18) Interest expense will be greater than the interest payment when bonds are issued at:
A) a premium.
B) face value.
C) a discount.
D) the contract rate.
19) When interest payments are made on a discounted bond, a portion of the discount is:
A) depreciated.
B) depleted.
C) amortized.
D) transferred to reduce the interest expense.
20) Corbin Corporation issued 400, $1,000, 11% bonds at 96. The entry to record this transaction is:
A) debit Cash $400,000; credit Bonds Payable $384,000; credit Discount on Bonds Payable $16,000.
B) debit Cash $384,000; credit Bonds Payable $384,000.
C) debit Cash $44,000; credit Bonds Payable $44,000.
D) debit Cash $384,000; debit Discount on Bonds Payable $16,000; credit Bonds Payable $400,000.
21) Hefley Corporation issued a 10%, $500,000, 8-year bond at 105. The entry to record the issuance
transaction is to:
A) debit Cash $500,000; credit Bonds Payable $500,000.
B) debit Cash $525,000; credit Bonds Payable $525,000.
C) debit Cash $525,000; credit Bonds Payable $500,000; credit Premium on Bonds Payable $25,000.
D) debit Cash $500,000; debit Premium on Bonds Payable $25,000; credit Bonds Payable $525,000.
22) Miranda Corporation issued $200,000 of 12%, 10-year bonds for $220,000. The entry to record the
issuance of the bonds includes a:
A) debit to Bonds Payable for $200,000.
B) credit to Premium on Bonds Payable for $20,000.
C) credit to Bonds Payable for $220,000.
D) credit to Cash for $220,000.
23) Plaza Corporation issued $350,000 of 8%, 10-year bonds for 98. The entry to record the issuance of the
bonds includes a:
A) debit to Discount on Bonds Payable for $7,000.
B) credit to Bonds Payable for $343,000.
C) debit to Bonds Payable for $350,000.
D) credit to Cash for $343,000.
24) On October 1, Allan Company issued 8%, 10-year, $300,000 bonds at 105. 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) $24,000.
C) $12,000.
D) $6,000.
25) On April 1, Braintree Corporation issued 10%, 10-year, $300,000 bonds at 106. 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) $15,000.
C) $30,000.
D) $31,000.
26) Manning Corporation sells $200,000, 12%, 10-year bonds for 96 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
200,000
Bonds Payable
200,000
B)
Cash
200,000
Discount on Bonds Payable
8,000
Bonds Payable
192,000
C)
Cash
192,000
Bonds Payable
192,000
D)
Cash
192,000
Discount on Bonds Pay.
8,000
Bonds Payable
200,000
27) A discount amortization does not affect the amount of cash paid for bond interest
28) When the amount received for the bond is less than the face value, the difference is written off over
time in an account called Discount on Bonds Payable.
29) A bond issue of $500,000 sold at 107 has a bond premium of $35,000.
30) The interest method for amortization of bonds allocates equal amounts of premium to Bonds Interest
Expense each period.
31) At maturity, the Premium on Bonds will have a balance equal to the original premium.
32) The straight-line method amortizes an equal amount of discount to Bonds Interest Expense each
period.
33) 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.
34) A bond’s discount is amortized over the term of the bond.
35) Bonds discount and bonds premium are liabilities to the corporation.
36) On July 1, Ball Computer Corporation issued 10-year, 8%, $100,000 bonds for 97. 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.
37) On January 1, Preston Corporation issued 6%, 20–year bonds at 108. The face value is $450,000 and
interest is paid semiannually. 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.
38) Scooters Doll Flower Company on July 1 issued 10%, $600,000 bonds for $564,149. This price will yield
a market rate of 11%. Interest dates are June 30 and December 31. Prepare the journal entries to record:
a. Issuance of the bond.
b. Payment for the first semiannual interest period plus amortization of the discount using the interest
method.
c. Payment for the second semiannual interest period plus amortization of the discount using the interest
method.
39) On July 1, Carly Corporation issued 10–year 9%, $600,000 bonds for $640,771, a price to yield 8%
market rate. Interest dates are June 30 and December 31. Record the following journal entries:
a. Issuance of the bonds.
b. The semiannual interest payment and amortization of the premium on December 31 using the interest
method.
40) Northern Union Pacific is planning to issue 10-year, 10% semiannual interest bonds with a par value
of $200,000.
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.
41) Crafton Corporation is planning to issue 5-year, 8%, semiannual interest bonds with a face value of
$400,000.
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.
42) The carrying value of a bond ________ rises over time until it reaches the face value.
43) A premium bond’s ________ decreases over time until it reaches face value.
44) To determine the bond interest expense using interest method, the computation is the ________ value
times the ________ of interest.
1) Bonds are issued for $10,000 at 8% on October 1. What is the adjusting entry on December 31?
A)
Bond Interest Expense
800
Bond Interest Payable
800
B)
Bond Interest Expense
200
Bond Interest Payable
200
C)
Bond Interest Payable
200
Bond Interest Expense
200
D)
Bond Interest Payable
800
Bond Interest Expense
800
2) Bonds are issued for $80,000 at 12% on November 1. What is the adjusting entry on December 31?
A)
Bond Interest Expense
1600
Bond Interest Payable
1600
B)
Bond Interest Expense
1200
Bond Interest Payable
1200
C)
Bond Interest Expense
1200
Bond Interest Payable
1200
D)
Bond Interest Payable
1600
Bond Interest Expense
1600
3) Casey issued bonds for $20,000 at 8% on June 1. What is the adjusting on December 31?
A)
Bond Interest Expense
800
Bond Interest Payable
800
B)
Bond Interest Expense
933
Bond Interest Payable
933
C)
Bond Interest Expense
667
Bond Interest Expense
667
D)
Bond Interest Payable
600
Bond Interest Expense
600
4) 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 are correct.
5) 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.
6) On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 102. What is the adjusting entry
on December 31 using straight-line method?
A)
Bond Interest Expense
800
Bond Interest Payable
800
B)
Bond Interest Expense
200
Bond Interest Payable
200
C)
Bond Interest Expense
190
Premium on Bonds Payable
10
Bond Interest Payable
200
D)
Bond Interest Expense
210
Premium on Bonds Payable
10
Bond Interest Payable
200