Question : 121. A corporation issues $100,000, 8%, 5-year bonds January 1, 2007, : 1234237

 

121. A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2007, is 
A. $8,420.
B. $4,420.
C. $4,000.
D. $3,580.

122. If bonds are issued at a premium, the stated interest rate is 
A. higher than the market rate of interest.
B. lower than the market rate of interest.
C. too low to attract investors.
D. adjusted to a higher rate of interest.

123. The Tomas Corporation issues 1,000, 10-year bonds, 8%, $1,000 bonds dated January 1, 2007, at 97. The journal entry to record the issuance will show a 
A. debit to Cash of $1,000,000.
B. credit to Discount on Bonds Payable for $30,000.
C. credit to Bonds Payable for $970,000.
D. debit to Cash for $970,000.

124. The Royce Corporation issues 1,000, 10-year bonds, 8%, $1,000 bonds dated January 1, 2007, at 97. The journal entry to record the issuance will show a 
A. debit to Discount on Bonds Payable for $30,000.
B. debit to Cash of $1,000,000.
C. credit to Bonds Payable for $970,000.
D. credit to Cash for $970,000.

125. The Torrez Corporation issues 1,000, 10-year bonds, 8%, $1,000 bonds dated January 1, 2007, at 97. The journal entry to record the issuance will show a 
A. credit to Discount on Bonds Payable for $30,000.
B. debit to Cash of $1,000,000.
C. credit to Bonds Payable for $1,000,000.
D. credit to Cash for $970,000.

126. If bonds are issued at a discount, it means that the 
A. bondholder will receive effectively less interest than the contractual rate of interest.
B. market interest rate is lower than the contractual interest rate.
C. market interest rate is higher than the contractual interest rate.
D. financial strength of the issuer is suspect.

127. Selling the bonds at a premium has the effect of 
A. raising the effective interest rate above the stated interest rate.
B. increasing the amount of cash paid for interest each 6 months.
C. causing the total cost of borrowing to be higher than the bond interest paid.
D. causing the total cost of borrowing to be lower than the bond interest paid.

128. Bonds with a face amount $1,000,000, are sold at 103. The entry to record the issuance is 
A. Cash                                                      1,000,000
Premium on Bonds Payable                       30,000
           Bonds Payable                                              1,030,000
B. Cash                                                    1,030,000
            Premium on Bonds Payable                               30,000
            Bonds Payable                                               1,000,000
C. Cash                                                    1,030,000
            Discount on Bonds Payable                                30,000
            Bonds Payable                                                1,000,000
D. Cash                                                    1,030,000
            Bonds Payable                                              1,030,000

129. Bonds with a face amount $1,000,000, are sold at 97. The entry to record the issuance is 
A. Cash                                                  1,000,000
Premium on Bonds Payable                     30,000
            Bonds Payable                                                 970,000
B. Cash                                                     970,000
Premium on Bonds Payable                   30,000
           Bonds Payable                                              1,000,000
C. Cash                                                    970,000
Discount on Bonds Payable                  30,000
           Bonds Payable                                              1,000,000
D. Cash                                                    970,000
          Bonds Payable                                                 970,000

130. Sinking Fund Cash would be classified on the balance sheet as 
A. a current asset
B. a fixed asset
C. an intangible asset
D. an investment

 

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