43) On May 1, 2009, DS Company borrowed $50,000 at 7% to buy a machine. The loan will be
repaid in equal annual payments at the end of each of the next 5 years, beginning May 1, 2010.
Part A: What is the annual payment on the $50,000 loan?
Part B: Complete the amortization schedule for the five years of the loan repayment:
Mortgage
balance
Annual
payment
Interest portion
of mortgage
Amount of mortgage
reduction
Beginning
balance
$50,000
1st
After 1st payment
2nd
After 2nd payment
3rd
After 3rd payment
4th
After 4th payment
5th
After 5th payment
0
Interest portion
of mortgage
Amount of mortgage
reduction
Beginning
balance
1st
After 1st
payment
2nd
After 2nd
payment
3rd
After 3rd
payment
4th
payment
5th
After 5th
payment
44) On January 1, 2011, the company borrowed $200,000 from Suwannee Local Bank for 10
years at 6%. The company will make equal annual payments of $27,173.58 on December 31 of
each year, beginning December 31, 2011.
Part A: Complete the amortization schedule for the first four loan payments:
Mortgage
balance
Annual
payment
Interest portion of
mortgage
Amount of
mortgage reduction
Beginning balance
$200,000
1st
After 1st payment
2nd
After 2nd payment
3rd
After 3rd payment
4th
Part B: Select the column that represents the financial statement where the line item will appear.
Then fill in the correct dollar amount.
Income
Statement
Statement of Cash
Flows
Balance Sheet
1
Interest expense for 2011
2
Mortgage payable at
December 31,2011
3
Interest paid in 2011
4
Loan principal paid in 2011
5
Interest expense for 2012
6
Mortgage payable at
December 31, 2012
7
Interest paid in 2012
8
Loan principal paid in 2012
45) B. Row, Inc. needed some long-term financing and arranged for a 10-year, $100,000, 7%
mortgage loan on January 1, 2010. Annual payments of $14,238 will be made on December 31
each year. Round to the nearest dollar.
Part A: Show the effect on the accounting equation:
Shareholders’ equity
Assets
Liabilities
CC
Retained earnings
1.
Jan. 1, 2010, borrowed
$100,000
2.
Dec. 31, 2010, made the
first loan payment
3.
Dec. 31, 2011, made the
second loan payment
Part B: For each item, write in the amount (even if $0) as of or for the Year Ended December
31, 2010 and 2011 in the column of one financial statement where each amount is found.
2010:
Amount
Financial
1.
Mortgage payable
2.
Interest expense
3.
Payment of loan principal
4.
Interest paid
2011:
Amount
Financial
5.
Mortgage payable
6.
Interest expense
Assets
100,000 Cash
100,000 Mortgage payable
(14,238) Cash
(7,238) Mortgage payable
(7,000) Interest expense
(14,238) Cash
(7,745) Mortgage payable
(6,493) Interest expense
2010:
Amount
Financial
1.
Mortgage payable
$92,762
Balance sheet
2.
Interest expense
Income statement
3.
Payment of loan principal
Statement of cash flows
4.
Interest paid
Statement of cash flows
2011:
Amount
Financial
5.
Mortgage payable
$85,017
Balance sheet
6.
Interest expense
Income statement
46) Install, Inc. borrowed $80,000 by signing an 8% mortgage note on December 31, 2009. The
annual interest rate is 8%, with semiannual payments of $4,042 made on June 30 and December
31 every year. Round to the nearest dollar.
Part A: Show the effect on the accounting equation:
Shareholders’ equity
Assets
Liabilities
CC
Retained earnings
1
Dec. 31, 2009
Shareholders’ equity
Assets
Liabilities
CC
Retained earnings
2
June 30, 2010
3
Dec. 31, 2010
Shareholders’ equity
Assets
Liabilities
CC
Retained earnings
4
June 30, 2011
5
Dec. 31, 2011
Part B: For each item, write in the amount (even if $0) as of or for the Year Ended December
31, 2009, 2010, and 2011 in the column of the one financial statement where each amount is
found.
2009:
Amount
Financial
5.
Mortgage payable
6.
Interest expense
2010:
Amount
Financial
1.
Mortgage payable
2.
Interest expense
4.
Interest paid
2011:
Amount
Financial
5.
Mortgage payable
6.
Interest expense
Learning Objective 7-4
1) A bond is ________.
A) debt sold to investors
B) long-term debt until the year it matures
C) an agreement, which requires a company to repay principal plus interest
D) all of these
2) When a bond sells for par value, its stated interest rate is ________.
A) equal to the market rate of interest
B) greater than the market rate of interest
C) less than the market rate of interest
D) irrelevant to investors
3) When a bond sells at a discount, its stated interest rate is ________.
A) equal to the market rate of interest
B) greater than the market rate of interest
C) less than the market rate of interest
D) irrelevant to investors
4) When a bond sells at a premium, its stated interest rate is ________.
A) equal to the market rate of interest
B) greater than the market rate of interest
C) less than the market rate of interest
D) irrelevant to investors
5) When a bond sells at its face amount, the market rate of interest is ________.
A) equal to the bond’s stated rate of interest
B) greater than the bond’s stated rate of interest
C) less than the bond’s stated rate of interest
D) irrelevant to investors
6) When a bond sells at less than its face amount, the market rate of interest is ________.
A) equal to the bond’s stated rate of interest
B) greater than the bond’s stated rate of interest
C) less than the bond’s stated rate of interest
D) irrelevant to investors
7) When a bond sells at more than its face amount, the market rate of interest is ________.
A) equal to the bond’s stated rate of interest
B) greater than the bond’s stated rate of interest
C) less than the bond’s stated rate of interest
D) irrelevant to investors
8) When a bond sells for 101, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
9) When a bond sells for 102, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
10) When a bond sells for 103, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
11) When a bond sells for 100, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) the stated rate
12) When a bond sells for 99, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
13) When a bond sells for 98, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
14) When a bond sells for 97, the bond is selling at ________.
A) a discount
B) a premium
C) par
D) face value
15) Discount on bonds payable is a(n) ________.
A) asset
B) contra-liability
C) revenue
D) equity
16) Premium on bonds payable is a(n) ________.
A) asset
B) adjunct-liability
C) revenue
D) equity
17) On January 1, Wok ‘n’ Roll, Inc. issued $50,000 worth of 8%, 20-year bonds for $52,950.
These bonds sold at ________.
A) a discount
B) a premium
C) par
D) face value
18) On January 1, Wok ‘n’ Roll, Inc. issued $50,000 worth of 8%, 20-year bonds for $52,950.
What is the amount of the first year’s interest payment?
A) $4,236.00
B) $2,950.00
C) $4,000.00
D) $236.00
19) Wok ‘n’ Roll, Inc. issued $50,000 worth of 8%, 20-year bonds for $52,950. How much cash
will bondholders receive when the bonds mature? (Assume the final interest payment has already
been made separately.)
A) $50,000.00
B) $52,950.00
C) $4,236.00
D) $4,000.00
20) On January 1, Bank, Rupp & Baroque, Inc. issued $50,000 worth of 10-year, 9% bonds for
$48,890. These bonds sold at ________.
A) a discount
B) a premium
C) par
D) face value
21) On January 1, Bank, Rupp & Baroque, Inc. issued $50,000 worth of 10-year, 9% bonds for
$48,890. What is the amount of the first year’s interest payment?
A) $4,500.00
B) $4,400.10
C) $1,100.00
D) $88.80
22) On January 1, Bank, Rupp & Baroque, Inc. issued $50,000 worth of 10-year, 9% bonds for
$48,890. How much cash will bondholders receive when the bonds mature? (Assume that the
final interest payment has already been made separately.)
A) $51,100.00
B) $50,000.00
C) $48,890.00
D) $0
23) Buzz Corporation issued $50,000 worth of 10-year, 8% bonds for $48,359.66. The $50,000
is called the ________.
A) face value
B) market value
C) future value
D) stated rate
24) Buzz Corporation issued $50,000 worth of 10-year, 8% bonds for $48,359.66. The 8% is the
________.
A) face value
B) market rate
C) future rate
D) stated rate
25) Another term used for the stated rate is the ________ rate.
A) market
B) principal
C) present
D) coupon
26) Discount on bonds payable is a contra-________ account.
A) asset
B) equity
C) liability
D) revenue
27) Premium on bonds payable is an adjunct ________ account.
A) asset
B) equity
C) liability
D) income
28) Premium on bonds payable is ________.
A) subtracted from the face value of the bond
B) subtracted from the payment of the bond
C) subtracted from income
D) added to the face value of the bond
29) Discount on bonds payable is subtracted from ________.
A) the face value of the bond
B) the payment of the bond
C) income
D) the premium
30) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. How much cash did
Ace Electronics receive when the bonds were issued?
A) $1,000,000
B) $92,000
C) $108,000
D) $100,000
31) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. These bonds sold at
100, which is ________.
A) par
B) a premium, because the market rate of interest is higher than 8%
C) a premium, because the market rate of interest is lower than 8%
D) a discount, because the market rate of interest is higher than 8%
32) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. On its income
statement for the year ended DECEMBER 31, 2011, the year the bonds were issued, Ace
Electronics will show Interest expense of ________.
A) $8,000
B) $4,000
C) $2,000
D) This is a trick question. Interest expense appears on the balance sheet, not on the income
statement.
33) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. On its statement of
cash flows for the year ended DECEMBER 31, 2011, Ace will show Cash paid for interest of
________.
A) $0
B) $(4,000) in the cash flows from financing activities section of the statement
C) $(4,000) in the cash flows from operating activities section of the statement
D) $(2,000) in the cash flows from operating activities section of the statement
34) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. Which of the
following will appear on Ace’s balance sheet at December 31, 2011?
A) Bonds payable $108,000
B) Bonds payable $100,000
C) Bonds payable $2,000
D) Interest expense $2,000
35) On SEPTEMBER 30, 2011, Ace Electronics issued $100,000 of 10-year, 8% bonds at 100.
The bonds pay interest SEMIANNUALLY on September 30 and March 31. How much cash
will the company pay for interest on MARCH 31, 2012, the first interest payment date?
A) $2,000
B) $8,000
C) $4,000
D) $4,120
36) On NOVEMBER 30, 2011, Just in Thyme, Inc. issued $10,000 of 20-year, 9% bonds at 100.
The bonds pay interest SEMIANNUALLY on May 31 and November 30. How much cash did
Just in Thyme receive when the bonds were issued?
A) $10,000
B) $10,900
C) $9,100
D) $0
37) On NOVEMBER 30, 2011, Just in Thyme, Inc. issued $100,000 of 20-year, 9% bonds at
100. The bonds pay interest SEMIANNUALLY on May 31 and November 30. These bonds sold
at 100, which is ________.
A) par
B) a premium, because the market rate of interest is higher than 9%
C) a premium, because the market rate of interest is lower than 9%
D) a discount, because the market rate of interest is higher than 9%
38) On NOVEMBER 30, 2011, Just in Thyme, Inc. issued $100,000 of 20-year, 9% bonds at
100. The bonds pay interest SEMIANNUALLY on May 31 and November 30. How much cash
will the company pay for interest on MAY 31, 2012, the first interest payment date?
A) $2,000
B) $8,000
C) $4,000
D) $4,120
39) On NOVEMBER 30, 2011, Just in Thyme, Inc. issued $100,000 of 20-year, 9% bonds at
100. The bonds pay interest SEMIANNUALLY on May 30 and November 30. How much cash
will Just in Thyme pay when the bonds mature?
A) $100,000
B) $109,000
C) $91,000
D) $0
40) On OCTOBER 31, 2011, Bondable, Inc. issued $20,000 of 10-year, 6% bonds at 100. The
bonds pay interest ANNUALLY on October 31. How much cash will the company pay for
interest on OCTOBER 31, 2012, the first interest payment date?
A) $2,000
B) $1,000
C) $1,200
D) $200
41) On December 31, IOU Corporation issued $100,000 of 10-year, 8% bonds at 98. The bonds
pay interest annually on December 31. These bonds sold at ________.
A) a premium
B) a discount
C) par
D) The answer cannot be determined from the information given.
42) On December 31, IOU Corporation issued $100,000 of 10-year, 8% bonds at 98. The bonds
pay interest annually on December 31. These bonds sold at 98 because ________.
A) the stated interest rate was higher than the market rate of interest
B) the stated interest rate was lower than the market rate of interest
C) the bond was issued six months after yearend
D) this is an installment note
43) On December 31, IOU Corporation issued $100,000 of 10-year, 8% bonds at 98. The bonds
pay interest annually on December 31. How much cash did IOU Corporation receive when the
bonds were issued?
A) $784,000
B) $100,000
C) $108,000
D) $98,000
44) On December 31, IOU Corporation issued $100,000 of 10-year, 8% bonds at 98. The bonds
pay interest annually on December 31. How much cash will bondholders receive on the first
interest payment date?
A) $8,000
B) $4,000
C) $7,840
D) $0
45) On December 31, IOU Corporation issued $100,000 of 10-year, 8% bonds at 98. The bonds
pay interest annually on December 31. How much cash will bondholders receive when the bonds
mature? (Assume that the final payment of interest has already been made separately.)
A) $784,000
B) $100,000
C) $1,000,000
D) $98,000
46) On June 30, 2011, Xanadu Corporation issued $200,000 of 10-year, 8% bonds at 99. The
bonds pay interest semi-annually on June 30 and December 31.These bonds sold at ________.
A) a premium
B) a discount
C) par
D) The answer cannot be determined from the information given.
47) On June 30, 2011, Xanadu Corporation issued $200,000 of 10-year, 8% bonds at 99. The
bonds pay interest semi-annually on June 30 and December 31.These bonds sold at 99 because
the ________.
A) stated interest rate was greater than the market rate.
B) stated interest rate was less than the market rate.
C) bonds were issued six months after yearend.
D) bonds are installment notes.
48) On June 30, 2011, Xanadu Corporation issued $200,000 of 10-year, 8% bonds at 99. The
bonds pay interest semi-annually on June 30 and December 31. How much cash did Xanadu
receive when the bonds were issued?
A) $200,000
B) $160,000
C) $198,000
D) $99,000
49) On June 30, 2011, Xanadu Corporation issued $200,000 of 10-year, 8% bonds at 99. The
bonds pay interest semi-annually on June 30 and December 31. How much cash will
bondholders receive on December 31, 2011, the first interest payment date?
A) $8,000
B) $4,000
C) $7,840
D) $16,000
50) On June 30, 2011, Xanadu Corporation issued $200,000 of 10-year, 8% bonds at 99. The
bonds pay interest semi-annually on June 30 and December 31. How much cash will
bondholders receive when the bonds mature? (Assume that the final payment of interest has
already been made separately.)
A) $360,000
B) $200,000
C) $216,000
D) $98,000
51) Amortizing a bond discount will ________.
A) decrease the unamortized bond discount
B) increase the unamortized bond discount
C) decrease the carrying value of the bond
D) decrease the unamortized bond discount and decrease the carrying value of the bond
52) Amortizing a bond premium will ________.
A) decrease the unamortized bond premium
B) increase the unamortized bond premium
C) decrease the carrying value of the bond
D) decrease the unamortized bond premium and decrease the carrying value of the bond
53) Amortization is the process of ________.
A) increasing a bond discount over the life of the bond
B) increasing a bond premium over the life of the bond
C) adjusting the carrying value of the bond over the life of the bond
D) depreciating tangible long-term assets
54) On January 1, 2011, Alpha Company issued $1,000,000 of 5%, 20-year bonds to buy a new
computerized accounting system. The market rate of interest was 6%. The bonds pay interest
annually on December 31. Alpha uses the effective interest method of amortization. With each
annual interest payment the unamortized ________ will grow ________.
A) discount; larger
B) discount; smaller
C) premium; larger
D) premium; smaller
55) On July 1, 2011, Ace Electronics issued $10 million dollars of 8%, 20-year bonds at 102.
The bonds pay interest SEMIANNUALLY on December 31 and June 30. How much cash did
Ace receive when the bonds were issued?
A) $10,000,000
B) $10,200,000
C) $12,000,000
D) $102,000,000
56) On July 1, 2011, Ace Electronics issued $10 million dollars of 8%, 20-year bonds at 102.
The bonds pay interest SEMIANNUALLY on December 31 and June 30. The bonds sold at 102
because ________.
A) the market rate of interest was higher than 8%
B) the market rate of interest was exactly 8%
C) the market rate of interest was lower than 8%
D) The answer cannot be determined from the information given.
57) On July 1, 2011, Ace Electronics issued $10 million dollars of 8%, 20-year bonds at 102.
The bonds pay interest SEMIANNUALLY on December 31 and June 30. How much cash will
Ace pay on December 31, 2011, the first interest payment date?
A) $800,000
B) $408,000
C) $400,000
D) $816,000
58) On July 1, 2011, Ace Electronics issued $10 million dollars of 8%, 20-year bonds at 102.
The bonds pay interest SEMIANNUALLY on December 31 and June 30. How much cash will
Ace pay when the bonds mature? Assume that the final interest payment is made separately.
A) $10,000,000
B) $10,200,000
C) $5,000,000
D) $102,000,000
59) Z Biz sold a 5-year, $1,000, zero-interest bond for $497.18 when the market rate of interest
was 15%. The annual interest payment is ________.
A) $0
B) $150
C) $74.58
D) $502.82