Question 1

The total interest cost on forty-six (46),ten-year,6 percent,$1,000 bonds that are issued at 98 is

Accepted Answer

The total interest cost is the face amount of the bonds multiplied by the coupon rate multiplied by the number of years to maturity. In this case, the face amount is $46,000, the coupon rate is 6%, and the number of years to maturity is 10. So, the total interest cost is $46,000 * 0.06 * 10 = $27,600.

Question 2

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

Accepted Answer

The answer of A company issued $300,000 of 20-year,8 percent...

Question 3

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 effective interest method results in a uniform rate of interest over the life of the bond, aligning the interest expense with the carrying amount of the bond, which reflects the market rate at issuance.

Question 4

Which of the following is correct regarding the present value calculations associated with bonds?

Accepted Answer

All of the choices listed are correct regarding the present value calculations associated with bonds. The interest a bond pays is fixed, but the present value is affected by the market interest rate, which changes on a daily basis. Therefore, the amount investors are willing to pay for a bond can vary depending on how the market interest rate has affected its present value.

Question 5

On January 2,20x5,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 2,20x5,the

Accepted Answer

The market interest rate (9 percent) is used to calculate both the present value of the face amount and the present value of the periodic interest payments because it reflects the current market conditions and the return required by investors.

Question 6

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 7

On January 2,20x5,Fresh Inc.issued 20-year bonds payable with a face value of $1,000,000 and a face interest rate of 10 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the factor used to calculate the present value of the $1,000,000 is

Accepted Answer

Since the bonds have a semi-annual interest payment and were issued to yield a market interest rate of 9% annually, the effective interest rate per period is 4.5% (half of 9%). The bonds have a 20-year maturity, resulting in 40 periods (20 years * 2 periods per year). Therefore, the correct factor for calculating the present value of the bond issue is 4.5%, 40 periods.

Question 8

On January 2,20x5,Fresh Inc.issued 20-year bonds payable with a face value of $1,000,000 and a face interest rate of 10 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Accepted Answer

The face value of the bond is $1,000,000 with a face interest rate of 10%. This means that the company will pay $100,000 in interest annually ($1,000,000 x 10%). Since interest is paid semi-annually, the periodic interest payment used in calculating the present value of the bond should be half of the annual interest payment, which is $50,000 ($100,000 ÷ 2). Therefore, choice B is the correct answer.

Question 9

Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual 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 includes the stated interest plus the discount on issuance. The stated interest is $200,000 * 6% * 20 = $240,000. The discount on issuance is $200,000 * (100% - 98%) = $4,000. Therefore, the total interest cost is $240,000 + $4,000 = $244,000.

Question 10

Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual 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 discount on the bonds is $200,000 - ($200,000 * 0.98) = $4,000. Over 20 years, or 40 semiannual periods, the discount amortized each period is $4,000 / 40 = $100. After 7 years, or 14 periods, the total amortized discount is $100 * 14 = $1,400. The carrying value after 7 years is $200,000 (face value) - $4,000 (initial discount) + $1,400 (amortized discount) = $197,400.

Question 11

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

Accepted Answer

The future value of periodic interest payments is not needed in calculating the value of a bond. The other options - face interest rate, market interest rate, and present value of face amount - are all necessary factors in bond valuation.

Question 12

Weller Co.issued $600,000 of 30-year,8 percent bonds at 106 on one of its semiannual 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 is calculated as the total interest payments over the life of the bond minus the premium received. The interest payments are $600,000 * 8% * 30 years = $1,440,000. The premium is $600,000 * 6% = $36,000. Therefore, the total interest cost is $1,440,000 - $36,000 = $1,404,000.

Question 13

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

Accepted Answer

The total interest cost of bonds issued at a discount is equal to the sum of all interest payments made over the life of the bonds plus the amount of the issuance discount. This is because the discount increases the cost of borrowing beyond the stated interest payments.

Question 14

Suffolk Corporation issued $92,000 of 20-year,6 percent bonds at 98 on one of its semiannual 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 answer of Suffolk Corporation issued $92,000 of 20-year,6 percent...

Question 15

On January 2,20x5,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 semiannually on January 2 and July 1.In calculating the present value of the bond issue on January 2,20x5,

Accepted Answer

The market interest rate of 10% is divided by 2 for semiannual periods, resulting in a 5% rate used to calculate the present value of both the face amount and the periodic interest payments.

Question 16

Knollwood Corporation issued $278,000 of 30-year,8 percent bonds at 106 on one of its semiannual 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 $278,000 of 30-year,8 percent...

Question 17

A ten-year bond has a face value of $10,000,a face interest rate of 11 percent,an unamortized bond premium of $400,and an effective interest rate of 10 percent.The bonds were issued on one of its semi-annual interest payment dates.The entry to record the bond interest expense on the first semi-annual interest payment date is : (assuming the effective interest method of amortization),

Accepted Answer

The answer of A ten-year bond has a face value...

Question 18

Knollwood Corporation issued $286,000 of 30-year,8 percent bonds at 106 on one of its semiannual 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 answer of Knollwood Corporation issued $286,000 of 30-year,8 percent...

Question 19

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

Accepted Answer

While the future value of the face or maturity amount can be useful in determining the overall value of a bond, it is not necessary in calculating the current value of the bond. The important factors to consider are the face interest rate, market interest rate, and dollar amount of periodic interest payments.

Question 20

On January 2,20x5,Preston 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 semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Accepted Answer

The face interest rate of the bonds payable is 8 percent, and the face value of the bonds is $300,000. Therefore, the annual interest payment that Preston Corporation will have to pay is $300,000 x 8% = $24,000. Since interest is payable semi-annually, the periodic interest payment that will be used to calculate the present value of the bond issue is $24,000/2 = $12,000. Therefore, the correct choice is B.

Quiz 14: Long Term Liabilities

The total interest cost on forty-six (46) ,ten-year,6 percent,$1,000 bonds that are issued at 98 is

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

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

Which of the following is correct regarding the present value calculations associated with bonds?

A bond premium has the effect of

Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual interest dates.The straight-line method of amortization is to be used.After seven years,what is the carrying value of the bonds?

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

Weller Co.issued $600,000 of 30-year,8 percent bonds at 106 on one of its semiannual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

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

Suffolk Corporation issued $92,000 of 20-year,6 percent bonds at 98 on one of its semiannual 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: .

Knollwood Corporation issued $278,000 of 30-year,8 percent bonds at 106 on one of its semiannual interest dates.The straight-line method of amortization is to be used.After 11 years,what is the carrying value of the bonds?

Knollwood Corporation issued $286,000 of 30-year,8 percent bonds at 106 on one of its semiannual 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:

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