Question :
61. Gammell Company issued $50,000 of 9% bonds with annual interest : 1228435
61. 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. Which of the following statements is incorrect?
A. The market rate of interest exceeded the stated rate of interest when the bonds were issued.
B. The annual interest expense exceeds the annual cash interest payment by $200.
C. The annual increase in the bond book value is $200.
D. The annual interest expense is $4,300.
62. Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium?
A. The market rate of interest is less than the stated interest rate.
B. The interest expense over the life of the bonds will be less than the cash interest payments.
C. The present value of the bonds’ future cash flows is less than the bonds’ maturity value.
D. The book value of the bond liability decreases when interest payments are made on the due dates.
63. Which of the following statements correctly describes the accounting for bonds that were issued at a premium?
A. The interest expense over the life of the bond is less than the cash interest payments.
B. The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
C. The amortization of the premium on bonds payable account decreases as the bonds mature when the effective interest method is used.
D. The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is used.
64. Assuming no adjusting journal entries have been made during the year, the journal entry to record the cash interest payment on the due date for bonds issued at a premium results in which of the following?
A. An increase in expenses and a decrease in liabilities.
B. An increase in expenses and an increase in liabilities.
C. A decrease in both liabilities and stockholders’ equity.
D. A decrease in both assets and liabilities.
65. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. How much is the semi-annual interest expense?
A. $14,000
B. $14,150
C. $10,350
D. $11,000
66. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2010 balance sheet?
A. $300,000
B. $302,850
C. $302,700
D. $303,000
67. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. What is the bond liability to be reported on the December 31, 2011 balance sheet?
A. $300,000
B. $302,550
C. $302,700
D. $303,000
68. On July 1, 2010, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2010, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses straight-line amortization. Which of the following statements is incorrect?
A. The market rate of interest was less than the stated rate of interest on July 1, 2010.
B. The interest expense during the life of the bonds is $3,000 less than the cash interest payments during the life of the bonds.
C. The book value of the bond liability decreases by $300 per year.
D. The semi-annual interest expense is $300 less than the semi-annual interest payment.
69. Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2009, for $102,360 on April 1, 2009. The bonds pay interest annually on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2010 for the first interest payment?
A. Option A
B. Option B
C. Option C
D. Option D
70. 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% market interest rate. Assuming the effective-interest method of amortization is used, what is the interest expense for the six-month period ending June 30, 2010 (to the nearest dollar)?
A. $24,000
B. $24,789
C. $20,000
D. $20,658
