Question 1

Several years ago,Bee Corporation issued $400,000,10% bonds for $380,000.The balance in the discount on bonds payable account at the end of the current year is $8,000.The balance sheet for the current year would show a net liability of:

Accepted Answer

The net liability is calculated by subtracting the balance in the discount on bonds payable account from the face value of the bonds. Thus, $400,000 (face value) - $8,000 (discount) = $392,000.

Question 2

The entry to amortize the premium on bonds payable consists of a debit to interest expense and a debit to premium on bonds payable.

Accepted Answer

The entry to amortize the premium on bonds payable consists of a debit to interest expense and a credit to premium on bonds payable.

Question 3

Several years ago,Campbell Corporation issued $400,000,10% bonds for $430,000.The balance in the premium on bonds payable account at the end of the current year is $18,000.The balance sheet for the current year would show a net liability of:

Accepted Answer

To calculate the net liability, we need to subtract the balance in the premium on bonds payable account from the face value of the bonds:

$400,000 (face value of bonds) - $18,000 (balance in premium on bonds payable) = $382,000

However, since the bonds were issued for $430,000, there is a premium of $30,000 that needs to be amortized over the life of the bonds. This means that the net liability on the balance sheet will be higher than $382,000.

To find the net liability, we need to subtract the unamortized premium from the face value of the bonds:

$400,000 (face value of bonds) - $30,000 (unamortized premium) = $370,000

Therefore, the net liability on the balance sheet for the current year is $370,000. However, since the bonds are a long-term liability, they will be reported on the balance sheet as a net liability of $418,000 ($370,000 + $48,000 current portion of long-term debt). The best choice is B.

Question 4

SVZ Incorporated needs to raise capital for expansion purposes.Management is considering issuing $2,000,000 of 10%,20-year bonds dated June 1,2017 with interest payment dates of December 1 and June 1.SVZ's year end is December 31.
Prepare the journal entry to recognize the bond under the following circumstances:
A) The bond is issued at par value.
B) The bond is sold at 97
C) The bond is sold at 102
D) The bond is sold at par plus accrued interest on August 1, 2017

Accepted Answer

The answer of SVZ Incorporated needs to raise capital for...

Question 5

Table 15-1
Nickle Industries needs to raise capital for expansion purposes. Management is considering issuing $1,000,000 of 7.5%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Nickle's year end is December 31.
-Refer to Table 15-1.The entry to record the issuance of the bonds on June 1,2017,at 103.375 includes a:

Accepted Answer

The entry to record the issuance of the bonds on June 1, 2017, at 103.375 (which represents a premium of 3.375% above par value) would include a debit to Cash for the total amount received ($1,033,750) and a credit to Bonds Payable for the face value of the bonds ($1,000,000). No premium or discount should be recorded at the issuance date, as it is only calculated and allocated over the life of the bonds.

Question 6

Table 15-1
Nickle Industries needs to raise capital for expansion purposes. Management is considering issuing $1,000,000 of 7.5%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Nickle's year end is December 31.
-Refer to Table 15-1.Assuming the bonds are issued at 98 plus accrued interest on July 1,2017,the semiannual cash payment for interest on December 1,2017,will be:

Accepted Answer

The calculation for the semiannual cash payment for interest on December 1, 2017, is as follows:

Total interest payment per year = $1,000,000 x 7.5% = $75,000 
Semiannual interest payment = $75,000 / 2 = $37,500

Since the bond is issued on July 1, 2017, the accrued interest from June 1 to July 1 must be added to the issue price of $980,000 (98% of $1,000,000).

Accrued interest = $75,000 x (1/2) x (30/360) = $3,125 
Issue price = $980,000 + $3,125 = $983,125

Therefore, the semiannual cash payment for interest on December 1, 2017, will be $37,500. Hence, the correct answer is C.

Question 7

Table 15-6
Kuhnapfel Industries needs to raise capital for expansion purposes. Management is considering issuing $500,000 of 6%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Kuhnapfel's year end is December 31.
-Refer to Table 15-6.Assuming the bonds are issued at 98 plus accrued interest on July 1,2017,the cash obtained on the sale will be in what amount?

Accepted Answer

The answer of Table 15-6
Kuhnapfel Industries needs to raise capital...

Question 8

Central Corporation has an opportunity to acquire a company that produces one of the parts it uses in its manufacturing process.After careful analysis,Central has decided to raise the necessary capital for the acquisition by issuing $3,000,000 of 7.5%,10-year bonds dated April 1,2017,with interest payments on October 1 and April 1.Assume the bonds are issued on June 1,2017 at face value plus accrued interest.Central's year end is December 31.
a_Prepare the entry to record the issuance of the bonds on June 1,2017.
b_Prepare the entry on October 1,2017,to record the interest payment.
c_Prepare the entry to record the accrued interest on December 31,2017.
d_Prepare the April 1,2018 entry to record the interest payment.

Accepted Answer

The answer of Central Corporation has an opportunity to acquire...

Question 9

Table 15-6
Kuhnapfel Industries needs to raise capital for expansion purposes. Management is considering issuing $500,000 of 6%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Kuhnapfel's year end is December 31.
-Refer to Table 15-6.The entry to record the issuance of the bonds on June 1,2017,at 96.5 includes a debit to Cash of what amount?

Accepted Answer

The answer of Table 15-6
Kuhnapfel Industries needs to raise capital...

Question 10

Table 15-1
Nickle Industries needs to raise capital for expansion purposes. Management is considering issuing $1,000,000 of 7.5%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Nickle's year end is December 31.
-Refer to Table 15-1.The entry to record the issuance of the bonds on June 1,2017,at 96.5 includes a:

Accepted Answer

The bonds are issued at 96.5% of their face value, which means they are issued at a discount. The discount is calculated as $1,000,000 - $965,000 = $35,000, which is debited to Discount on Bonds Payable.

Question 11

The Straight-Line method of amortization of a bond discount or premium does a better job of matching.

Accepted Answer

The Effective Interest Rate method does a better job of matching interest expense with the bond's carrying amount over its life, as it reflects the changing interest expense due to the amortization of the bond discount or premium. The Straight-Line method amortizes the same amount each period, which does not accurately reflect the changing interest expense.

Question 12

On December 31,2017,Peterson Sales has a Bonds payable balance of $40,000 and a Discount on bonds payable of $2,100.On the balance sheet,how will this information be shown?

Accepted Answer

A) Calculations: $40,000 - $2,100 = $37,900

Question 13

On December 31,2013,Peterson Sales has a bonds payable balance of $40,000 and a premium on bonds payable of $900.On the balance sheet,how will this information be shown?

Accepted Answer

D) Calculations: $40,000 + $900 = $40,900

Question 14

Table 15-1
Nickle Industries needs to raise capital for expansion purposes. Management is considering issuing $1,000,000 of 7.5%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Nickle's year end is December 31.
-Refer to Table 15-1.The entry to record the issuance of the bonds at maturity value plus accrued interest on August 1,2017,includes a:

Accepted Answer

B) 1,000,000 ? (0.075/2) ? 2/6

Question 15

The proceeds from issuing bonds is equal to the present value of the:

Accepted Answer

The proceeds from issuing bonds are equal to the present value of the maturity value of the bonds plus the present value of the periodic interest payments, both calculated using the effective rate of interest. This is because the effective interest rate reflects the market rate at the time of issuance, which determines the actual cost of borrowing for the issuer and the actual yield to the investor.

Question 16

Table 15-6
Kuhnapfel Industries needs to raise capital for expansion purposes. Management is considering issuing $500,000 of 6%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Kuhnapfel's year end is December 31.
-Refer to Table 15-6.The entry to record the issuance of the bonds on June 1,2017 at 96.5 includes a credit to Bonds Payable of what amount?

Accepted Answer

The answer of Table 15-6
Kuhnapfel Industries needs to raise capital...

Question 17

The time value of money is based on which of the following concepts?

Accepted Answer

The time value of money is based on the concept that money earns income over time. This means that the longer you hold onto money, the more potential there is for it to earn interest or grow through investments, which increases its value over time.

Question 18

Table 15-6
Kuhnapfel Industries needs to raise capital for expansion purposes. Management is considering issuing $500,000 of 6%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Kuhnapfel's year end is December 31.
-Refer to Table 15-6.Assuming the bonds are issued at 98 plus accrued interest on July 1,2017,the semiannual cash payment for interest on December 1,2017,will be in what amount?

Accepted Answer

The answer of Table 15-6
Kuhnapfel Industries needs to raise capital...

Question 19

Table 15-6
Kuhnapfel Industries needs to raise capital for expansion purposes. Management is considering issuing $500,000 of 6%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. Kuhnapfel's year end is December 31.
-Refer to Table 15-6.The entry to record the issuance of the bond at par plus accrued interest on August,1,2017 will include a credit to interest payable of what amount?

Accepted Answer

The answer of Table 15-6
Kuhnapfel Industries needs to raise capital...

Question 20

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will be which of the following?

Accepted Answer

C) Calculations: $20,000 only

Quiz 4: Long-Term Liabilities

Several years ago,Bee Corporation issued $400,000,10% bonds for $380,000.The balance in the discount on bonds payable account at the end of the current year is $8,000.The balance sheet for the current year would show a net liability of:

The entry to amortize the premium on bonds payable consists of a debit to interest expense and a debit to premium on bonds payable.

Several years ago,Campbell Corporation issued $400,000,10% bonds for $430,000.The balance in the premium on bonds payable account at the end of the current year is $18,000.The balance sheet for the current year would show a net liability of:

The Straight-Line method of amortization of a bond discount or premium does a better job of matching.

On December 31,2017,Peterson Sales has a Bonds payable balance of $40,000 and a Discount on bonds payable of $2,100.On the balance sheet,how will this information be shown?

On December 31,2013,Peterson Sales has a bonds payable balance of $40,000 and a premium on bonds payable of $900.On the balance sheet,how will this information be shown?

The proceeds from issuing bonds is equal to the present value of the:

The time value of money is based on which of the following concepts?

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will be which of the following?