25. Assuming no adjusting journal entries have been made, the journal entry to r

Question

25. Assuming no adjusting journal entries have been made, the journal entry to record the cash interest payment on the due date for bonds issued at a discount results in which of the following?

A An increase in expenses and a decrease in liabilities.

B An increase in expenses and an increase in liabilities.

C A decrease in both liabilities and stockholders' equity.

D A decrease in both assets and liabilities.

26 On November 1, 2013, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2013, and interest is payable each November 1 and May 1. How much is the semi-annual interest expense when the straight-line method is utilized?

A $2,010.

B $2,190.

C $1,095.

D $2,055.

27 On January 1, 2014, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.)

A $3,339,084.

B $2,843,172.

C $3,000,000.

D $2,686,896.

28 Gammell Company issued $50,000 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,000. Gammel Company uses the straight-line method of amortization. Which of the following statements is incorrect?

A The market rate of interest exceeded the stated rate of interest when the bonds were issued.

B The annual interest expense exceeds the annual cash interest payment by $200.

C The annual increase in the bond book value is $200.

D The annual interest expense is $4,300.

29 Which of the following statements incorrectly describes the accounting for bonds that were issued at a premium?

A The market rate of interest is less than the stated interest rate.

B The interest expense over the life of the bonds will be less than the cash interest payments.

C The present value of the bonds' future cash flows is less than the bonds' maturity value.

D The book value of the bond liability decreases when interest payments are made on the due dates.

30 On July 1, 2014, Garden Works, Inc. issued $300,000 of ten-year, 7% bonds for $303,000. The bonds were dated July 1, 2014, and semi-annual interest will be paid each December 31 and June 30. Garden Works Inc. uses the straight-line method of amortization. How much is the semi-annual interest expense?

A $14,000.

B $14,150.

C $10,350.

D $11,000.

Explanation / Answer

25. d Decrease in both assets and liabilities

when interest is paid cash in reduced and net income is also reduced

26. c.1,095

(Interest payable = 30,000*7%*6/12 = 1,050

+Amortization of discount = (30,000-29,100)/10*6/12 = 45

Total interest expense = 1,095

27. b. 2,843.172

28 d. Annual interest expense is 4,300

29. C

30. C. 10,350

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