond Interest Expense 3,000
Bond Interest Payable 3,000
C)
Bond Interest Expense 2,000
Bond Interest Payable 2,000
D)
Bond Interest Payable 12,000
Bond Interest Payable 12,000
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27) James issued bonds for $30,000 at face value on July 1. 14% interest payments are due January 1 and
July 1. What is the adjusting entry on December 31?
A)
Bond Interest Expense 969
Bond Interest Payable 969
B)
Bond Interest Expense 2,100
Bond Interest Payable 2,100
C)
Bond Interest Payable 4,200
Bond Interest Expense 4,200
D)
Bond Interest Payable 1,750
Bond Interest Expense 1,750
28) When making the adjustment for accrued interest, the Bond Premium account was not taken into
account. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be understated.
C) the period’s net income to be understated.
D) None of the above is correct.
29) When making the adjustment for accrued interest the Bond Discount account was not taken into
consideration. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be understated.
C) the period’s net income to be overstated.
D) Both B and C are correct.
30) On October 1, Indiana Company issued $40,000, 10%, 5-year bonds at 102. What is the adjusting entry
on December 31 using the straight-line method?
A)
Bond Interest Expense 4,000
Bond Interest Payable 4,000
B)
Bond Interest Expense 1,000
Bond Interest Payable 1,000
C)
Bond Interest Expense 960
Premium on Bonds Payable 40
Bond Interest Payable 1,000
D)
Bond Interest Expense 1,040
Premium on Bonds Payable 40
Bond Interest Payable 1,000
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31) On October 1, Pile Company issued $60,000, 9%, 5-year bonds at 96. What is the adjusting entry on
December 31 using the straight-line method?
A)
Bond Interest Expense 5,400
Bond Interest Payable 5,400
B)
Bond Interest Expense 1,350
Bond Interest Payable 1,350
C)
Bond Interest Expense 1,230
Discount on Bonds Payable 120
Bond Interest Payable 1,350
D)
Bond Interest Expense 1,470
Discount on Bonds Payable 120
Bond Interest Payable 1,350
32) At year end there was no accrual of interest on a bond payable. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period’s net income to be understated.
D) None of the above
33) Evans Corporation sells $400,000, 12%, 10-year bonds for 98 on January 1. Compute the semiannual
interest expense recorded on July 1 using the interest method. The market rate is 15%.
A) $29,400
B) $60,000
C) $48,000
D) $58,800
34) Davis Corporation sells $200,000, 12%, 10-year bonds for 104 on January 1. Compute the semiannual
interest expense recorded on July 1 using the interest method. The market rate is 8%.
A) $12,000
B) $4,160
C) $8,320
D) $6,000
35) A discount amortization does not affect the amount of cash paid for bond interest.
36) When the amount received for the bond is less than the face value, the difference is written off over
time in an account called Premium on Bonds Payable.
37) A bond issue of $500,000 sold at 107 has a bond discount of $35,000.
38) The straight-line method for amortization of bonds allocates equal amounts of premium to Bonds
Interest Expense each period.
39) At maturity, the Premium on Bonds will have a balance equal to zero.
40) When a bond is sold at a discount, the person buying the bond receives less interest than if the bond
had been purchased at face value.
41) A bond’s discount is amortized over the term of the bond.
42) Bonds discount and bonds premium are expenses to the corporation.
43) The carrying value of a bond sold at a(n) ________ falls over time until it reaches the face value.
44) A discount bond’s ________ increases over time until it reaches face value.
Using the following accounts:
[1] Cash
[2] Bond Sinking fund
[3] Equipment
[4] Building
[5] Land
[6] Accounts payable
[7] Notes payable
[8] Bond payable
[9] Bond interest payable
[10] Premium on bonds payable
[11] Discount on bonds payable
[12] Common stock
[13] Retained earnings
[14] Sinking fund earned
[15] Bond interest expense
[16] Gain on retirement
[17] Loss on retirement
Indicate the account(s) to be debited and credited to record the following transactions.
45) Accrued interest on bonds which sold at face value.
Debit ________ Credit ________
46) Accrued interest on bonds which sold beneath face value.
Debit ________ Credit ________ & ________
47) Accrued interest on bonds which sold above face value.
Debit ________ & ________ Credit ________
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48) On July 1, Ball Computer Corporation issued 10-year, 8%, $200,000 bonds for 96. Interest is due June
30 and December 31. Prepare the journal entries to record:
a. Issuance of the bond.
b. First semiannual interest period payment including the amortization of the discount using the straight–
line method.
49) On January 1, Pearson Corporation issued 5%, 20-year bonds at 105. The face value is $300,000 and
interest is paid semiannually. Interest is paid January 1 and July 1. Prepare the journal entries to record::
a. Issuance of the bonds.
b. First semiannual interest payment and amortization of the premium using the straight-line method.
Answer:
50) Northern Union Pacific is planning to issue 10-year, 10% semiannual interest bonds with a par value
of $100,000.
Required: Prepare the necessary journal entry under each of the following assumptions.
a. The bonds are sold on issuance date at par.
b. The bonds are sold on issuance date at 96.
c. The bonds are sold on issuance date at 103.
51) Crafton Corporation is planning to issue 5-year, 8%, semiannual interest bonds with a face value of
$500,000.
Required: Prepare the necessary journal entry under each of the following assumptions.
a. The bonds are sold on issuance date at par.
b. The bonds are sold on issuance date at 97.
c. The bonds are sold on issuance date at 105.