Question 1

If Rex Corporation issued Ten bonds of $1,000 at 99.75 on the interest date.The entry to record this transaction is:

Accepted Answer

Rex Corporation issued bonds at 99.75% of the face value, so they received $9,975 in cash (99.75% of $10,000). The difference of $25 is recorded as an unamortized bond discount.

Question 2

Which of the following is not needed in calculating the value of a bond?

Accepted Answer

To calculate the value of a bond, we need the face interest rate (coupon rate), market interest rate (yield to maturity), and present value of face (maturity) amount. The future value of periodic interest payments is not needed as these payments are already included in the coupon rate and present value calculations.

Question 3

On January 2,2010,McGowan Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable annually on January 2.In calculating the present value of the bond issue of January 2,2010,the

Accepted Answer

The present value of the bond issue will be calculated using the market interest rate of 9 percent for both the face amount and the periodic interest payments. This is because the market rate is the rate that investors require for lending money, and it is the rate that determines the price of the bond. The face interest rate of 8 percent is only used to determine the amount of periodic interest payments that need to be made to the bondholders.

Question 4

Bond issue costs have the effect of

Accepted Answer

The answer of Bond issue costs have the effect of
...

Question 5

The effective interest method of amortization of bond premiums and discounts is superior to the straight-line method because it results in a(n)

Accepted Answer

The answer of The effective interest method of amortization of...

Question 6

Knollwood Corporation issued $300,000 of 30-year,8 percent bonds at 106 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Accepted Answer

The total interest cost of the bonds can be calculated using the formula: (Face value of bonds x annual interest rate x years) - issue price of bonds. 
In this case, the face value of bonds is $300,000, the annual interest rate is 8%, and the years to maturity is 30. 
So, the total interest cost of the bonds is: ($300,000 x 0.08 x 30) - ($300,000 x 1.06) = $702,000. 
Therefore, the correct answer is B.

Question 7

Bonds Payable should be classified as a long-term liability on a balance sheet unless the issue is

Accepted Answer

The answer of Bonds Payable should be classified as a...

Question 8

Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.After seven years,what is the carrying value of the bonds?

Accepted Answer

The bonds were issued at 98, which means the company received $98,000 ($100,000 x 0.98) in cash. The annual interest payment is $6,000 ($100,000 x 0.06), which is paid semi-annually in two $3,000 payments.

Using the straight-line method of amortization, each year $1,000 of the discount ($2,000 total discount / 20 years) is added to the carrying value of the bonds. After seven years, $7,000 of the discount has been amortized, so the carrying value of the bonds is:

Carrying value = Face value of bonds - unamortized discount
Carrying value = $100,000 - $7,000
Carrying value = $93,000

However, since the bonds were issued at a discount, the carrying value must be adjusted to include the portion of the discount that has already been accreted (added back) to the carrying value.

Accretion = Annual amortization of discount x Number of years since issue
Accretion = $1,000 x 7
Accretion = $7,000

Adjusted carrying value = Carrying value + accretion
Adjusted carrying value = $93,000 + $7,000
Adjusted carrying value = $98,000

Therefore, the carrying value of the bonds after seven years is $98,000 or $98.70% of the face value. The closest answer choice is B, $98,700.

Question 9

Bond issue costs

Accepted Answer

Bond issue costs are considered to be a type of deferred financing cost and should be amortized over the life of the bonds. This is done as an adjustment to the carrying value of the bond liability, and the amortization should be recorded as interest expense over the bond term.

Question 10

A bond premium has the effect of

Accepted Answer

A bond premium occurs when the bond's selling price is higher than its face value, which effectively lowers the bond's yield or effective interest rate below the stated (face) interest rate because the investor pays more upfront for the bond but still receives the same nominal interest payments.

Question 11

On January 2,2010,Barham Corporation issued ten-year bonds payable with a face value of $400,000 and a face interest rate of 9 percent.The bonds were issued to yield a market interest rate of 10 percent.Interest is payable semi-annually on January 2 and July 1.In calculating the present value of the bond issue on January 2,2010,

Accepted Answer

The answer of On January 2,2010,Barham Corporation issued ten-year bonds...

Question 12

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semi-annually,the entry to record the amount of bond interest expense (assuming the straight-line method of amortization)on any interest date is

Accepted Answer

The bond was issued at 96, meaning there is a discount of 4% on $300,000, which is $12,000. This discount is amortized over 40 periods (20 years, semi-annual), resulting in $300 per period. The cash interest payment is $12,000 (4% of $300,000), so the bond interest expense is $12,300 ($12,000 + $300).

Question 13

The total interest cost on thirty-nine,ten-year,6 percent,$1,000 bonds that are issued at 98 is

Accepted Answer

The correct answer is A because the total interest cost is $24,180. The total face value of the bonds is $39,000 (39 x $1,000). The bonds were issued at 98, which means that they were sold for 98% of their face value. Therefore, the total proceeds from the sale of the bonds were $38,220 (39,000 x 0.98). The annual interest payment on the bonds is $2,340 (39,000 x 0.06). The total interest cost over the 10-year life of the bonds is $24,180 (2,340 x 10).

Question 14

Any unamortized bond discount should be reported on the balance sheet of the issuing corporation as a(n)

Accepted Answer

Any unamortized bond discount should be reported on the balance sheet of the issuing corporation as a direct deduction from the face amount of the bonds in the liability section. This is because the bond discount represents the difference between the face amount of the bond and its issue price, and is therefore a reduction in the liability owed by the corporation to bondholders.

Question 15

Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.The entry to record the bond interest expense on the next interest payment date is:

Accepted Answer

Using the straight-line method of amortization, the bond discount of $2,000 ($100,000 - $98,000) will be amortized evenly over the 20-year life of the bond, resulting in an annual amortization expense of $100 ($2,000/20). Therefore, the journal entry to record the bond interest expense on the next interest payment date (assuming a semi-annual payment schedule) would be:

Interest Expense (6/2 x $100,000 x 6%) 3,000 
Discount on Bonds Payable (1/2 x $100) 50 
Cash 2,950

The Discount on Bonds Payable account is credited because it represents a reduction in the carrying value of the bonds, which must be accounted for as an additional interest expense over the life of the bond.

Question 16

Knollwood Corporation issued $281,000 of 30-year,8 percent bonds at 106 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.After 11 years,what is the carrying value of the bonds?

Accepted Answer

The answer of Knollwood Corporation issued $281,000 of 30-year,8 percent...

Question 17

When bonds are issued at a premium,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Accepted Answer

When bonds are issued at a premium, the interest payments made over the life of the bonds are less than the face value of the bonds. The difference between the face value and the issue price is the premium. As a result, the interest cost of the bonds over their life is equal to the interest payments made minus the amount of issuance premium, as stated in option A.

Question 18

Knollwood Corporation issued $278,000 of 30-year,8 percent bonds at 106 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.The entry to record the bond interest expense on the next interest payment date is:

Accepted Answer

The bond was issued at a premium (106% of $278,000), so the premium is $16,680 ($278,000 * 6%). The premium is amortized over 60 periods (30 years * 2), resulting in an amortization of $278 per period. The cash interest payment is $11,120 ($278,000 * 8% / 2). The bond interest expense is the cash interest payment minus the amortization of the premium, which is $10,842 ($11,120 - $278).

Question 19

The entry to record the issuance of bonds at a discount on an interest payment date should include a

Accepted Answer

When bonds are issued at a discount, it means that the selling price of the bonds is less than their face value. The discount is recorded as a contra-liability account and is amortized over the life of the bonds. Therefore, on the interest payment date, the entry to record the issuance of bonds at a discount should include a debit to Cash for the face amount of the bonds minus the amount of discount.

Question 20

Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Accepted Answer

The answer of Suffolk Corporation issued $100,000 of 20-year,6 percent...

Quiz 10: Long-Term Liabilities