SMU Classification: Restricted
CHAPTER 9 PRACTICE QUESTIONS
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1. On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable.
total cash paid for interest at maturity of the note (using a 360 day year) is:
A.
$70.
B.
$97.50.
C.
$1,300.
D.
$13,000.
The
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2. Rich Company issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the
bonds were issued at a premium, this indicates that
A. the market rate of interest exceeded the coupon rate.
B. the coupon rate of interest exceeded the market rate.
C. the market and coupon rates coincided.
D. no necessary relationship exists between the two rates.
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3. Sonya Company borrowed $175,000 on April 1, 2011. The note requires interest at 12% and principal to be paid after
one year. How much interest expense is recognized on December 31, 2011?
A. $0
B. $21,000
C. $5,250
D. $15,750
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4. On October 1, 2010, Bartley Corporation issued 5%, 10-year bonds with a face value of $500,000 at 104. Interest will be
paid on October 1 and April 1. The entry to record the issuance of the bonds would include
A. credit of $12,500 to Interest Payable.
B. credit of $20,000 to Premium on Bonds Payable.
C. credit of $520,000 to Bonds Payable.
D. debit of $500,000 to Bonds Payable.
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5. The beginning balance in the Warranty Payable account was $50,000. Sales were $900,000 and warranty costs were
estimated at 7% of sales. During the year, $55,000 was paid to settle warranty claims. As a result of these
transactions, what is the amount of warranty expense for the year and what is the ending balance in Warranty Payable?
Warranty Expense
Warranty Payable
A) $50,000
$63,000
B) $63,000
$58,000
C) $55,000
$63,000
D) $113,000
$58,000
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6. A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700.
If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:
A. $ 3,700 loss.
B. $ 2,700 loss.
C. $ 2,700 gain.
D. $ 3,700 gain.
SMU Classification: Restricted
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7. Bonds usually sell at a premium when
A. Investors are willing to invest in the bonds at the stated interest rate
B. The market rate of interest is lower than the stated interest rate
C. The market rate of interest is higher than the stated interest rate
D. The bond issuer expects a gain when the bonds are retired
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8. A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5%
and the balance in the Sales account amounted to $252,000, what is the amount of the sales taxes owed to the taxing
agency?
A. $240,000
B. $252,000
C. $12,600
D. $12,000
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9. A $50,000 bond with a carrying value of $52,000 was called at 107 and retired. In recording the retirement, the issuing
company should record
A. A $1,500 gain
B. A $1,500 loss
C. A $2,000 gain
D. A $3,500 loss
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10. On July 1 the Stanley Corporation issues $2,000,000 of 10-year, 7.5% bonds dated July 1 at 91 when
the market
rate of interest is 9%. Stanley Corporation uses the straight-line method of amortization.
Interest is paid each
June 30 and December 31. The interest expense recognized for the first
semiannual interest payment on
December 31 is:
A. $9,000.
B. $75,000.
C. $84,000.
D. $180,000.
____
11.
A.
B.
C.
D.
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12.
Mendez Corporation issues 3,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 103.
record the issuance will show a
A.
B.
C.
D.
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If bonds are issued at a discount, it means that the
financial strength of the issuer is suspect.
market interest rate is higher than the contractual interest rate.
market interest rate is lower than the contractual interest rate.
bondholder will receive effectively less interest than the contractual interest rate.
The journal entry to
debit to Cash of $3,000,000.
credit to Bonds Payable for $3,015,000.
credit to Cash for $3,090,000.
credit to Premium on Bonds Payable for $90,000.
13. Hogan Company has $250,000 of bonds outstanding. The unamortized premium is $3,600. If the company retired the
bonds at 101, what would be the gain or loss on the retirement?
A. $1,100 gain
B. $1,100 loss
C.
$2,500 gain
SMU Classification: Restricted
D.
$2,500 loss
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14. On March 31, 2009, Bundy Corporation retires $10 million of bonds when they have unamortized premium of $500,000
by purchasing them in the market at 98 ½. Calculate the gain or loss on the retirement of the bonds.
A. $150,000 loss.
B. $350,000 loss.
C. $150,000 gain.
D. $650,000 gain
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15. A company called a $500,000, 7% bond issue at 98. If the unamortized discount is $4,000, the entry will include a
__________.
A. Credit to gain on bond redemption for $6,000
B. Debit to loss on bond redemption for $10,000
C. Credit to gain on bond redemption for $10,000
D. Debit to loss on bond redemption for $4,000
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16. Under the effective-interest method of amortization, interest expense each period can be calculated by multiplying the:
A.carrying value of the bonds times the effective-interest rate for the appropriate time period.
B.carrying value of the bonds times the stated interest rate for the appropriate time period.
C.face value of the bonds times the stated interest rate for the appropriate time period.
D.face value of the bonds times the effective-interest rate for the appropriate time period.
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17. On August 1, 2011, Tyler Corporation issues $3,000,000 of 10-year bonds dated August 1, 2011, at 101 when the market
rate of interest is 8%. Tyler Corporation uses the effective-interest method of amortization and interest is paid each
January 31, and July 31. The entry to record the first semiannual interest payment on January 31, 2012, will include a:
A.debit to Premium on Bonds Payable for $300,000.
B.debit to Interest Expense for $121,000.
C.credit to Premium on Bonds Payable for $240,000.
D.debit to Interest Expense for $20,000.
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18. Bonds payable should be reported as a long-term liability on the balance sheet of the issuing corporation at:
A. Face value less any unamortized discount or plus any unamortized premium.
B. Current bond market price.
C. Face value less any unamortized premium or plus any unamortized discount.
D. Face value less accrued interest since the last interest payment date.
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19. A $500,000 bond issue sold for 98.The bonds:
A. Sold at a discount because the contractual interest rate was lower than the market interest rate.
B. Sold for the $500,000 face amount less $10,000 of accrued interest.
C. Sold at a premium because the contractual interest rate was higher than the market interest rate.
D. Sold at a discount because the market interest rate was lower than the contractual interest rate.
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10. On December 1, 2012, Weaver Inc. retired 10%, $1,000,000 bonds at 102. The carrying value of the bonds on the date of
retirement was $1,092,800. How much gain or loss should be recognized on this bond retirement?
SMU Classification: Restricted
A.
B.
C.
D.
$0 gain
$111,800 gain
$72,800 gain
$102,800 gain
ANSWER SECTION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
B
D
B
B
D
B
D
B
C
B
D
A
D
A
A
B
A
A
C