Question : 85.              When a bond premium being amortized, at maturity A)the premium : 1370077

85.              When a bond premium is being amortized, at maturity

A)the premium will be equal to the face value of the bonds

B)the premium is written off and a gain or loss is recorded

C)the carrying value of the bond is equal to the face value of the bonds

D)the carrying value of the bond will be greater than original issue price

86.              What would happen if a firm fails to record the amortization of premium on bonds payable?

A)interest payments would be understated

B)interest payments would be overstated

C)interest expense would be understated

D)interest expense would be overstated

87.              If bonds are issued at a discount at the beginning of the year, how will information related to the bonds be reported on the statement of cash flows in the year of issuance?

A)the bond proceeds will increase and the interest paid will decrease cash from financing activities

B)the bond proceeds will increase cash from financing activities and the interest paid will decrease cash from operating activities

C)the bond proceeds will increase cash from financing activities and the interest expense will decrease cash from operating activities

D)the bond proceeds will increase cash from financing activities, the interest paid will decrease cash from operating activities, and discount amortization will decrease cash from investing activities

88.              Darvin Company purchased equipment with a fair value of $100,000 on a 6 percent, 4-year installment note.  What would be Darvin’s annual payment on the note, assuming that payments are made at year end?

A)$25,000

B)$27,226

C)$28,859

D)unable to determine from the information given

89.              Lester Corporation purchased equipment with a fair value of $150,000 on a 6 percent note.  The note requires four end-of-year payments of $43,290.  What would be the carrying value of the note immediately after the first payment.

A)$106,710

B)$115,710

C)$141,000

D)unable to determine from the information given

90.              What constitutes the carrying value of a non-interest-bearing note?

A)the amount due at maturity

B)the present value of the amount due at maturity

C)the amount due at maturity less interest recognized to date

D)the present value of the amount due at maturity less interest recognized to date

91.              Trego Corporation purchased equipment with a fair value of $150,000 on a 6 percent note.  The note requires four end-of-year payments of $43,290.  How much of the first payment would be principal?

A)$43,290

B)$ 43,290 / 4 = $10,822.50

C)$9,000

D)unable to determine from the information given

Instructions:

The following questions were not covered in the chapter but are related to topics covered in earlier chapters and can be used if the instructor has chosen to discuss accounting for leases and conversion or early retirement of debt.

92.              Under which of the following situations would a firm repurchasing bonds in the secondary market report a loss?

A)the current market rate of interest is greater than the market rate when the bonds were issued

B)the current market rate of interest is greater than the stated rate on the bonds

C)the current market price of the bonds is greater than carrying value of the bonds

D)the current market price of the bonds is greater than face value of the bonds

93.              Under which of the following conditions would a firm have a loss on repurchased debt?

A)face value exceeds current market price of bonds

B)current market price exceeds face value of bonds

C)current market price exceeds carrying value of bonds

D)current market price exceeds original issue price of bonds

94.              When a company retires its outstanding bonds prior to their maturity by purchasing them in the secondary market:

A)a loss results when the purchase price is less than the carrying value of the bonds

B)any unamortized discount or premium is immediately charged to interest expense

C)the Bonds Payable account is debited for an amount equal to the maturity value of the bonds

D)a gain results when the carrying value of the bonds is less than the purchase price

of the bonds