Deck 14: Long-Term Liabilities and Receivables

Question 1

Which of the following is the best reason for the issuance of long-term liabilities?

A)Debt financing offers an income tax advantage.
B)Risk to the firm may be increased.
C)Ownership interest is diluted but may be necessary to do.
D)Debt financing may cost the entity more but is the only available source of funds.

Answer 1

A

Question 2

In which of the following situations will the book value of a bond be equal to its maturity value?

A)The effective rate exceeds the stated rate.
B)The nominal rate exceeds the yield rate.
C)The yield rate equals the contract rate.
D)The effective rate equals the yield rate.

Answer 2

C

Question 3

For which of the following types of bonds is interest expense recognized each year even though no interest is paid?

A)debenture bonds
B)zero-coupon bonds
C)serial bonds
D)mortgage bonds

Answer 3

B

Question 4

On January 1, 2010, Tiger Corporation sold $100, 000 of its 15%, five-year bonds dated January 1, 2010, for $102, 000 total cash.The bonds sold at

A)98
B)100
C)102
D)a quoted price that cannot be determined from the information given

Question 5

If a company sells its bonds at less than face value, the effective interest rate is

A)lower than the contract interest rate
B)higher than the contract interest rate
C)equal to the contract interest rate
D)higher than the market interest rate

Question 6

When the market rate of interest is less than the contract rate of interest, the bonds should sell at

A)face value
B)a discount
C)par value
D)a premium

Question 7

If a company sells its bonds at more than face value, the effective interest rate is

A)less than the contract interest rate
B)more than the contract interest rate
C)equal to the contract interest rate
D)more than the market interest rate

Question 8

When the market rate of interest is greater than the contract rate of interest, the bonds should sell at

A)a premium
B)par value
C)a discount
D)face value

Question 9

Which of the following statements is not true?

A)Debt may be the only available source of funds to a company.
B)Historically, debt financing has a higher cost than equity financing.
C)Debt financing offers an income tax advantage.
D)Debt does not dilute ownership interests.

Question 10

Which of the following is always equal to the face rate of interest?

A)effective rate
B)yield rate
C)market rate
D)nominal rate

Question 11

Which of the following may not be equal to the contract rate of interest?

A)stated rate
B)nominal rate
C)face rate
D)effective rate

Question 12

An unsecured bond is called a

A)debenture bond
B)mortgage bond
C)registered bond
D)serial bond

Question 13

When the market rate of interest is equal to the contract rate of interest, the bonds should sell at

A)a premium
B)par
C)an inflation-adjusted discount
D)a discount

Question 14

When is interest expense less than interest paid?

A)when bonds are sold at a premium
B)when bonds are sold at par
C)when bonds are sold at a discount
D)when bonds are sold at a yield

Question 15

Discount on Bonds Payable is a(n)

A)contra account
B)valuation account
C)accumulation account
D)adjunct account

Question 16

If a company sells its bonds at face value, the effective interest rate is

A)lower than the contract interest rate
B)higher than the contract interest rate
C)equal to the contract interest rate
D)higher than the market interest rate

Question 17

Which of the following is not a reason for the issuance of long-term liabilities?

A)Debt financing offers an income tax advantage.
B)Ownership interest is diluted.
C)Debt may be the only available source of funds.
D)Debt financing may have a lower cost.

Question 18

Leverage occurs when a company's

A)interest payments exceed its rate of return
B)rate of return equals its interest payments
C)rate of return exceeds its interest payments
D)interest payments are made on time

Question 19

Which of the following is not another term for the true rate or cost of borrowing considering compound interest?

A)nominal rate
B)effective rate
C)market rate
D)yield

Question 20

Which of the following bonds pay no interest until maturity?

A)zero-coupon bonds
B)registered bonds
C)serial bonds
D)debenture bonds

Question 21

When is interest expense more than interest paid?

A)when bonds are sold at a premium
B)when bonds are sold at par
C)when bonds are sold at a discount
D)when bonds are sold at a yield

Question 22

Exhibit 14-1 Alfred issued 9%, ten-year bonds dated January 1, 2010, with a face value of $100, 000 at 102 plus accrued interest on March 1, 2010.Alfred amortizes premiums and discounts using the straight-line method.Expenses connected with the issue totaled $5, 000 and were deducted in arriving at the net proceeds.

-
Refer to Exhibit 14-1.Assuming interest is paid semiannually on January 1 and July 1, the balance of the interest expense account (to the nearest dollar)after the July 1, 2010, entry would be

A)$1, 551
B)$1, 602
C)$1, 398
D)$1, 500

Question 23

The straight-line method of amortization assumes a stable

A)interest expense
B)interest rate
C)book value
D)premium or discount balance

Question 24

On May 1, 2010, Krypton Corporation sold $150, 000 of its 15%, five-year bonds dated January 1, 2010, for 100 plus accrued interest.How much cash was received?

A)$107, 500
B)$150, 000
C)$157, 500
D)$100, 000

Question 25

The assumption of a stable interest expense per year is inherent under which of the following amortization methods?

A)present-value method
B)effective interest method
C)stated-interest method
D)straight-line method

Question 26

Exhibit 14-3 Nazzi, Inc.sold $400, 000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010, for $393, 000 plus accrued interest.Interest is paid on January 1 and July 1 and straight-line amortization is used.

-
Refer to Exhibit 14-3.The net liability for the bonds after recording the sale would be

A)$408, 000
B)$407, 700
C)$400, 000
D)$393, 000

Question 27

Premium on Bonds Payable is a(n)

A)valuation account
B)contra account
C)accumulation account
D)adjunct account

Question 28

Exhibit 14-3 Nazzi, Inc.sold $400, 000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010, for $393, 000 plus accrued interest.Interest is paid on January 1 and July 1 and straight-line amortization is used.

-
Refer to Exhibit 14-3.Interest expense after the July 1, 2010, interest payment has been posted is

A)$12, 500
B)$ 6, 250
C)$12, 000
D)$18, 000

Question 29

Exhibit 14-2 Mara Corporation issued $400, 000 of its 6%, 10-year bonds, dated January 1, 2010, at face value plus accrued interest on April 1, 2010.Interest is paid on January 1 and July 1.Mara uses the most common method to record the sale of the bonds between interest payment periods.

-
Refer to Exhibit 14-2.The entry to record the payment of interest on July 1, 2010, would include a

A)credit to Bond Interest Expense for $6, 000
B)debit to Premium on Bonds Payable for $154
C)credit to Cash for $12, 000
D)debit to Bond Interest Payable for $12, 000

Question 30

Bonds with a face value of $100, 000 that are issued for $102, 400 have a stated interest rate

A)that is more than the yield rate
B)that is less than the yield rate
C)that is equal to the yield rate
D)that may be more or less than the yield rate, but there is not enough information given to determine which

Question 31

Exhibit 14-1 Alfred issued 9%, ten-year bonds dated January 1, 2010, with a face value of $100, 000 at 102 plus accrued interest on March 1, 2010.Alfred amortizes premiums and discounts using the straight-line method.Expenses connected with the issue totaled $5, 000 and were deducted in arriving at the net proceeds.

-
Refer to Exhibit 14-1.The entry to record the issue would include a debit to Cash for

A)$ 97, 000
B)$ 98, 500
C)$102, 000
D)$103, 500

Question 32

Under the straight-line amortization method, interest expense on a bond sold at a premium is equal to the

A)interest paid plus bond premium amortization
B)interest rate times the book value of the bonds
C)interest rate times the face value of the bonds
D)interest paid minus bond premium amortization

Question 33

Exhibit 14-3 Nazzi, Inc.sold $400, 000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010, for $393, 000 plus accrued interest.Interest is paid on January 1 and July 1 and straight-line amortization is used.

-
Refer to Exhibit 14-3.The balance of Discount on Bonds Payable after the December 31, 2010, adjusting entry has been posted would be

A)$5, 600
B)$6, 000
C)$7, 000
D)$8, 400

Question 34

Exhibit 14-2 Mara Corporation issued $400, 000 of its 6%, 10-year bonds, dated January 1, 2010, at face value plus accrued interest on April 1, 2010.Interest is paid on January 1 and July 1.Mara uses the most common method to record the sale of the bonds between interest payment periods.

-
Refer to Exhibit 14-2.The amount of bond interest expense reported on the year-end 2010 income statement would be

A)$17, 538
B)$18, 000
C)$23, 384
D)$24, 000

Question 35

Bonds dated June 1 with a face value of $100, 000 that are issued for $99, 400 on June 1 have a stated interest rate

A)that is more than the yield rate
B)that is less than the yield rate
C)that is equal to the yield rate
D)that may be more or less than the yield rate, but there is not enough information given to determine which

Question 36

Exhibit 14-2 Mara Corporation issued $400, 000 of its 6%, 10-year bonds, dated January 1, 2010, at face value plus accrued interest on April 1, 2010.Interest is paid on January 1 and July 1.Mara uses the most common method to record the sale of the bonds between interest payment periods.

-
Refer to Exhibit 14-2.The entry to record the sale would include a

A)credit to Interest Expense for $6, 000
B)debit to Cash for $400, 000
C)credit to Bonds Payable for $406, 000
D)credit to Premium on Bonds Payable for $6, 000

Question 37

If a company sells its 20-year bonds at a discount, the discount account should be reported on the balance sheet as a(n)

A)unearned liability
B)addition to the bonds payable
C)accrued expense
D)deduction from bonds payable

Question 38

Interest expense recognized each period on zero-coupon bonds sold at a discount is equal to the

A)credit to Cash
B)difference between the cash payment and the discount amortization
C)credit to Discount on Bonds Payable
D)sum of the cash payment and the discount amortization

Question 39

Under the straight-line amortization method, interest expense on a bond sold at a discount is equal to the

A)interest paid plus bond discount amortization
B)interest rate times the book value of the bonds
C)interest rate times the face value of the bonds
D)interest paid minus bond discount amortization

Question 40

On April 1, 2010, Everly Corporation issued 8% debentures dated January 1, 2010.The debentures had a face value of $3, 000, 000 and interest was payable on January 1 and July 1.The debentures were sold at par plus accrued interest.To record this event on April 1, 2010, Everly should debit cash for

A)$3, 080, 000
B)$3, 060, 000
C)$3, 000, 000
D)$2, 920, 000

Question 41

Which statement is true?

A)The carrying amount of the bonds will increase each year if the bonds were issued at a discount.
B)The carrying amount of the bonds will increase each year if the bonds were issued at a premium.
C)Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used.
D)Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used.

Question 42

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows:
$\begin{array}{lll}&6\%&7\%\\\text { Present value of } 1 & .558 & .508 \\\text { Present value of an anmuity of } 1 & 7.360 & 7.024\end{array}$

- Refer to Exhibit 14-4.At date of issuance cash received would be

A)$278, 832
B)$293, 820
C)$299, 904
D)$300, 000

Question 43

On May 1, 2010, Potter, Inc., issued $30, 000 of ten-year, 12% bonds payable dated January 1, 2010.The cash received amounted to $29, 808.The bonds pay interest semiannually.Potter's fiscal year ends on June 30, 2010.What amount of interest expense should be reported on the income statement prepared on June 30, 2010, assuming straight-line amortization?

A)$624.00
B)$669.60
C)$549.60
D)$609.60

Question 44

On January 1, 2010, the Krueger Co.issued $140, 000 of 20-year 8% bonds for $172, 000.Interest was payable annually.The effective yield was 6%.The effective interest method was used to amortize the premium.What amount of premium would be amortized for the year ended December 31, 2011?

A)$ 827.20
B)$1, 804.80
C)$ 932.80
D)$ 453.20

Question 45

Bond issue costs are reported on the financial statements as

A)Other Assets
B)a reduction to Premium on Bonds Payable
C)Deferred Liabilities
D)an addition to Discount on Bonds Payable

Question 46

The proper procedure for computing the amortization of a premium using the effective interest method includes multiplying

A)the market rate of interest times the face value of the bonds
B)the market rate of interest times the carrying value of the bonds
C)the stated rate of interest times the face value of the bonds
D)the stated rate of interest times the carrying value of the bonds

Question 47

The effective interest method of amortization assumes a stable

A)interest expense
B)interest rate
C)book value
D)amortization amount

Question 48

The theoretical justification in support of the effective interest method of amortizing a discount is that it represents

A)a stable interest expense
B)a stable interest rate
C)an increasing balance in the discount account
D)an increasing balance in the book value account

Question 49

Which statement is true?

A)The carrying amount of the bonds will decrease each year if the bonds were issued at a discount.
B)The carrying amount of the bonds will decrease each year if the bonds were issued at a premium.
C)Total interest expense will increase each year if the bonds are issued at a discount and the straight-line method of amortization is used.
D)Total interest expense will increase each year if the bonds are issued at a premium and the effective interest method of amortization is used.

Question 50

The proper procedure for computing the issuance price of a bond includes adding the

A)maturity value of the bonds to the accrued interest
B)maturity value of the bonds to the present value of the interest
C)present value of the principal to the accrued interest
D)present value of the principal to the present value of the interest

Question 51

Bond issue costs

A)should be amortized by the straight-line method to interest expense
B)should be included in bond discount or subtracted from bond premium and amortized by the effective interest method
C)should be subtracted from bonds payable on the balance sheet
D)should not be amortized and should be written off at bond retirement

Question 52

The bond interest expense reflected on the income statement should reflect an amount based on the

A)effective interest rate
B)stated interest rate
C)nominal interest rate
D)face interest rate

Question 53

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows:
$\begin{array}{lll}&6\%&7\%\\\text { Present value of } 1 & .558 & .508 \\\text { Present value of an anmuity of } 1 & 7.360 & 7.024\end{array}$


-Refer to Exhibit 14-4.The discount at the date of bond issuance would be

A)$ 0
B)$ 96
C)$ 6, 180
D)$21, 168

Question 54

Exhibit 14-5 Quail issued $200, 000 of its ten-year 12% bonds for $224, 924 on October 1, 2010.The effective rate on the bonds was 10% and interest is paid each October 1 and April 1.

-
Refer to Exhibit 14-5.Assuming Quail uses the effective interest method, the adjusting entry on December 31, 2010, would include a

A)debit to Premium on Bonds Payable for $1, 250
B)credit to Interest Payable for $5, 623
C)credit to Interest Payable for $6, 000
D)debit to Interest Expense for $6, 623

Question 55

A theoretical difference between the effective interest method and the straight-line amortization method is that

A)the effective interest method is easier to use
B)the effective interest method can be used if there is a material difference in the computation when compared to the straight-line method
C)the effective interest method produces a result that is based on a constant rate of interest
D)the effective interest method produces a result that is based on a constant interest expense

Question 56

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows:
$\begin{array}{lll}&6\%&7\%\\\text { Present value of } 1 & .558 & .508 \\\text { Present value of an anmuity of } 1 & 7.360 & 7.024\end{array}$

- Refer to Exhibit 14-4.These bonds sold at

A)a premium
B)a discount
C)par
D)cannot be determined from the information given

Question 57

A $900, 000, ten-year, 12% bond issue was sold to yield 10%.Interest was payable annually.Actuarial information for ten periods follows: $\begin{array}{lll}&10\%&12\%\\\text { Present value of } 1 &0.38554& 0.32197 \\\text { Present value of } \text { anmuity of } 1 & 6.14457 & 5.65022\end{array}$ How much cash was received when the bonds were issued?

A)$ 899, 997
B)$ 957, 210
C)$ 388, 624
D)$1, 010, 600

Question 58

On January 1, 2010, Saldano, Inc.issued $50, 000 of ten-year 8% bonds for $43, 800.Interest was payable semiannually.The effective yield was 10%.The effective interest method of discount amortization was used.What amount of interest expense should be recorded for the six-month period ending December 31, 2010?

A)$2, 205.50
B)$2, 209.00
C)$2, 180.50
D)$2, 199.50

Question 59

Exhibit 14-4 A $300, 000, ten-year, 6% bond issue was sold to yield 7% interest payable annually.Actuarial information for 10 periods is as follows:
$\begin{array}{lll}&6\%&7\%\\\text { Present value of } 1 & .558 & .508 \\\text { Present value of an anmuity of } 1 & 7.360 & 7.024\end{array}$



- Refer to Exhibit 14-4.Using the effective interest method interest expense at the end of the first year is

A)$21, 000
B)$19, 518
C)$18, 000
D)$16, 730

Question 60

Exhibit 14-5 Quail issued $200, 000 of its ten-year 12% bonds for $224, 924 on October 1, 2010.The effective rate on the bonds was 10% and interest is paid each October 1 and April 1.

-
Refer to Exhibit 14-5.Assuming Quail uses the effective interest method and reversing entries, the entry to record the payment of interest on April 1, 2011, would include a

A)debit to Interest Expense for $5, 623
B)debit to Premium on Bonds Payable for $1, 250
C)credit to Bonds Payable for $12, 000
D)credit to Cash for $10, 000

Question 61

A material gain earned when retiring bonds before their maturity date is recognized by

A)amortizing it over the remaining life of the bond
B)making a prior period adjustment
C)reporting it as an extraordinary item in the year of retirement
D)reporting it as an ordinary item in the year of retirement

Question 62

Exhibit 14-6 Alpha, Inc.issued $100, 000 of its 7% five-year bonds on January 1, 2010, at 98.Interest is paid on January 1 and July 1.The bonds are callable at 103 and straight-line amortization is used.The bonds are recalled on April 1, 2012.

-
Refer to Exhibit 14-6.The journal entry to record the reacquisition of the bonds will include a

A)debit to Loss on Bond Redemption for $4, 100
B)credit to Gain on Bond Redemption for $5, 000
C)debit to Discount on Bonds Payable for $1, 100
D)debit to Loss on Bond Redemption for $4, 200

Question 63

Gains or losses from refunding are recognized

A)over the remaining life of the old issue
B)in the year of refunding
C)over the life of the new bond issue
D)as a prior period adjustment

Question 64

On April 1, 2010, the bondholders of Vick, Inc.exchanged convertible bonds for common stock.Vick's carrying amount of these bonds was less than the market value but greater than the par value of the common stock issued upon conversion.If Vick used the book value method of accounting for the conversion, which of the following occurred as a result of recording this conversion?

A)Stockholders' equity increased.
B)Additional paid-in capital decreased.
C)Retained earnings increased.
D)A loss was recognized.

Question 65

A material gain or loss from debt refunding should be

A)recognized over the remaining life of the old issue as ordinary income or loss
B)recognized in the current period as extraordinary income or loss
C)recognized over the life of the new bond issue as extraordinary income or loss
D)recognized in the current period as ordinary income or loss

Question 66

Exhibit 14-7 On January 1, 2010, Bubbles, Inc.sold $200, 000 of its 12% five-year bonds to yield 10%.Interest is paid each January 1 and July 1, and effective interest amortization is used.On May 1, 2012, Bubbles, retired $100, 000 of the bonds at 104.The book value of the bonds on December 31, 2011, was $212, 926.

-
Refer to Exhibit 14-7.The book value of the remaining bonds outstanding on May 1, 2012, after the retirement entry has been posted would be

A)$112, 024
B)$112, 926
C)$106, 463
D)$106, 012

Question 67

Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were:
$\begin{array}{ll}\text { Bonds } & \$ 980 \text { (ex rights) } \\\text { Warrants } & \$ 14 \text { each } \\\text { Common stock } & \$ 60 \text { each }\end{array}$


-Refer to Exhibit 14-8.The entry to record the sale of the bonds would include a

A)debit to Discount on Bonds Payable for $10, 000
B)credit to Bonds Payable for $490, 000
C)debit to Cash for $560, 000
D)credit to Common Stock Warrants for $65, 000

Question 68

On January 2, 2010, Laura Co.issued 8% bonds with a face amount of $1, 000, 000 maturing on January 2, 2020.The bonds were issued to yield 12%, resulting in a discount.Laura incorrectly used the straight-line method instead of the effective interest method to amortize the discount.How is the carrying amount of the bonds affected by this error as of December 31, 2011?

A)overstated
B)understated
C)no effect
D)cannot be determined with information provided

Question 69

Exhibit 14-6 Alpha, Inc.issued $100, 000 of its 7% five-year bonds on January 1, 2010, at 98.Interest is paid on January 1 and July 1.The bonds are callable at 103 and straight-line amortization is used.The bonds are recalled on April 1, 2012.

-
Refer to Exhibit 14-6.Interest expense for 2012 will be

A)$1, 750
B)$1, 800
C)$1, 850
D)$1, 900

Question 70

In 2010, Tame Co.took advantage of market conditions to refund its outstanding debt.Wild should report the excess of the carrying amount of the old debt over the amount paid to extinguish it as a(n)

A)deferred credit to be amortized over life of new debt
B)part of continuing operations
C)extraordinary item, net of income taxes
D)prior period adjustment

Question 71

Exhibit 14-9 Mayne, Inc.sold $500, 000 of its ten-year 8% bonds at 96 on January 1, 2009.Interest is paid each January 1 and July 1 and straight-line amortization is used.Each $1, 000 bond is convertible into 100 shares of $10 par common stock.One-half of the bonds were converted on January 1, 2014, when the market value of the stock was $14 per share.

-
Refer to Exhibit 14-9.The entry to record the conversion using the book value method would include a

A)debit to Loss on Conversion for $5, 000
B)debit to Retained Earnings for $5, 000
C)debit to Discount on Bonds Payable for $5, 000
D)credit to Additional Paid-in Capital from Bond Conversion for $5, 000

Question 72

When the conversion of bonds payable to common stock is recorded under the market value method and the market value of the common stock exceeds the book value of the bonds at date of conversion, the difference is recorded as a

A)debit to Retained Earnings
B)debit to Loss on Conversion
C)debit to Additional Paid-in Capital-Common Stock
D)debit to Discount on Bonds Payable

Question 73

The portion of proceeds from the sale of bonds with detachable stock warrants attributable to the warrants is accounted for as a(n)

A)additional paid-in capital account
B)common stock account
C)contra-liability account
D)adjunct-liability account

Question 74

Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were:
$\begin{array}{ll}\text { Bonds } & \$ 980 \text { (ex rights) } \\\text { Warrants } & \$ 14 \text { each } \\\text { Common stock } & \$ 60 \text { each }\end{array}$

-Refer to Exhibit 14-8.After a total of 2, 000 warrants were exercised, the remaining warrants expired.The entry to record the expiration of the warrants would include a credit to Additional Paid-in Capital from Expired Warrants for

A)$26, 000
B)$39, 000
C)$42, 000
D)$65, 000

Question 75

On January 1, 2010, Newberg issued $200, 000 of ten-year 8% bonds at 98.These bonds were callable at 102 anytime after three years.Straight-line amortization was used.On January 1, 2014, a new bond issue was sold and the old bonds were called.What was the loss on bond retirement?

A)$2, 400
B)$4, 400
C)$6, 400
D)$8, 000

Question 76

Exhibit 14-7 On January 1, 2010, Bubbles, Inc.sold $200, 000 of its 12% five-year bonds to yield 10%.Interest is paid each January 1 and July 1, and effective interest amortization is used.On May 1, 2012, Bubbles, retired $100, 000 of the bonds at 104.The book value of the bonds on December 31, 2011, was $212, 926.

-
Refer to Exhibit 14-7.The entry to record the retirement would include a

A)credit to Cash for $108, 000
B)credit to Interest Payable for $4, 000
C)debit to Premium on Bonds Payable for $12, 024
D)debit to Loss on Bond Retirement for $2, 012

Question 77

On July 1, 2010, Navarre Corporation issued bonds with a face value of $100, 000 and 12% interest payable semiannually.The bonds mature on June 30, 2015.The market rate of interest at the time of issuance was 14%, so the bonds were issued at a discount of $7, 054.Using the effective interest method, the amount of discount that should be amortized by Navarre on December 31, 2010, is

A)$702.35
B)$506.26
C)$493.75
D)$423.21

Question 78

On January 1, 2010, Lisa Co.issued $50, 000 of 9% ten-year bonds at 98.Issuance costs amounted to $2, 000.On July 1, 2015, all of the bonds were called at 103.What was the loss on bond retirement, assuming the use of straight-line amortization?

A)$1, 950
B)$2, 500
C)$4, 200
D)$4, 750

Question 79

Exhibit 14-7 On January 1, 2010, Bubbles, Inc.sold $200, 000 of its 12% five-year bonds to yield 10%.Interest is paid each January 1 and July 1, and effective interest amortization is used.On May 1, 2012, Bubbles, retired $100, 000 of the bonds at 104.The book value of the bonds on December 31, 2011, was $212, 926.

-
Refer to Exhibit 14-7.Which of the following would be included in the interest accrual entry?

A)credit to Interest Payable for $3, 333
B)debit to Bond Interest Expense for $3, 549
C)credit to Discount on Bonds Payable for $4, 259
D)debit to Premium on Bonds Payable for $451

Question 80

Exhibit 14-8 Marvin Corp.issued $500, 000 of its ten-year 6% bonds at 104.Each $1, 000 bond carries ten warrants.Each warrant allows the holder to purchase one share of $10 par common stock for $50.Following the sale, relevant market values were:
$\begin{array}{ll}\text { Bonds } & \$ 980 \text { (ex rights) } \\\text { Warrants } & \$ 14 \text { each } \\\text { Common stock } & \$ 60 \text { each }\end{array}$


-Refer to Exhibit 14-8.The entry to record the exercise of 1, 000 warrants would include a

A)debit to Cash for $13, 000
B)credit to Common Stock for $50, 000
C)credit to Additional Paid-in Capital on Common Stock for $63, 000
D)debit to Common Stock Warrants for $13, 000