Question :
85. A corporation issues for cash $1,000,000 of 10%, 20-year bonds, : 1226705
85. A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A. The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginning of the year.
B. The amount of the annual interest expense gradually decreases over the life of the bonds.
C. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
D. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.
86. If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?
A. Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
B. Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
C. Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
D. Annual interest expense will increase over the life of the bonds with the amortization of bond discount.
87. A corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A. The carrying amount increases from its amount at issuance date to $2,000,000 at maturity.
B. The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.
C. The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.
D. The amount of annual interest expense decreases as the bonds approach maturity.
88. A corporation issues for cash $15,000,000 of 8%, 30-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A. The amount of annual interest paid to bondholders remains the same over the life of the bonds.
B. The amount of annual interest expense decreases as the bonds approach maturity.
C. The amount of annual interest paid to bondholders increases over the 30-year life of the bonds.
D. The carrying amount decreases from its amount at issuance date to $15,000,000 at maturity.
89. The entry to record the amortization of a premium on bonds payable on an interest payment date includes:
A. debit Premium on Bonds Payable, credit Interest Revenue
B. debit Interest Expense, credit Premium on Bond Payable
C. debit Interest Expense, debit Premium on Bonds Payable, credit Cash
D. debit Bonds Payable, credit Interest Expense
90. The adjusting entry to record the amortization of a discount on bonds payable is
A. debit Discount on Bonds Payable, credit Interest Expense
B. debit Interest Expense, credit Discount on Bonds Payable
C. debit Interest Expense, credit Cash
D. debit Bonds Payable, credit Interest Expense
91. When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was
A. $ 321,970
B. $1,000,000
C. $943,494
D. $621,524
92. When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was
A. $1,052,310
B. $1,154,387
C. $1,000,000
D. $720,495
93. The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is
A. debit Bonds Payable, credit Cash
B. debit Cash and Discount on Bonds Payable, credit Bonds Payable
C. debit Cash, credit Premium on Bonds Payable and Bonds Payable
D. debit Cash, credit Bonds Payable
94. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be
A. debit Bonds Payable, credit Cash
B. debit Cash and Discount on Bonds Payable, credit Bonds Payable
C. debit Cash, credit Premium on Bonds Payable and Bonds Payable
D. debit Cash, credit Bonds Payable
