Accounting Review

Acct. Review Chapter 10

51. A company issues $50 million of bonds at par on January 1, 2009. The bonds pay 10% interest semi-annually on 12/31 and 6/30 and mature in 20 years. The journal entry when the bonds are sold is:
A)

B)

C)

D)

A. Option A
B. Option B
C. Option C
D. Option D

55. A $1,000 bond that sells for 104 has a selling price of:
A. $1,004
B. $1,040
C. $1,400
D. $1,000

58. If a bond is selling at 103, it is selling at:
A. Maturity value and yields a 2% interest rate.
B. A discount.
C. A premium.
D. $103 per bond.

79. Elm Corporation plans to invest $300 million to earn about 15% before income taxes. The company is considering whether it should raise the $300 million by issuing 10% bonds payable or capital stock. If the company issues the bonds, it will probably report:
A. Lower net income and lower income taxes expense than if it issues capital stock.
B. Higher net income and higher income taxes expense than if it issues capital stock.
C. Lower net income and higher income taxes expense than if it issues capital stock.
D. Higher net income and lower income taxes expense than if it issues capital stock.

121. On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)
A. Debit Interest Expense $550 and credit Notes Payable $550.
B. Debit Interest Expense $550 and credit Interest Payable $550.
C. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
D. Debit Interest Expense $550 and credit Cash $550.

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

122. Refer to the above data. How much must Noble pay South Bank on May 1, Year 2, when the note matures?
A. $80,000.
B. $89,600.
C. $84,800.
D. $82,400.

123. Refer to the above data. How much interest expense will Noble recognize on this note in Year 2?
A. $9,600.
B. $4,800.
C. $2,400.
D. $3,200.

124. Refer to the above data. At December 31, Year 1, Noble Co.’s overall liability for this loan amounts to:
A. $80,000.
B. $81,600.
C. $83,200.
D. $84,800.

125. Refer to the above data. At December 31, Year 1, the adjusting entry with respect to this note includes a:
A. Credit to Interest Payable for $1,600.
B. Credit to Notes Payable for $1,600.
C. Debit to Interest Expense for $3,200.
D. Credit to Cash for $3,200.

On September 1, 2009, Select Company borrowed $600,000 from a bank and signed a 12%, six-month note payable, with interest on the note due at maturity.

130. Refer to the above data. The total amount of the current liability (including interest payable) for this loan that appears in Select Company’s balance sheet at December 31, 2009, is:
A. $600,000.
B. $624,000.
C. $636,000.
D. $672,000.

132. Sanford Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company’s total liability for this loan amounts to:
A. $90,000.
B. $90,450.
C. $90,900.
D. $91,800.

133. On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:
A. $500.
B. $750.
C. $1,500.
D. $4,500.

On April 1, year 1, Greenway Corporation issues $20 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.

149. Refer to the above data. The journal entry to record the first cash payment to bondholders on October 1, year 1, will include:
A. A credit to Cash of $2,000,000.
B. A debit to Bonds Payable of $1,000,000.
C. A debit to Interest Expense of $1,000,000
D. A credit to Interest Payable of $1,000,000.

150. Refer to the above data. The adjusting entry (if any) required on December 31, Year 1, related to this bond issue involves:
A. Recognition of interest expense of $1,000,000.
B. Recognition of interest expense of $500,000.
C. A credit to Interest Payable of $2,000,000.
D. A credit to Cash of $500,000.

151. Refer to the above data. In Year 2, Greenway’s income statement will report interest expense arising from this bond issue of:
A. $1,000,000.
B. $2,000,000.
C. $500,000.
D. $1,500,000.

152. Refer to the above data. On April 1, Year 1, the journal entry to record issuance of the bonds will include:
A. A credit to Interest Payable of $1,000,000.
B. A debit to Cash of $20,000,000.
C. A credit to Bonds Payable of $2,100,000.
D. A debit to Cash of $21,000,000.

153. Refer to the above data. With respect to this bond issue, Greenway’s balance sheet at December 31, Year 1, will include:
A. Bonds payable of $20,500,000.
B. Bonds payable of $19,500,000.
C. Bonds payable of $20 million, as well as interest payable of $1,500,000.
D. Bonds payable of $20 million, as well as interest payable of $500,000.

Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year 1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each June 30 and December 31.

154. Refer to the above data. The total amount of cash received by Austin Corporation upon issuance of the bonds on April 30, Year 2, is:
A. $6,000,000.
B. $6,200,000.
C. $6,150,000.
D. $6,300,000.

155. Refer to the above data. The entry to record the issuance of bonds payable on April 30, Year 2, includes:
A. A credit to Premium on Bonds Payable of $200,000.
B. A debit to Cash of $150,000.
C. A debit to Bond Interest Expense of $200,000.
D. A credit to Bond Interest Payable of $200,000.

156. Refer to the above data. The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:
A. A debit to Bond Interest Expense of $300,000.
B. A debit to Bond Interest Payable of $100,000.
C. A debit to Bond Interest Expense of $100,000.
D. A debit to Bond interest Expense of $200,000.

157. Refer to the above data. The amount of Austin’s interest expense on this bond issue during year 2 amounts to:
A. $400,000.
B. $450,000.
C. $360,000.
D. $600,000.

Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2009. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.

165. Refer to the information above. The entry made by Webster Company to record issuance of the bonds payable at December 31, 2009, includes:
A. A debit to Cash of $1,000,000.
B. A debit to Discount on Bonds Payable of $30,000.
C. A credit to Bonds Payable of $970,000.
D. A credit to Bond Interest Payable of $30,000.

166. Refer to the information above. Webster ‘s entry at June 30, 2010, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:
A. Debit to Bond Interest Expense of $30,000.
B. Credit to Cash of $33,000.
C. Debit to Discount on Bonds Payable of $3,000.
D. Debit to Bond Interest Expense of $33,000.

167. Refer to the information above. The amount of bond interest expense recognized by Webster Company in 2009 with respect to these bonds is:
A. $60,000.
B. $63,000.
C. $120,000.
D. $66,000.

168. Refer to the information above. The carrying value of this liability in Webster Company’s December 31, 2010, balance sheet is:
A. $1,000,000.
B. $970,000.
C. $976,000.
D. Some other amount.

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