14) On January 1, Clive Corporation signed a $175,000, 8%, 30-year mortgage that requires
semiannual payments of $7,735 on June 30 and December 31 of each year. The journal entry to
record the second semiannual payment would be (round interest calculation to the nearest dollar)
to:
A) debit Interest Expense, $6,971; debit Mortgage expense, $764; credit Cash, $7,735.
B) debit Interest Expense, $764; debit Mortgage Payable, $6,971; credit Cash, $7,735.
C) debit Interest Expense, $6,971; debit Mortgage Payable, $764; credit Cash, $7,735.
D) debit Mortgage Payable, $7,735; credit Cash, $7,735.
15) Bonds from the same bond issue that mature at different times are called:
A) unsecured bonds.
B) term bonds.
C) convertible bonds.
D) serial bonds.
16) Bonds that may be retired at a prearranged price are called:
A) convertible bonds.
B) term bonds.
C) secured bonds.
D) callable bonds.
17) Bonds that mature all at the same time are:
A) serial bonds.
B) term bonds.
C) secured bonds.
D) callable bonds.
18) Bonds that are backed by collateral are:
A) unsecured bonds.
B) convertible bonds.
C) callable bonds.
D) secured bonds.
19) Bonds that are backed only by the credit of the issuing company are:
A) collateral bonds.
B) callable bonds.
C) unsecured bonds.
D) term bonds.
20) Debenture bonds are the same as:
A) term bonds.
B) serial bonds.
C) secured bonds.
D) unsecured bonds.
21) Bonds that can be exchanged for stock are called:
A) callable bonds.
B) serial bonds.
C) debenture bonds.
D) convertible bonds.
22) The amount that a borrower must pay back to the bondholders on the maturity date is the:
A) principal.
B) interest.
C) stated value.
D) market value.
23) The rate of interest that is printed on the bond is called the ________ rate of interest.
A) stated
B) market
C) variable
D) maturity
24) The rate of interest that investors are willing to receive for similar bonds of equal risk at the
current time is the ________ rate of interest.
A) stated
B) market
C) variable
D) maturity
25) If a bond’s stated rate of interest is equal to the market rate of interest, the bond will be issued
at:
A) a discount.
B) par.
C) a premium.
D) maturity value.
26) If the market rate of interest is greater than the bond’s stated rate of interest, the bond will be
issued at:
A) a discount.
B) par.
C) a premium.
D) maturity value.
27) If the market rate of interest is less than the bond’s stated rate of interest, the bond will be
issued at:
A) par.
B) a premium.
C) a discount.
D) maturity value.
28) If the bond’s stated rate of interest is greater than the market rate of interest, the bond will be
issued at:
A) a discount.
B) par.
C) a premium.
D) maturity value.
29) If the bond’s stated rate of interest is less than the market rate of interest, the bond will be
issued at:
A) maturity value.
B) a premium.
C) par.
D) a discount.
30) A $10,000 bond issue with a stated rate of interest of 7%, when the market rate of interest is
8%, means that the bond will be sold for:
A) $10,000.
B) more than $10,000.
C) less than $10,000.
D) the maturity value.
31) A $5,000 bond issue with a stated interest rate of 8%, when the market rate of interest is 8%,
means that the bond will sell for:
A) the maturity value.
B) $5,000.
C) more than $5,000.
D) less than $5,000.
32) A $25,000 bond issue with a stated interest rate of 5%, when the market rate of interest is
4%, means that the bond will sell for:
A) $25,000.
B) more than $25,000.
C) less than $25,000.
D) $35,000.
33) A $300,000 bond issue sold at 105 will cost:
A) $300,000.
B) $315,000.
C) $285.000.
D) whatever cost is negotiated.
34) A $150,000 bond issue sold at 93.8 will cost:
A) whatever cost is negotiated.
B) $150,000.
C) $159,300.
D) $140,700.
35) The journal entry to record $200,000 of bonds that were issued at 104 would be to:
A) debit Cash, $200,000; credit Bonds payable, $200,000.
B) debit Cash, $208,000; credit Bonds payable, $208,000.
C) debit Cash, $208,000; credit Bonds payable, $200,000; credit Premium on bonds payable,
$8,000.
D) debit Cash, $200,000; debit Discount on bonds payable, $8,000; credit Bonds payable,
$208,000.
36) The journal entry to record $200,000 of bonds that were issued at 97 would be to:
A) debit Cash, $194,000; debit Discount on bonds payable, $6,000; credit Bonds payable,
$200,000.
B) debit Cash, $194,000; credit Bonds payable, $194,000.
C) debit Cash, $200,000; credit Bonds payable, $194,000; credit Premium on bonds payable,
$6,000.
D) debit Cash, $200,000; credit Bonds payable, $200,000.
37) The journal entry to record $300,000 of bonds that were issued at 107 would be to:
A) debit Cash, $321,000; credit Bonds payable, $321,000.
B) debit Cash, $321,000; credit Bonds payable, $300,000; credit Premium on bonds payable,
$21,000.
C) debit Cash, $300,000; credit Bonds payable, $300,000.
D) debit Cash, $300,000; debit Discount on bonds payable, $21,000; credit Bonds payable,
$321,000.
38) The journal entry to record $300,000 of bonds that were issued at 95 would be to:
A) debit Cash, $300,000; credit Bonds payable, $285,000; credit Premium on bonds payable,
$15,000.
B) debit Cash, $285,000; credit Bonds payable, $285,000.
C) debit Cash, $300,000; credit Bonds payable, $300,000.
D) debit Cash, $285,000; debit Discount on bonds payable, $15,000; credit Bonds payable,
$300,000.
39) $300,000 of 10%, 20-year bonds were sold for $320,000 on January 1. The bonds require
semiannual interest payments on June 30 and December 31. The entry to record the June 30
interest payment on the bonds would be to:
A) debit Interest Expense $15,000; credit Cash, $15,000.
B) debit Interest Expense $15,500; credit Premium on bonds payable, $500; credit Cash,
$15,000.
C) debit Interest Expense $14,500; debit Premium on bonds payable, $500; credit Cash, $15,000.
D) debit Interest Expense $14,500; credit Cash, $14,500.
40) $500,000 of 8%, 10-year bonds were sold for $530,000 on January 1. The bonds require
semiannual interest payments on June 30 and December 31. The entry to record the June 30
interest payment on the bonds would be to:
A) debit Interest Expense $18,500; debit Premium on bonds payable, $1,500; credit Cash,
$20,000.
B) debit Interest Expense $18,500; credit Cash, $18,500.
C) debit Interest Expense $21,500; credit Premium on bonds payable, $1,500; credit Cash,
$20,000.
D) debit Interest Expense $20,000; credit Cash, $20,000.
41) $200,000 of 6%, 25-year bonds were sold for $190,000 on January 1. The bonds require
semiannual interest payments on June 30 and December 31. The entry to record the June 30
interest payment on the bonds would be to:
A) debit Interest Expense $6,000; credit Cash, $6,000.
B) debit Interest Expense $6,200; credit Discount on bonds payable, $200; credit Cash, $6,000.
C) debit Interest Expense $5,800; debit Discount on bonds payable, $200; credit Cash, $6,000.
D) debit Interest Expense $6,200; credit Cash, $6,200.
42) $400,000 of 12%, 10-year bonds were sold for $380,000 on January 1. The bonds require
semiannual interest payments on June 30 and December 31. The entry to record the June 30
interest payment on the bonds would be to:
A) debit Interest Expense $24,000; credit Cash, $24,000.
B) debit Interest Expense $23,000; debit Discount on bonds payable, $1,000; credit Cash,
$24,000.
C) debit Interest Expense $25,000; credit Cash, $25,000.
D) debit Interest Expense $25,000; credit Discount on bonds payable, $1,000; credit Cash,
$24,000.
43) A $250,000 issue of bonds that sold for $275,000 matures on June 25, 2020. The journal
entry to record the payment of the bond on the maturity date is to:
A) debit Cash, $250,000; credit Bonds payable, $250,000.
B) debit Bonds payable, $250,000; credit Cash, $250,000.
C) debit Cash, $275,000; credit Bonds payable, $275,000.
D) debit Bonds payable, $275,000; credit Cash, $275,000.
44) A $400,000 issue of bonds that sold for $363,000 matures on August 1, 2015. The journal
entry to record the payment of the bond on the maturity date is to:
A) debit Cash, $400,000; credit Bonds payable, $400,000.
B) debit Bonds payable, $400,000; credit Cash, $400,000.
C) debit Cash, $363,000; credit Bonds payable, $363,000.
D) debit Bonds payable, $363,000; credit Cash, $363,000.
45) Bonds payable minus the Discount on bonds payable yields the:
A) maturity value.
B) annual interest.
C) carrying amount.
D) principle amount.
46) Discount on bonds payable and Premium on bonds payable are examples of:
A) contra-accounts.
B) companion accounts.
C) estimated accounts.
D) equity accounts.
47) If a $6,000, 10 percent, 10-year bond was issued at 104 on October 1, how much will
accrued interest payable be on December 31 if interest payments are made annually?
A) $104
B) $144
C) $150
D) $156
48) If a $15,000, 8 percent, 20-year bond was issued at 96 on November 1, how much will
accrued interest payable be on December 31 if interest payments are made annually?
A) $200
B) $195
C) $205
D) $192
49) On October 31, 2014, Aspen Inc. recorded their semi-annual bond interest expense that
contained a credit to Discount on bonds payable of $1,200. The adjusting entry on December 31,
2014 will show a credit to Discount on bonds payable of:
A) $1,200.
B) $800.
C) $600.
D) $400.
50) On September 30, 2014, Arctic Enterprises recorded their semi-annual bond interest expense
that contained a credit to Discount on bonds payable of $1,600. The adjusting entry on December
31, 2014 will show a credit to Discount on bonds payable of:
A) $1,200.
B) $800.
C) $600.
D) $400.
51) Which of the following would be treated as a rental agreement?
A) Capital leases
B) Operating leases
C) Expense leases
D) Revenue leases
52) Leases that are treated as financed purchases are called:
A) capital leases.
B) operating leases.
C) expense leases.
D) revenue leases.
53) Which of the following is NOT a requirement of a capital lease?
A) Ownership does not transfer at lease end.
B) The agreement has a bargain purchase option.
C) The lease must cover at least 75% of asset’s useful life.
D) The present value of lease payments must be 90% or more of market value of asset.
54) Capital leases are most similar to:
A) Accounts Payable.
B) unearned revenue.
C) mortgage notes.
D) regular Notes Payable.
55) With regard to long-term debt, collateral represents?
A) A long-term note payable secured with real estate
B) A guarantee that a product is free from defect
C) Assets pledged to secure repayment of a loan
D) A long-term interest bearing note payable
56) What is the purpose of a bond discount?
A) It raises the bond interest rate to the market interest rate at the time the bond was issued.
B) It decreases the bond interest rate to the market interest rate at the time the bond was issued.
C) It increases the periodic cash interest payments paid to those who purchased the bond.
D) It decreases the periodic cash interest payments paid to those who purchased the bond.
57) When a company issues bonds, what are they doing?
A) The company is loaning money to third parties.
B) The company is borrowing money from third parties.
C) The company is selling part of itself.
D) The company is guaranteeing the products they sell.
9.6 Questions
1) Accounts Payable is generally listed first under long-term debt.
2) Contingent liabilities pose an ethical challenge because they’re based on past events, they are
easier to manipulate.