Question : 98.A bond issued at par value when: A.The bond pays no : 1258327

 

 

98.A bond is issued at par value when:   

A.The bond pays no interest.

 

B.The bond is not between interest payment dates.

 

C.Straight line amortization is used by the company.

 

D.The market rate of interest is the same as the contract rate of interest.

 

E.The bond is callable.

 

 

 

 

99.When a bond sells at a premium:   

A.The contract rate is above the market rate.

 

B.The contract rate is equal to the market rate.

 

C.The contract rate is below the market rate.

 

D.It means that the bond is a zero coupon bond.

 

E.The bond pays no interest.

 

 

 

 

100.A bond sells at a discount when the:   

A.Contract rate is above the market rate.

 

B.Contract rate is equal to the market rate.

 

C.Contract rate is below the market rate.

 

D.Bond has a short-term life.

 

E.Bond pays interest only once a year.

 

 

 

 

101.Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semi-annually. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:    

A.$60,000.

 

B.$33,750.

 

C.$67,500.

 

D.$30,000.

 

E.$375,000.

$750,000 * .09 * ½ year = $33,750

 

 

 

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

A.Debit Bond Interest Expense $22,000; credit Cash $22,000.

 

B.Debit Bond Interest Expense $44,000; credit Cash $44,000.

 

C.Debit Bond Interest Payable $22,000; credit Cash $22,000.

 

D.Debit Bond Interest Expense $550,000; credit Cash $550,000.

 

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

$550,000 * .08 * ½ year = $22,000

 

 

 

103.On January 1 of 2015, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semi-annually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:   

A.Debit Cash $2,000,000; credit Bonds Payable $2,000,000.

 

B.Debit Cash $1,864,097; credit Bonds Payable $1,864,097.

 

C.Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.

 

D.Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.

 

E.Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000.

 

 

 

 

104.On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that. pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. The company’s December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:    

A.$3,220,000.

 

B.$3,340,063.

 

C.$3,097,500.

 

D.$3,780,000.

 

E.$3,902,500.

 

Discount on Bonds Payable, Begin$302,611

Less Year 1 amortization20,174(10,087 * 2) = 20,174

Unamortized Discount, Ending$282,437

Par Value of the bonds$3,500,000

– Unamortized discount282,437

Carrying Value of bonds$3,217,563

+ Interest accrual on Dec. 31122,500($3,500,000 * 7% * 6/12)

$3,340,063

 

 

 

 

105.On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months.The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:    

A.$132,500.

 

B.$225,000.

 

C.$265,174.

 

D.$245,000.

 

E.$224,826.

Cash paid every six months = $3,500,000 * 7% * 6/12 = $122,500.Discount amortization every six months = $10,087;Interest Expense ($122,500 + $10,087) * 2 = $265,174.

 

 

 

106.On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:    

A.15 years.

 

B.30 years.

 

C.26.5 years.

 

D.32 years.

 

E.35 years.

Annual discount amortization = $20,174 ($10,087 * 2)Bond discount = $3,500,000 – $3,197,389 = $302,611Discount/Amortization = Life of bonds ($302,611/$20,174 = 15 years)

 

 

 

107.Amortizing a bond discount:   

A.Allocates a portion of the total discount to interest expense 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.

 

 

 

 

 

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