Question :
71. On January 1, 2010, a corporation issued a $400,000, 12% : 1228436
71. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability as of June 30, 2010 (to the nearest dollar)?
A. $400,000
B. $416,495
C. $409,811
D. $403,342
72. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153. Assuming the effective-interest method of amortization is used, which of the following statements is incorrect?
A. The market rate of interest on the sale date was less than the stated rate of interest.
B. The book value of the bond will decrease as the bond matures.
C. The interest expense will decrease as the bond matures.
D. The amortization of the premium on bonds payable will decrease as the bond matures.
73. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the six-month period ending December 31, 2010 (to the nearest dollar)?
A. $24,000
B. $20,491
C. $20,000
D. $20,825
74. On January 1, 2010, a corporation issued a $400,000, 12% bond. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability on December 31, 2010 (to the nearest dollar)?
A. $400,000
B. $413,320
C. $406,302
D. $407,432
75. Which of the following statements regarding the effective-interest method of amortization is incorrect?
A. The amount of interest expense is different each period.
B. The amount of discount or premium that is amortized increases each period.
C. It is one of the options according to generally accepted accounting principles.
D. The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization.
76. Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2010. On December 31, 2010 the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest?
A. The market rate increased.
B. The market rate decreased.
C. The market rate stayed the same.
D. The change in the market rate can’t be determined.
77. Straight-line amortization of a premium related to a bond issuance would result in which of the following?
A. Interest expense to be calculated by multiplying the market interest rate times the book value of the bonds.
B. Higher premium amortization in the early years and lower interest expense over the life of the bonds.
C. Calculating the constant amount of premium to be amortized and then deducting it from cash interest to calculate interest expense.
D. Lower premium amortization in the early years and higher interest expense over the life of the bonds.
78. Eaton Company issued $5 million of bonds. The stated rate of interest was 10% and the market rate was 11%. Which of the following statements is correct?
A. The bonds were issued at a premium.
B. Annual interest expense will exceed the company’s actual cash payments for interest.
C. Annual interest expense will be $500,000.
D. The book value of the bond will decrease as the bond matures.
79. A company issued bonds when the stated rate of interest was 10% and the market rate was 8%. Which of the following statements is incorrect?
A. The bonds were issued at a premium.
B. Annual interest expense will be less than the company’s annual cash payments for interest.
C. The book value of the bonds will decrease as the bond matures.
D. The annual interest expense will increase if the effective-interest method of amortization was used.
80. A company issued bonds when the stated rate of interest was 10% and the market rate was 10%. Which of the following statements is incorrect?
A. The bonds were issued at par.
B. Annual interest expense will equal the company’s annual cash payments for interest.
C. The book value of the bonds will decrease as cash interest payments are made.
D. Annual interest expense is the same regardless of whether the effective- interest or straight-line method of amortization is used.
