Question : 128.Chang Industries has bonds outstanding with a par value of : 1258330

 

 

128.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 gain

 

B.$2,000 loss

 

C.$3,000 gain

 

D.$1,000 loss

 

E.$2,000 gain

 

 

 

 

129.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.Debit to Premium on Bonds.

 

B.Credit to Premium on Bonds.

 

C.Debit to Discount on Bonds.

 

D.Credit to Gain on Bond Retirement.

 

E.Credit to Bonds Payable.

 

Carrying value of bonds$103,745

Retirement price105,000

Loss on retirement$1,255

Journal Entry: 

Debit Bonds Payable$100,000

Debit Premium on Bonds Payable$3,745

Debit Loss on Retirement$1,255

Credit Cash$105,000

 

 

 

 

130.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.$0.

 

B.$10,000 gain.

 

C.$10,000 loss.

 

D.$22,000 gain.

 

E.$22,000 loss.

 

Par value$1,000,000

Unamortized premium (20,000 * 60%)12,000

Carrying value of bonds$1,012,000

Retirement price990,000

Gain on retirement$22,000

 

 

 

 

131.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 payment each July 31 will be:    

A.$10,000.00.

 

B.$11,223.34.

 

C.$10,800.00.

 

D.$10,400.00.

 

E.$1,223.34.

$30,000/2.6730 = $11,223.34

 

 

 

132.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 Notes Payable $250,000; credit Cash $250,000.

 

C.Debit Cash $37,258; credit Notes Payable $37,258.

 

D.Debit Cash $250,000; credit Notes Payable $250,000.

 

E.Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable $250,000.

 

 

 

 

133.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.$20,000

 

B.$37,258

 

C.$25,000

 

D.$17,258

 

E.$232,742

$250,000 principle * 8% = $20,000 interest

 

 

 

134.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 principle will be included in the first annual payment?   

A.$20,000

 

B.$37,258

 

C.$25,000

 

D.$232,742

 

E.$17,258

$250,000 principle * 8% = $20,000 interest$37,528 payment – 20,000 interest = $17,258 principle payment

 

 

 

135.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 Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.

 

B.Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.

 

C.Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.

 

D.Debit Notes Payable $32,136; credit Cash $32,136.

 

E.Debit Notes Payable $11,250; credit Cash $11,250.

Interest expense = $125,000 * 9% = $11,250Principal reduction = $32,136 – $11,250 = $20,886

 

 

 

136.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 Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.

 

B.Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

 

C.Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.

 

D.Debit Notes Payable $14,238; credit Cash $14,238.

 

E.Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Interest expense = $100,000 * 7% = $7,000Principal payment = $14,238 – $7,000 = $7,238

 

 

 

137.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 $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.

 

B.Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.

 

C.Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177.

 

D.Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.

 

E.Debit Cash $312,177; credit Bonds Payable $312,177.

Premium = $312,177 – $300,000 = $12,177The issued bond is always recorded at par (face) value in the Bonds Payable account, with the difference between par value and issue price recorded as a discount or premium, depending on whether the issue price is greater than par (premium) or less than par (discount).