Question 1

On January 1,2019,Parker Advertising Company issued $50,000 of six-year,3% bonds when the market interest rate was 4%.The bonds were issued for $47,356.Parker uses the effective-interest method of amortization for bond discount.Semiannual interest payments are made on June 30 and December 31 of each year.Prepare the amortization table for the first four interest payments.(Round your answers to the nearest dollar number. )

Accepted Answer

The answer of On January 1,2019,Parker Advertising Company issued $50,000...

Question 2

When a bond is issued at a premium,the interest expense calculation using the effective-interest amortization method uses the carrying amount of the bonds and the market rate of interest.

Accepted Answer

When a bond is issued at a premium, the effective-interest amortization method is used to allocate the premium to interest expense over the life of the bond. The interest expense calculation uses the carrying amount of the bonds and the market rate of interest.

Question 3

On January 1,2019,Eastern Services issued $140,000 of four-year,9% bonds when the market rate was 8%.The bonds were issued at $144,713.Eastern uses the effective-interest method to amortize the bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.Prepare the amortization table for the first four interest payments.(Round your answers to the nearest dollar number. )

Accepted Answer

The answer of On January 1,2019,Eastern Services issued $140,000 of...

Question 4

On January 1,2019,Castle Services issued $169,000 of six-year,12% bonds when the market interest rate was 11%.The bonds were issued for $172,000.Castle uses the effective-interest method to amortize the bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.Which of the following is the correct journal entry to record the first interest payment? (Round your answers to the nearest dollar number. )

Accepted Answer

C)Interest Expense = $172,000 × 11% × 6/12 = $9460
Cash paid = $169,000 × 12% × 6/12 = 10,140

Question 5

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.

Accepted Answer

This statement is true. In the effective-interest amortization method, the amount of premium amortization is calculated as the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate. This enables a more accurate allocation of interest expense over time and is required under GAAP for certain types of debt securities.

Question 6

Using the effective-interest amortization method,the amount of premium amortization remains the same over the life of the bond.

Accepted Answer

Using the effective-interest amortization method, the amount of premium amortization varies over the life of the bond as it is calculated based on the interest rate used to discount the cash flows of the bond.

Question 7

On January 1,2018,Ling Services issued $168,000 of six-year,12% bonds when the market interest rate was 11%.The issue price of the bonds was $177,110.Ling uses the effective-interest method to amortize the bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.How much interest expense will be recorded when the first interest payment is made? (Round the final answer to the nearest dollar. )

Accepted Answer

B)Interest Expense = $177,110 × 11% × 6/12 = $9741

Quiz 12: Long-Term Liabilities

When a bond is issued at a premium,the interest expense calculation using the effective-interest amortization method uses the carrying amount of the bonds and the market rate of interest.

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.

Using the effective-interest amortization method,the amount of premium amortization remains the same over the life of the bond.