MC Qu. 150 On January 1, a company issues... On January 1, a company issues bond
ID: 2339272 • Letter: M
Question
MC Qu. 150 On January 1, a company issues...
On January 1, a company issues bonds dated January 1 with a par value of $370,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $384,280. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.)
Multiple Choice:
Debit Bond Interest Expense $18,922; debit Premium on Bonds Payable $1,428; credit Cash $20,350.
Debit Bond Interest Expense $18,922; debit Discount on Bonds Payable $1,428; credit Cash $20,350.
Debit Interest Payable $20,350; credit Cash $20,350.
Debit Bond Interest Expense $21,778; credit Discount on Bonds Payable $1,428; credit Cash $20,350.
Debit Bond Interest Expense $21,778; credit Premium on Bonds Payable $1,428; credit Cash $20,350.
MC Qu. 151 On January 1, a company issues...
On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $415,437. The journal entry to record the first interest payment using the effective interest method of amortization is: (Rounded to the nearest dollar.)
Multiple Choice:
Debit Bond Interest Expense 23,544.00; credit Premium on Bonds Payable $1,544.00; credit Cash $22,000.00.
Debit Interest Expense $20,772; debit Premium on Bonds Payable $1,228; credit Cash $22,000.
Debit Interest Payable $22,000.00; credit Cash $22,000.00.
Debit Bond Interest Expense $20,772.00; debit Discount on Bonds Payable $1,228.00; credit Cash $22,000.00.
Debit Bond Interest Expense $20,456.00; debit Premium on Bonds Payable $1,544.00; credit Cash $22,000.00.
MC Qu. 152 Marwick Corporation issues...
Marwick Corporation issues 10%, 5 year bonds with a par value of $1,240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%. What is the bond's issue (selling) price, assuming the following Present Value factors:
Multiple Choice:
$1,240,000
$1,029,244
$1,742,876
$1,340,620
$737,124
n= i= Present Value of an Annuity Present value of $1 5 10 % 3.7908 0.6209 10 5 % 7.7217 0.6139 5 8 % 3.9927 0.6806 10 4 % 8.1109 0.6756Explanation / Answer
Solution 1:
Semi annual interest payment = $370,000*5.50% = $20,350
Preimum on issue of bond = $384,280 - $370,000 = $14,280
Premium amortization per semiannual period = Total premium / nos of semiannual period till maturity
= $14,280 / 10 = $1,428
Interest expense for each semiannual period = $20,350 - $1,428 = $18,922
Therefore in order to record first interest payment, "Debit Bond Interest Expense $18,922; debit Premium on Bonds Payable $1,428; credit Cash $20,350."
Hence first option is correct.
Solution 2:
Semi annual interest payment = $400,000*5.50% = $22,000
Preimum on issue of bond = $415,437 - $400,000 = $15,437
Interest expense using effective interest method for first semiannual period = $415,437*5% = $20,772
Premium to be amortized = $22,000 - $20,772 = $1,228
Therefore in order to record first interest payment, "Debit Bond Interest Expense $20,772; debit Premium on Bonds Payable $1,228; credit Cash $22,000."
Hence 2nd option is correct.
Solution 3:
Hence 4th option is correct.
Computation of bond price Table values are based on: n= 10 i= 4.00% Cash flow Table Value Amount Present Value Par (Maturity) Value 0.67560 $1,240,000 $837,744 Interest (Annuity) 8.11090 $62,000 $502,876 Price of bonds $1,340,620Related Questions
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