Question 1

When the market rate of interest is less than the contract rate for a bond,the bond will sell for a premium.

Accepted Answer

A) True 
 B)False  True

Question 2

The present value of an annuity is the sum of the present values of each cash flow.

Accepted Answer

A) True 
 B)False

Question 3

Match each description below to the appropriate term (a-g) .
-Allows the issuer to redeem bonds before maturity date

Accepted Answer

A)  carrying amount
B)  face value
C)  callable bond
D)  indenture
E)  term bondF) convertible bondG) serial bond H) B) and F)
I) C) and G)

Question 4

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Accepted Answer

A)   debit Bonds Payable,credit Cash
B)   debit Cash and Discount on Bonds Payable,credit Bonds Payable
C)   debit Cash,credit Premium on Bonds Payable and Bonds Payable
D)   debit Cash,credit Bonds PayableE) A) and B)
F) None of the above

Question 5

The higher the times interest earned ratio,the better the creditors' protection.

Accepted Answer

A) True 
 B)False

Question 6

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Accepted Answer

A) True 
 B)False  True

Question 7

Present entries to record the selected transactions described below:

Accepted Answer

The answer of Present entries to record the selected transactions...

Question 8

The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period.

Accepted Answer

A) True 
 B)False

Question 9

A bond indenture is

Accepted Answer

A)   a contract between the corporation issuing the bonds and the underwriters selling the bonds
B)   the amount due at the maturity date of the bonds
C)   a contract between the corporation issuing the bonds and the bondholders
D)   the amount for which the corporation can buy back the bonds prior to the maturity dateE) A) and D)
F) A) and C) C

Question 10

The journal entry a company records for the payment of interest,interest expense,and amortization of bond premium is

Accepted Answer

A)   debit Interest Expense,credit Cash and Premium on Bonds Payable
B)   debit Interest Expense,credit Cash
C)   debit Interest Expense and Premium on Bonds Payable,credit Cash
D)   debit Interest Expense,credit Interest Payable and Premium on Bonds PayableE) All of the above
F) A) and D)

Question 11

If $500,000 of 10-year bonds,with interest payable semiannually are sold for $494,040 based on (1)the present value of $500,000 due in 20 periods at 5% plus (2)the present value of twenty $25,000 payments at 5%,the nominal or contract rate and the market rate of interest for the bonds are both 10%.

Accepted Answer

A) True 
 B)False

Question 12

A $300,000 bond was redeemed at 104 when the carrying amount of the bond was $316,000.The entry to record the redemption would include a

Accepted Answer

A)   loss on bond redemption of $3,000
B)   gain on bond redemption of $3,000
C)   gain on bond redemption of $4,000
D)   loss on bond redemption of $4,000E) B) and D)
F) A) and D)

Question 13

The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the end of each interest period.

Accepted Answer

A) True 
 B)False

Question 14

Basil Corporation issues for cash $1,000,000 of 8%,10-year bonds,interest payable annually,at a time when the market rate of interest is 7%.The straight-line method is adopted for the amortization of bond discount or premium.Which of the following statements is true?

Accepted Answer

A)   The carrying amount increases from its amount at issuance date to $1,000,000 at maturity.
B)   The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
C)   The amount of annual interest paid to bondholders increases over the 10-year life of the bonds.
D)   The amount of annual interest expense decreases as the bonds approach maturity.E) A) and B)
F) None of the above

Question 15

The Glenn Corporation issues 1,000,10-year,8%,$2,000 bonds dated January 1 at 96.The journal entry to record the issuance will show a

Accepted Answer

A)   debit to Discount on Bonds Payable for $80,000
B)   debit to Cash of $2,000,000
C)   credit to Bonds Payable for $1,920,000
D)   credit to Cash for $1,920,000E) C) and D)
F) All of the above

Question 16

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.Use the following table,if needed.
​

Accepted Answer

A) True 
 B)False

Question 17

When callable bonds are redeemed below the carrying amount

Accepted Answer

A)   gain on redemption of bonds is credited
B)   loss on redemption of bonds is debited
C)   retained earnings is credited
D)   retained earnings is debitedE) None of the above
F) B) and C)

Question 18

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 97 1 / 2 what is the amount of gain or loss on redemption?

Accepted Answer

A)   $10,000 loss
B)   $25,000 loss
C)   $25,000 gain
D)   $15,000 gainE) B) and C)
F) All of the above

Question 19

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000.Journalize the redemption of the bonds.

Accepted Answer

Bonds Payable 375,000 Discount...

Question 20

The journal entry a company records for the payment of interest,interest expense,and amortization of bond discount is

Accepted Answer

A)   debit Interest Expense,credit Cash and Discount on Bonds Payable
B)   debit Interest Expense,credit Cash
C)   debit Interest Expense and Discount on Bonds Payable,credit Cash
D)   debit Interest Expense,credit Interest Payable and Discount on Bonds PayableE) All of the above
F) A) and B)

Exam 11: Liabilities: Bonds Payable

When the market rate of interest is less than the contract rate for a bond,the bond will sell for a premium.

Correct AnswerverifiedTrue

The present value of an annuity is the sum of the present values of each cash flow.

Correct AnswerverifiedShow Answer

Match each description below to the appropriate term (a-g) . -Allows the issuer to redeem bonds before maturity date

Correct AnswerverifiedShow Answer

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Correct AnswerverifiedShow Answer

The higher the times interest earned ratio,the better the creditors' protection.

Correct AnswerverifiedShow Answer

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

Correct AnswerverifiedTrue

Present entries to record the selected transactions described below:

Correct AnswerverifiedShow Answer

The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period.

Correct AnswerverifiedShow Answer

A bond indenture is

Correct AnswerverifiedC

The journal entry a company records for the payment of interest,interest expense,and amortization of bond premium is

Correct AnswerverifiedShow Answer

If $500,000 of 10-year bonds,with interest payable semiannually are sold for $494,040 based on (1)the present value of $500,000 due in 20 periods at 5% plus (2)the present value of twenty $25,000 payments at 5%,the nominal or contract rate and the market rate of interest for the bonds are both 10%.

Correct AnswerverifiedShow Answer

A $300,000 bond was redeemed at 104 when the carrying amount of the bond was $316,000.The entry to record the redemption would include a

Correct AnswerverifiedShow Answer

The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the end of each interest period.

Correct AnswerverifiedShow Answer

Basil Corporation issues for cash $1,000,000 of 8%,10-year bonds,interest payable annually,at a time when the market rate of interest is 7%.The straight-line method is adopted for the amortization of bond discount or premium.Which of the following statements is true?

Correct AnswerverifiedShow Answer

The Glenn Corporation issues 1,000,10-year,8%,$2,000 bonds dated January 1 at 96.The journal entry to record the issuance will show a

Correct AnswerverifiedShow Answer

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.Use the following table,if needed. ​

Correct AnswerverifiedShow Answer

When callable bonds are redeemed below the carrying amount

Correct AnswerverifiedShow Answer

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000.If the issuing corporation redeems the bonds at 97 1 / 2 what is the amount of gain or loss on redemption?

Correct AnswerverifiedShow Answer

A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000.Journalize the redemption of the bonds.

Correct AnswerverifiedBonds Payable 375,000 Discount...View AnswerShow Answer

The journal entry a company records for the payment of interest,interest expense,and amortization of bond discount is

Correct AnswerverifiedShow Answer

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True

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True

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C

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The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.Use the following table,if needed.

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Bonds Payable 375,000 Discount...
View Answer

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