Question 1

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Riverview County issued a $500,000, 10 percent, 10-year bond on January 1, 2012, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Riverview uses the effective-interest method to amortize all premiums and discounts. How much premium or discount should be amortized on June 30, 2012?

Accepted Answer

The answer of Use the present value and future value...

Question 2

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-A $100,000 bond with a carrying value of $104,000 was called at 107 and retired. In recording the retirement, the issuing company should

Accepted Answer

To determine the gain or loss on retirement of the bond, we need to compare the carrying value of $104,000 to the amount paid to retire the bond, which is $107,000. 
$107,000 - $104,000 = $3,000 loss. 
Therefore, the company should record a $3,000 loss on the retirement of the bond. The correct option is B.

Question 3

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Santos Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Santos uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, how much interest expense should be recorded on June 30, 2012?

Accepted Answer

First find the present value of the bond using the table:

PV = $231,601

Then find the semi-annual interest payment:

Interest payment = $250,000 x 10% x 6/12 = $12,500

Calculate the effective interest rate for the first period:

12% / 2 = 6%

Calculate the interest expense for the first period using the table:

Interest expense = PV x i = $231,601 x 6% = $13,896.06

Therefore, the correct answer is C) $13,896.06.

Question 4

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The total interest expense on a $600,000, 8 percent, 10-year bond issued at 106 would be

Accepted Answer

The bond is issued at 106, meaning it is issued at a premium. The premium is $600,000 * 6% = $36,000. The total interest expense is the cash interest paid over 10 years minus the premium. Cash interest is $600,000 * 8% * 10 = $480,000. Therefore, the total interest expense is $480,000 - $36,000 = $444,000.

Question 5

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-A $200,000 bond with a carrying value of $208,000 was called at 103 and retired. In recording the retirement, the issuing company should

Accepted Answer

The answer of Use the present value and future value...

Question 6

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately

Accepted Answer

The answer of Use the present value and future value...

Question 7

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The effective-interest method of amortizing bond premiums

Accepted Answer

The effective-interest method of amortizing bond premiums recognizes the time value of money and is commonly used in accounting to allocate the bond premium over the life of the bonds. It is based on the effective interest rate, which is the true interest rate earned or paid on a bond, taking into account the present value and future value of the cash flows. The method is not too complicated for practical use and is different from the straight-line method, which allocates the premium evenly over the life of the bonds. The effective-interest method is needed to determine the amount of interest expense and the amount of cash to be paid to bondholders at each interest date.

Question 8

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-A bond discount is reported on the financial statements in the

Accepted Answer

A bond discount represents a liability that is recorded in the liabilities section of the balance sheet. This is because the bond was initially sold for less than its face value, and the company is responsible for paying back the bondholders the full face value at maturity. The discount represents the difference between the initial sale price and the face value.

Question 9

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Cabuki Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much cash was paid for interest in 2012?

Accepted Answer

The cash paid for interest is calculated based on the face value of the bonds and the stated interest rate. The face value is $500,000 and the stated interest rate is 10%, so the cash paid for interest in 2012 is $500,000 * 10% = $50,000.

Question 10

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?

Accepted Answer

Bond premiums are added to the face value of bonds as a liability, while bond discounts are deducted from the face value of bonds as a liability. Therefore, bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds. Choice A is incorrect because bond discounts are not assets, but rather a reduction of a liability. Choice B is incorrect because bond discounts and premiums are not considered expenses or revenues. Choice D is incorrect because the correct answer is C.

Question 11

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Kwancom Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2012, with interest payable on January 1 and July 1 of each year. The entry to account for the discount amortization and accrual of interest on December 31, 2012, would include a

Accepted Answer

The entry to account for the discount amortization and accrual of interest on December 31, 2012, would include a credit to Bond Interest Payable because interest expense is recognized for the period from July 1, 2012, to December 31, 2012.

Question 12

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Which of the following is true of a premium on bonds payable?

Accepted Answer

A premium on bonds payable is an account that represents the excess amount paid by investors on a bond issue above the face value of the bond. This excess amount is amortized over the life of the bond, reducing the premium each year until its balance reaches zero at the maturity date. Therefore, the correct choice is D, as the premium decreases when amortization entries are made until its balance reaches zero at the maturity date.

Question 13

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The net amount of a bond liability that appears on the balance sheet is the

Accepted Answer

The net amount of a bond liability that appears on the balance sheet is the face value of the bond plus related premium or minus related discount. This is because the face value represents the amount borrowed, and any adjustments for premiums or discounts are added or subtracted from that amount to arrive at the net liability.

Question 14

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Assuming the straight-line method of amortization is used, the average yearly interest expense on a $450,000, 11 percent, 20-year bond issued at 106 would be

Accepted Answer

The bond is issued at 106, which means it is issued at a premium. The premium is $450,000 * 6% = $27,000. The total interest paid over 20 years is $450,000 * 11% * 20 = $990,000. The premium amortized over 20 years is $27,000 / 20 = $1,350 per year. The average yearly interest expense is $49,500 - $1,350 = $48,150.

Question 15

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- Riverview County issued a $500,000, 10 percent, 10-year bond on January 1, 2012, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Riverview uses the effective-interest method to amortize all premiums and discounts. How much interest expense should Riverview record on December 31, 2012?

Accepted Answer

The answer of Use the present value and future value...

Question 16

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, $50,000 of 20-year, 6 percent debentures were issued for $56,275.20. Interest payment dates on the bonds are January 1 and July 1. When using the straight-line method, the amount of premium to be amortized on July 1, 2012 is

Accepted Answer

To find the amount of premium to be amortized on July 1, 2012, we need to calculate the premium amortization for the first six months of the bond.

Step 1: Calculate the total premium:
Total premium = Issue price - Face value
Total premium = $56,275.20 - ($50,000 x 1.06) 
Total premium = $56,275.20 - $53,000 
Total premium = $3,275.20

Step 2: Calculate the premium amortization per period using the straight-line method:
Premium amortization per period = Total premium / Number of periods 
Number of periods = 20 years x 2 = 40 periods (since interest is paid semi-annually) 
Premium amortization per period = $3,275.20 / 40 
Premium amortization per period = $81.88

Step 3: Calculate the premium amortization for the first period (January 1, 2012 to July 1, 2012):
Premium amortization for first period = Premium amortization per period x Number of days from issue date to first interest payment date / Number of days in period 
Number of days from issue date to first interest payment date = 181 days 
Number of days in period = 182 days 
Premium amortization for first period = $81.88 x 181 / 182 
Premium amortization for first period = $81.00

Therefore, the amount of premium to be amortized on July 1, 2012 is $81.88 - $81.00 = $0.88. Rounded to the nearest dollar, this is $1 per $1,000 bond, or $50 for the entire issue. Therefore, the correct answer is B) $156.88 (premium amortization for the first 12 months is $81.88 x 2, or $163.76, and we already accounted for $7.88 of amortization on January 1, 2012, so the remaining amortization to be recognized on July 1, 2012 is $156.88).

Question 17

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Cabuki Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much was interest expense in 2012 (assuming Cabuki uses the effective-interest amortization method)?

Accepted Answer

Step 1: Calculate the present value of the bonds:
PV = $500,000 x 0.885 = $442,500

Step 2: Calculate the annual interest payment:
Interest payment = $500,000 x 0.10 = $50,000

Step 3: Determine the effective interest rate:
Effective interest rate = 12%
Premium amortization = 12% - 10% = 2%

Step 4: Calculate interest expense for 2012:
Interest expense for 2012 = $442,500 x 2% = $8,850 (first year premium amortization)
Interest expense for 2012 = $50,000 - $8,850 = $41,150

Therefore, the correct answer is C) $53,100.

Question 18

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Accepted Answer

When interest expense is calculated using the effective-interest amortization method, interest expense equals the carrying value of the bond multiplied by the effective-interest rate. This is because the effective-interest amortization method takes into account the changing carrying value of the bond as interest is accrued and paid. Option A is incorrect because the actual amount of interest paid may be different than the interest expense calculated using the effective-interest amortization method. Option B is incorrect because the stated interest rate is used to calculate the cash paid for interest, but not the amount of interest expense recognized on the income statement. Option D is incorrect because the maturity value of the bonds is not relevant to the calculation of interest expense.

Question 19

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, 2012, Santos Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Santos uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, approximately how much discount will be amortized on December 31, 2012?

Accepted Answer

The answer of Use the present value and future value...

Question 20

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the

Accepted Answer

The net amount required to retire a bond before maturity is the face value of the bond plus any unamortized premium or minus any unamortized discount. This is because the bondholder will receive the face value of the bond when it is retired, but if there is an unamortized premium or discount, it must be accounted for in the net amount required. If there is an unamortized premium, it will increase the net amount required, and if there is an unamortized discount, it will decrease the net amount required.

Quiz 10: Financing: Long-Term Liabilities

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A $100,000 bond with a carrying value of $104,000 was called at 107 and retired. In recording the retirement, the issuing company should

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The total interest expense on a $600,000, 8 percent, 10-year bond issued at 106 would be

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A $200,000 bond with a carrying value of $208,000 was called at 103 and retired. In recording the retirement, the issuing company should

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective-interest method of amortizing bond premiums

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A bond discount is reported on the financial statements in the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following is true of a premium on bonds payable?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The net amount of a bond liability that appears on the balance sheet is the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Assuming the straight-line method of amortization is used, the average yearly interest expense on a $450,000, 11 percent, 20-year bond issued at 106 would be

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the