Question 1

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2011 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The annual cash payment for interest on the bonds are:

Accepted Answer

The annual cash payment for interest is calculated as the face value of the bonds ($100,000) multiplied by the coupon rate (12%), which equals $12,000.

Question 2

On January 1, 2010, Hooper Corporation issued 3-year bonds with a $40,000 face amount and a 6% annual coupon rate paid annually on December 31. The bonds were issued at $36,021 when the market rate of interest was 10%. Complete the amortization table for the bonds using the effective interest method. Round all amounts to the nearest dollar.

Accepted Answer

The answer of On January 1, 2010, Hooper Corporation issued...

Question 3

On January 1, 2009, Enron Corporation issued a 4-year, 7%, $9,000 bond payable. Beginning in 2010, interest is payable annually every January 1. The market rate of interest at issuance is 9%. How much are the interest payments by Enron? Why is the amount of interest expense different than the cash payments?

Accepted Answer

The answer of On January 1, 2009, Enron Corporation issued...

Question 4

Barkley Brothers Inc. shows the following information on its balance sheet for December 31, 2010.
  The bonds have a stated annual interest rate of 5 percent and will mature on December 31, 2012. The market value of the bonds as of December 31, 2010, is $98,167. Assume that Barkley retired the bonds by purchasing them on the open market. The journal entry to record this purchase would include: 
a. a credit to Bonds Payable for $100,000.
b. a debit to Discount on Bonds Payable for $5,350.
c. a credit to Discount on Bonds Payable for $5,350.
d. a debit to Cash for $98,167.

Accepted Answer

The answer of Barkley Brothers Inc. shows the following information...

Question 5

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2011 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The June 30, 2006 entry will include:

Accepted Answer

The interest expense is calculated using the effective interest rate method, which involves multiplying the carrying amount of the bond by the market interest rate (10%). The carrying amount is $107,732, so the interest expense is $107,732 * 10% / 2 = $5,386.60.

Question 6

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2008, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The interest expense for the six months ending December 31, 2008 is:

Accepted Answer

The interest expense is calculated using the effective interest method. The carrying amount of the bonds at issuance is $937,790. The market rate is 10%, so the semi-annual interest rate is 5%. The interest expense for the first six months is $937,790 * 5% = $46,889.50.

Question 7

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2011 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The interest expense for 2006 is:

Accepted Answer

The answer of Duncan Industries sold $100,000 of 12 percent...

Question 8

On January 1, 2009, Pacific Corporation issued a 3-year, 8%, $5,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2009 is 10%. The bond was issued at $4,750. Calculate the total interest expense over the 3-year life of the bond independent of the particular accounting method used to recognize interest expense each year.

Accepted Answer

The answer of On January 1, 2009, Pacific Corporation issued...

Question 9

On January 1, 2010, Lukens Corporation issued 5-year bonds with a $50,000 face amount and a 6% annual coupon rate paid annually on January 1. The bonds were issued at $44,166 when the market rate of interest was 9%.
A. Prepare the journal entry to record the issuance of the bonds on January 1, 2010. Round to the nearest dollar.
B. Were the bonds issued at a premium or discount? How do you know?

Accepted Answer

The answer of On January 1, 2010, Lukens Corporation issued...

Question 10

On January 1, 2009, Mango Corporation issued a 3-year, 4%, $3,000 bond payable. Beginning in 2010, interest is payable every year on January 1 over the life of the bond. The market rate of interest on January 1, 2009 is 6%. What are the proceeds received by Mercer from the issue of this bond on January 1, 2009?

Accepted Answer

The answer of On January 1, 2009, Mango Corporation issued...

Question 11

Identify the effect(s) as a result of each transaction listed as 1 through 4 below by placing the letter of the effect on total liabilities and the effect on net income in the two columns provided. Keep in mind that there are currently no accrued expenses recorded on the balance sheet as liabilities.

Accepted Answer

The answer of Identify the effect(s) as a result of...

Question 12

On January 1, 2009, Precision Corporation issued a 3-year, 7%, $2,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2009 is 10%. If Precision uses the effective interest method, what is the balance sheet value of the bond payable on January 1, 2009?

Accepted Answer

The answer of On January 1, 2009, Precision Corporation issued...

Question 13

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2008, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The book value of the bonds on December 31, 2008 is:

Accepted Answer

The book value of the bonds is calculated using the effective interest method. The initial book value is $937,790. Interest expense for the first period (July 1 to December 31) is $937,790 * 10% * (6/12) = $46,889.50. The cash interest payment is $1,000,000 * 9% * (6/12) = $45,000. The amortization of the discount is $46,889.50 - $45,000 = $1,889.50. Therefore, the book value on December 31, 2008, is $937,790 + $1,889.50 = $939,679.50.

Question 14

On January 1, a 5-year, $5,000 non-interest-bearing note payable was issued when the market rate of interest was 9%. What are the proceeds from this issue? Round your final answer to the nearest dollar.

Accepted Answer

The answer of On January 1, a 5-year, $5,000 non-interest-bearing...

Question 15

On January 1, 2009, Sheena Corporation issued a 3-year, 7%, $4,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The bonds were issued at 104¼. Calculate the issue price.

Accepted Answer

The answer of On January 1, 2009, Sheena Corporation issued...

Question 16

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

Accepted Answer

The answer of On January 1, a 3-year, $1,090 non-interest-bearing...

Question 17

On January 1, a 3-year, $10,000 non-interest-bearing note payable was issued for $7,938 when the market rate of interest was 8%. Interest expense is recognized using the effective interest method. Calculate the balance sheet value of the note a year after its issuance. Round your final answer to the nearest dollar.

Accepted Answer

The answer of On January 1, a 3-year, $10,000 non-interest-bearing...

Question 18

Burns Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2010, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Burn's fiscal year ends on December 31 and the company uses the effective interest method of amortization. The journal entry on December 31, 2010 will include:

Accepted Answer

The interest expense is calculated using the effective interest rate (10%) on the carrying amount of the bonds. The bond discount is amortized by the difference between the interest expense and the cash interest paid. The credit to Bond Discount represents the amortization of the discount.

Question 19

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

Accepted Answer

The answer of On January 1, a 5-year, $4,000 non-interest-bearing...

Question 20

Samuels Corporation issued a $40,000, 3-year, non-interest-bearing note payable on January 1, 2009. Reflecting a market rate of interest of 10%, Garrison received $30,053. Calculate interest expense (to the nearest dollar) for 2009 and 2010.

Accepted Answer

The answer of Samuels Corporation issued a $40,000, 3-year, non-interest-bearing...

Quiz 11: Long-Term Liabilities: Notes, Bonds, and Leases

On January 1, a 5-year, $5,000 non-interest-bearing note payable was issued when the market rate of interest was 9%. What are the proceeds from this issue? Round your final answer to the nearest dollar.

On January 1, 2009, Sheena Corporation issued a 3-year, 7%, $4,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The bonds were issued at 104¼. Calculate the issue price.

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

Samuels Corporation issued a $40,000, 3-year, non-interest-bearing note payable on January 1, 2009. Reflecting a market rate of interest of 10%, Garrison received $30,053. Calculate interest expense (to the nearest dollar) for 2009 and 2010.