CHAPTER 15 MULTIPLE CHOICE

Question 1

THE MARKET PRICE OF A BOND IS THE

Answer 1

PRESENT VALUE OF ITS PRINCIPAL AMOUNT AT MATURITY PLUS THE PRESENT VALUE OF ALL FUTURE INTERST PAYMENTS

Question 2

WHEN BONDS ARE SOLD AT FACE VALUE ON THE ISSUE DATE, BONDS PAYABLE IS CREDITED FOR

Answer 2

THE FACE VALUE OF BOND SISSUED

Question 3

ON THE MATURITY DATE, JANUARY 1, LIVINGSTONE COPRORATION PAYES THE ACCRUED INTEREST RECORDED ON DECEMBER 31 AND THE FACE VALUE OF THE BONDS. tHE ENTRY TO RECORD THE PAYMENT WILL RESULT IN A CREDIT TO CASH AND A DEBIT TO

Answer 3

BONDS PAYABLE FOR FACE AMOUNT

BONDS INTEREST PAYABLE FOR INTEREST DUE

Question 4

ON THE DATE OF ISSUE, JAGIELO CORPORATION SELLS 2 MILLION OF 5 YEAR BONDS AT 97. THE ENTRY TO RECORD THE SALE WILL INCLUDE THE FOLLOWING DEBITS AND CREDITS

Answer 4

DB DISCOUNT ON BONDS PAYABLE 60,000 ( (2,000,000 X .97) = 1,940,000 )

CR BONDS PAYABLE 2,000,000

Question 5

ON THE ISSUE DATE, WELLINGTON CORPORATION SELLS 1 MILLION BONDS AT 103. THE ENTRY TO RECORD THE SALE WILL INCLUDE A REDIT TO PREMIUM ON BONDS PAYABLE OF

Answer 5

30,000

Question 6

HOW DOES THE AMORTIZATION OF DISCOUNT ON BONDS PAYABLE AFFECT EACH OF THE FOLLOWING

Answer 6

DECREASES DISCOUNT ON BONDS PAYABLE
CARRYING VALUE OF BONDS INCREASES
AMORTIZED DISCOUNT INCREASES EXPENSE
DECREASES NET INCOME

Question 7

THE MARKET RATE OF INTEREST FOR A BOND ISSUE WHICH SELLS FOR MORE THAN ITS PAR VALUE IS

Answer 7

LESS THAN THE CONTRACTURAL INTEREST RATE ON THE BONDS

Question 8

HOW DOES THE AMORTIZATION OF PREMIUM ON BONDS PAYABLE AFFECT EACH OF THE FOLLOWING

Answer 8

DECREASES PREMIUM ON BONDS PAYABLE

CARRYING VALUE DECREASES

DECREASED INTEREST EXPENSE

INCREASED NET INCOME

Question 9

HOFFMAN CORPORATION RETIRES ITS BONDS AT 106 ON JANAURY 1, FOLLOWING THE PAYMENT OF SEMIANNUAL INTEREST. THE FACE VALUE OF THE BONDS IS 100,000. THE CARRYING VALUE OF THE BONDS AT THE REDEMPTION DATE IS 104,950. THE ENTRY TO RECORD THE REDEMPTION WILL INCLUDE A

Answer 9

DB BONDS PAYABLE 100,000
DB COMMON STOCK 4,950
DB LOSS ON BOND REDEMPTION 1,050
CR CASH 106,000

Question 10

RAY CORPORATIONS $100,000 CONVERTIBLE BONDS ARE CONVERTED INTO 3,000 SHARES OF 20$ PAR VALUE COMMON STOCK WHEN THE MARKET PRICE OF THE STOCK IS 40$ PER SHARE. using THE BOOK VALUE METHOD, THE ENTRY TO RECORD THE CONVERSION WILL INCLUDE

Answer 10

DB BONDS PAYABLE 100,000
CR COMMON STOCK 60,000
CR PAID IN CAPITAL IN EXCESS OF PAR VALUE 40,000

Question 11

COMPANY ISSUES A 300,000$, 10%, 20 YEAR MORTGAGE ON JANUARY 1, THE TERMS PROVIDE FOR SEMIANNUAL INSTALLMENT PAYMENTS, EXCLUSIVE OF REAL ESTATE TAXES AND INSURANCE, OF 17,483$. AFTER THE FIRST INSTALLMENT PAYMENT , THE PRINCIPLE BALANCE IS

Answer 11

297,517

Question 12

INC ISSUES A 1MILLION DOLLAR, 10%, 20 YEAR MORTGAGE NOTE ON JANUARY 1, 2012. THE NOTE WILL BE PAID IN ANNUAL INSTALLMENTS OF 140,000$ EACH PAYABLE AT THE END OF THE YEAR. WHAT IS THE AMOUTN OF INTEREST EXPENSE THAT SHOULD BE RECOGNIZED TO PORTLY CIHLA, INC. IN THE SECOND YEAR?

Answer 12

96,000

Question 13

WHICH OF THE FOLLOWING IS NOT A CONDITION UNDER WHICH THE ISSUE MUST RECORD THE LEASE AS AN ASSET

Answer 13

THE LEASE TERM MUST BE EQUAL TO 75% OR MORE OF THE ECONOMIC LIFE OF THE LEASE

Question 14

UNDER THE EFFECTIVE INTEREST METHOD OF AMORTIZATION, INTEREST EXPENSE IS COMPUTED BY MULTIPLYING

Answer 14

BEGINNING CARRYING VALUE X EFFECTIVE INTEREST RATE

Question 15

ON JANUARY 1, ARAWAK, INC. ISSUED 2,000,000$ AT 9% BONDS FOR 1,900,000$. THE BONDS WERE ISSUED TO YIELD 10%. INTEREST IS PAYABLE ANNUALLY ON DECEMBER 31 THE FIRST YEAR. ARAWAK SHOULD REPORT AMORTIZED BOND DISCOUNT OF

Answer 15

90,000

Question 16

ON JANUARY 1, WHEN THE MARKET INTEREST RATE WAS 14%, SANTORIA CORPORATION ISSUED BONDS IN THE FACE AMOUNT OF 500,000$, WITH INTEREST AT 12% PAYABLE SEMIANNUALY. THE BONDS WERE ISSUED AT A DISCOUNT OF $53,180. HOW MUCH DISCOUNT SHOULD BE AMORTIZED BY THE EFFECTIVE INTERST METHOD FOR THE FIRST INTEREST PERIOD?

Answer 16

DB BOND INTEREST EXPENSE 31,277 (446,820 X 7%)

CR DISCOUNT ON BONDS PAYABLE 1,277

CR CASH (500,000 X 6%) = 30,000

Question 17

THE EFFECTS OF THE STRAIGHT LINE METHOD OF AMORTIZATION ON THE FOLLOWING IN EACH INTERST PERIOD ARE

Answer 17

INTEREST EXPENSE IS SAME

CARRYING VALUE INCREASES IF A DISCOUNT; DECREASES IF PREMIUM

Question 18

ON JANAURY 1, CORPORATION ISSUED 500,000$ AT 12%, SIX-YEAR BONDS WITH INTEREST PAYABLE ON JULY 1 AND JANAURY . THE BONDS SOLD FOR 549,300$ AT AN EFFECTIVE INTEREST RATE OF 10%. ON THE FIRST INTEREST DATE, USING THE EFFECTIVE INTEREST METHOD, THE DEBIT ENTRY TO BOND INTERST EXPENSE IS

Answer 18

DB BOND INTEREST EXPENSE 27,465

549,300 X 10% X 1/2