94. When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:
a.Increases.
b.Decreases.
c.Remains the same.
d.Is equal to the change in book value.
95. When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:
a.Increases.
b.Decreases.
c.Remains the same.
d.Is equal to the change in book value.
96. An amortization schedule for a bond issued at a discount:
a.Has a carrying value that decreases over time.
b.Is contained in the balance sheet.
c.Is a schedule that reflects the changes in bonds payable over its term to maturity.
d.All of the other answers are correct.
97. An amortization schedule for a bond issued at a premium:
a.Has a carrying value that increases over time.
b.Is contained in the balance sheet.
c.Is a schedule that reflects the changes in bonds payable over its term to maturity.
d.All of the other answers are correct.
Use the following information to answer the next 4 questions:
Discount-Mart issues $10 million in bonds on January 1, 2015. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:
Date
Cash
Paid
Interest
Expense
Increase in
Carrying Value
Carrying
Value
1/1/2015
$8,640,967
6/30/2015
$300,000
$345,639
$45,639
8,686,606
12/31/2015
300,000
347,464
47,464
8,734,070
6/30/2016
300,000
349,363
49,363
8,783,433
12/31/2016
300,000
351,337
51,337
8,834,770
98. What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)
a.3%.
b.4%.
c.6%.
d.8%.
99. What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)
a.3%.
b.4%.
c.6%.
d.8%.
100. What is the interest expense on the bonds in 2015?
a.$693,103.
b.$600,000.
c.$345,639.
d.$347,464.
101. What is the carrying value of the bonds as of December 31, 2016?
a.$8,834,770.
b.$8,686,606.
c.$8,734,070.
d.$8,783,433.
Use the following information to answer the next 6 questions:
Tony Hawk’s Adventure (THA) issued callable bonds on January 1, 2015. THA's accountant has projected the following amortization schedule from issuance until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/2015
$194,758
6/30/2015
$7,000
$7,790
$790
195,548
12/31/2015
7,000
7,822
822
196,370
6/30/2016
7,000
7,855
855
197,225
12/31/2016
7,000
7,889
889
198,114
6/30/2017
7,000
7,925
925
199,039
12/31/2017
7,000
7,961
961
200,000
102. THA issued the bonds:
a.At par.
b.At a premium.
c.At a discount.
d.Cannot be determined from the given information.
103. THA issued the bonds for:
a.$200,000
b.$194,758.
c.$242,000.
d.Cannot be determined from the given information.
