Question : 61. A company issued 8%, 15-year bonds with a par value : 1256378

 

 

61. A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate is 8%. The journal entry to record each semiannual interest payment is: A.  

Bond Interest Expense

22,000

 

Cash

 

22,000

B.  

Bond Interest Expense

44,000

 

Cash

 

44,000

C.  

Bond Interest Expense

555,000

 

Cash

 

555,000

D.  

Bond Interest Expense

660,000

 

Bond Payable

 

660,000

E. No entry is needed, since no interest is paid until the bond is due

 

 

62. Amortizing a bond discount: A. Allocates a part of the total discount to each interest period.B. Increases the market value of the Bonds Payable.C. Decreases the Bonds Payable account.D. Decreases interest expense each period.E. Increases cash flows from the bond.

 

 

63. The Discount on Bonds Payable account is: A. A liabilityB. A contra liabilityC. An expenseD. A contra expenseE. A contra equity

 

 

64. A discount on bonds payable: A. Occurs when a company issues bonds with a contract rate less than the market rate.B. Occurs when a company issues bonds with a contract rate more than the market rate.C. Increases the Bond Payable account.D. Decreases the total bond interest expense.E. Is not allowed in many states to protect creditors.

 

 

 

65. On January 1, 2013, a company issued and sold a $400,000, 7%, 10-year bond payable and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A.

Bond Interest Expense

14,000

 

Cash

 

14,000

B.

Bond Interest Expense

28,000

 

Cash

 

28,000

C.

Bond Interest Expense

14,200

 

Cash

 

14,000

Discount on Bonds Payable

 

200

 

 

 

 

 

D.

Bond Interest Expense

13,800

 

Discount on Bonds Payable

200

 

Cash

 

14,000

 

 

E.

Bond Interest Expense

14,000

 

Discount on Bonds Payable

200

 

Cash

 

14,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66. On January 1, 2013, a company issued and sold an $850,000, 6%, five-year bond payable and received proceeds of $825,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:  

A.

Bond Interest Expense

25,500

 

Cash

 

25,500

B.

Bond Interest Expense

51,000

 

Cash

 

51,000

C.

Bond Interest Expense

28,000

 

Discount on Bonds Payable

 

2,500

Cash

 

25,500

 

D.

Bond Interest Expense

23,000

 

Discount on Bonds Payable

2,500

 

Cash

 

25,500

E.

Bond Interest Expense

25,500

 

Discount on Bonds Payable

2,500

 

Cash

 

28,000

 

 

67. A company issued five-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is: A. $3,294.70B. $3,500.00C. $3,705.30D. $7,000.00E. $7,410.60

 

 

 

 

68. A company issued 10-year, 8% bonds with a par value of $200,000. The company received $190,000 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is: A. $8,000.00B. $8,500.00C. $16,000.00D. $7,500.00E. $18,000.00

 

 

69. Which of the following is true regarding the  effective interest amortization method? A. Allocates bond interest expense using a changing interest rate.B. Allocates bond interest expense using a constant interest rate.C. Allocates a decreasing amount of interest over the life of a discounted bond.D. Allocates bond interest expense using the current market rate for each period.E. Is not allowed by the FASB.

 

 

70. A company issued 7%, five-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is: A. $3,750.00B. $3,673.01C. $3,705.30D. $3,428.15E. $7,346.03

 

 

 

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