Question : 51. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, : 1228434

51. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, how much is the interest expense on the income statement for the year ended December 31, 2010 (to the nearest dollar)? 
A. $677
B. $883
C. $773
D. $700

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) ? Market (effective) interest rate (.08).

52. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, which of the following journal entries correctly records the 2010 interest expense (to the nearest dollar)? 
A. 
B. 
C. 
D. 

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) ? Market (effective) interest rate (.08).
Cash interest payment ($700) = Maturity value of the bond ($10,000) ? Stated interest rate (.07)
Discount on bonds payable amortization ($73) = Interest expense ($773) – Interest cash payment ($700).

53. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the book value of the bonds as of December 31, 2010 (to the nearest dollar)? 
A. $8,968
B. $9,945
C. $9,641
D. $9,741

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) ? Market (effective) interest rate (.08).
Cash interest payment ($700) = Maturity value of the bond ($10,000) ? Stated interest rate (.07)
Discount on bonds payable amortization ($73) = Interest expense ($773) – Interest cash payment ($700).
December 31, 2010 book value ($9,741) = January 1, 2010 book value ($9,668) + Discount on bonds payable amortization ($73).

54. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the 2011 interest expense (to the nearest dollar)? 
A. $779
B. $796
C. $677
D. $700

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) ? Market (effective) interest rate (.08).
Cash interest payment ($700) = Maturity value of the bond ($10,000) ? Stated interest rate (.07)
Discount on bonds payable amortization ($73) = Interest expense ($773) – Interest cash payment ($700).
December 31, 2010 book value ($9,741) = January 1, 2010 book value ($9,668) + Discount on bonds payable amortization ($73).
2011 interest expense ($779) = 12/31/2010 book value ($9,741) ? Market (effective) interest rate (.08).

55. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the December 31, 2011 book value after the December 31, 2011 interest payment was made (to the nearest dollar)? 
A. $9,662
B. $9,820
C. $9,668
D. $9,723

2010 interest expense ($773) = Initial issue price, which is the 1/1/2010 book value ($9,668) ? Market (effective) interest rate (.08).
Cash interest payment ($700) = Maturity value of the bond ($10,000) ? Stated interest rate (.07)
Discount on bonds payable amortization ($73) = Interest expense ($773) – Interest cash payment ($700).

56. On January 1, 2010, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.) 
A. $3,339,084
B. $2,843,172
C. $3,000,000
D. $2,686,896

57. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:
  
What was the issuance price of the bonds if the market rate of interest was 8%? 
A. $5,000,000
B. $5,670,000
C. $5,387,500
D. $5,712,500

58. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:
  
Calculate the issuance price if the market rate of interest is 12%. 
A. $4,427,500
B. $4,477,500
C. $4,435,000
D. $5,000,000

59. On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate to be paid annually. The following present value factors have been provided:
  
Calculate the issuance price if the market rate of interest was 10%. 
A. $5,427,000
B. $4,477,000
C. $4,435,000
D. $5,000,000

60. Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. How much is the annual interest expense? 
A. $4,700
B. $4,300
C. $4,500
D. $4,680