General business data bank

General business data bank

interest paid to bondholders will be a function of the effective-interest rate on the date the bonds are issued.

^a126. When the effective-interest method of bond premium amortization is used, the

a. amount of premium amortized will get larger with successive amortization.

b. carrying value of the bonds will increase with successive amortization.

c. interest paid to bondholders will increase after each interest payment date.

d. interest rate used to calculate interest expense will be the contractual rate.

^a127. Silk Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually.

What amount of discount (to the nearest dollar) should be amortized for the first interest period?

a. $14,089

b. $6,815

c. $9,096

d. $4,548

^a128. Silk Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually.

The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

a. debit to Interest Expense for $30,000.

b. credit to Cash for $34,548.

c. credit to Discount on Bonds Payable for $4,548.

d. debit to Interest Expense for $40,000.

^a129. Silk Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used.

How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?

a. $34,639

b. $34,548

c. $34,457

d. $30,000

^a130. On January 1, Greene Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Greene uses the effective-interest method of amortizing bond discount. At the end of the first year, Greene should report unamortized bond discount of

a. $274,500.

b. $285,500.

c. $258,050.

d. $255,000.

^a131. On January 1, Dade Corporation issued $3,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $3,216,288. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for

a. $360,000.

b. $376,473.

c. $385,955.

d. $420,000.

^a132. On January 1, Jorge Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jorge uses the effective-interest method of amortizing bond discount. At the end of the first year, Jorge should report unamortized bond discount of:

a. $164,700.

b. $171,300.

c. $154,830.

d. $153,000.

^a133. On January 1, Runner Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $2,197,080. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for:

a. $120,000.

b. $153,796.

c. $131,825.

d. $263,650.

^a134. Which of the following statements regarding the effective-interest method of accounting for bonds characteristics is false?

a. GAAP always requires use of the effective interest method.

b. The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective-interest method is used.

c. Over the life of the bonds, the carrying value increases for discounted bonds when using the effective-interest method.

d. The effective-interest method applies a constant percentage to the bond carrying value to compute interest expense.

^a135. On January 1, Gage Corporation issues $1,000,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The carrying value of the bonds at the end of the third interest period is:

a. $972,000

b. $976,000

c. $944,000

d. $928,000

^a136. If bonds are originally sold at a discount using the straight-line amortization method:

a. Interest expense in the earlier years of the bond’s life will be less than the interest to be paid.

b. Interest expense in the earlier years of the bond’s life will be the same as interest to be paid.

c. Unamortized discount is subtracted from the face value of the bond to determine its carrying value.

d. Unamortized discount is added to the face value of the bond to determine its carrying value.

^a137. Presented here is a partial amortization schedule for Roseland Company who sold $200,000, five year 10% bonds on January 1, 2012 for $208,000 and uses annual straight-line amortization.

	BOND AMORTIZATION SCHEDULE
Interest Period	Interest Paid	Interest Expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
January 1, 2012				$8,000	$208,000
January 1, 2013	(i)	(ii)	(iii)	(iv)	(v)

Which of the following amounts should be shown in cell (i)?

a. $20,800

b. $21,600

c. $20,000

d. $4,000

^a138. Presented here is a partial amortization schedule for Roseland Company who sold $200,000, five year 10% bonds on January 1, 2012 for $208,000 and uses annual straight-line amortization.

	BOND AMORTIZATION SCHEDULE
Interest Period	Interest Paid	Interest Expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
January 1, 2012				$8,000	$208,000
January 1, 2013	(i)	(ii)	(iii)	(iv)	(v)

Which of the following amounts should be shown in cell (ii)?

a. $21,600

b. $18,400

c. $20,800

d. $19,200

^a139. Presented here is a partial amortization schedule for Roseland Company who sold $200,000, five year 10% bonds on January 1, 2012 for $212,000 and uses annual straight-line amortization.

	BOND AMORTIZATION SCHEDULE
Interest Period	Interest Paid	Interest Expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
January 1, 2012				$12,000	$212,000
January 1, 2013	(i)	(ii)	(iii)	(iv)	(v)

Which of the following amounts should be shown in cell (iii)?

a. $6,000

b. $12,000

c. $2,400

d. $1,200
^a 140. Presented here is a partial amortization schedule for Roseland Company who sold $200,000, five year 10% bonds on January 1, 2012 for $212,000 and uses annual straight-line amortization.

	BOND AMORTIZATION SCHEDULE
Interest Period	Interest Paid	Interest Expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
January 1, 2012				$12,000	$212,000
January 1, 2013	(i)	(ii)	(iii)	(iv)	(v)

Which of the following amounts should be shown in cell (iv)?

a. $10,800

b. $7,200

c. $14,400

d. $9,600