Question : 91. When a bond sells at a premium: A. The contract rate above : 1225297

91. 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.

92. 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.

93. A company issues 9%, 20-year bonds with a par value of $750,000. 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.

94. 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. 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 Expense $36,667; credit Cash $36,667.

D. Debit Bond Interest Expense $660,000; credit Cash $660,000.

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

95. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 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. $3,342,500.

C. $3,097,500.

D. $3,780,000.

E. $3,902,500.

96. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months.

The amount of interest expense recognized by Drum Line Airways on the bond issue in Year 1 would be: 

A. $132,500.

B. $225,000.

C. $265,000.

D. $245,000.

E. $280,000.

97. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while 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 $10,000 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.

98. 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.

99. The Discount on Bonds Payable account is: 

A. A liability.

B. A contra liability.

C. An expense.

D. A contra expense.

E. A contra equity.

100. 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.