a40.When bonds are sold between interest dates, any accrued interest is credited to a. Interest Payable. b. Interest Revenue. c. Interest Receivable. d. Bonds Payable. d41.Which of the following is true of accrued interest on bonds that are sold between interest dates? a. It is computed at the effective market rate. b. It will be paid to the seller when the bonds mature. c. It is extra income to the buyer. d. None of the above. c42.On July 1, 2002, Riviera Manufacturing Co. issued a five-year note payable with a face amount of $250,000 and an interest rate of 10 percent. The terms of the note require Riviera to make five annual payments of $50,000 plus accrued interest, with the first payment due June 30, 2003. With respect to the note, the current liabilities section of Riviera's December 31, 2002, balance sheet should include a.$12,500. b.$50,000. c.$62,500. d.$75,000. b43.In an effort to increase sales, Blue Razor Blade Company inaugurated a sales promotion campaign on June 30, 2002, whereby Blue placed a coupon in each package of razor blades sold, the coupons being redeemable for a premium. Each premium costs Blue $.50, and five coupons must be presented by a customer to receive a premium. Blue estimated that only 60 percent of the coupons issued will be redeemed. For the six months ended December 31, 2002, the following information is available: Packages of razor blades sold 400,000
Premiums purchased 30,000 Coupons redeemed 100,000 What is the estimated liability for premium claims outstanding at December 31, 2002? a.$10,000 b.$14,000 c.$18,000 d.$24,000 d44.Included in Kaiser Corporation's liability account balances at December 31, 2002, were the following: 14 percent note payable issued October 1, 2002, maturing September 30, 2003 $250,000
16 percent note payable issued April 1, 2000, payable in six annual installments of $100,000 beginning April 1, 2001 400,000 Kaiser's December 31, 2002, financial statements were issued on March 31, 2003. On January 15, 2003, the entire $400,000 balance of the 16 percent note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2003, Kaiser consummated a noncancelable agree-ment with the lender to refinance the 14 percent, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. Both parties are financially capable of honoring the agreement, and there have been no violations of the agreement's provisions. On the December 31, 2002, balance sheet, the amount of the notes payable that Kaiser should classify as noncurrent obligations is a.$100,000. b.$250,000. c.$350,000.
d.$650,000. a45.At December 31, 2002, Reed Corp. owed notes payable of $1,000,000 with a maturity date of April 30, 2003. These notes did not arise from transactions in the normal course of business. On February 1, 2003, Reed issued $3,000,000 of ten-year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable. Reed's December 31, 2002, financial statements were issued on March 29, 2003. How much of the $1,000,000 notes payable should be classified as current in Reed's balance sheet at December 31, 2002? a.$0 b.$100,000 c.$900,000 d.$1,000,000 c46.Dean, Inc. has $2,000,000 of notes payable due June 15, 2003. At the financial statement date of December 31, 2002, Dean signed an agreement to borrow up to $2,000,000 to refinance the notes payable on a long-term basis. The financing agreement called for borrowings not to exceed 80 percent of the value of the collateral Dean was providing. At the date of issue of the December 31, 2002, financial statements, the value of the collateral was $2,400,000 and was not expected to fall below this amount during 2003. In its December 31, 2002, balance sheet, Dean should classify notes payable as
Short-Term Long-Term Obligations Obligations a. $2,000,000 $0 b. $400,000 $1,600,000 c. $80,000 $1,920,000 d. $0 $2,000,000
b47.Swanson Inc. purchased $400,000 of Malone Corp. ten-year bonds with a stated interest rate of 8 percent payable quarterly. At the time the bonds were purchased, the market interest rate was 12 percent. Determine the amount of premium or discount on the purchase of the bonds. a.$92,442 premium b.$92,442 discount c.$81,143 premium d.$81,143 discount b48.Madison Corporation had two issues of securities outstanding-- common stock and a 5 percent convertible bond issue in the face amount of $10,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2002, the holders of $1,800,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $500,000. What amount should Madison credit to the account "Paid-In Capital in Excess of Par" as a result of this conversion assuming Madison does not want to recognize any gain (or loss) on theconversion? a.$0 b.$270,000 c.$360,000 d.$920,000 d49.Selected financial data of Alexander Corporation for the year ended December 31, 2002, is presented below: Operating income $900,000 Interest expense (100,000) Income before income tax $800,000 Income tax expense (320,000)
Net income $480,000 Preferred stock dividends (200,000) Net income available to common stockholders $280,000 Common stock dividends were $120,000. The times-interest-earned ratio is a.2.8 to 1. b.4.8 to 1. c.6.0 to 1. d.9.0 to 1. b50.Littleton Corp. had the following longterm debt at December 31: Collateral trust bonds, having securities of unrelated corporations as security $250,000 Bonds unsecured as to principal 150,000 The debenture bonds amounted to a. $0. b. $150,000. c. $250,000. d. $400,000. c51.Miller Enterprises had the following long-term debt: Sinking fund bonds, maturing in installments $1,100,000 Industrial revenue bonds, maturing in installments 900,000 Subordinated bonds, maturing on a single date 1,500,000 The total of the serial bonds amounted to a.$900,000. b.$1,500,000. c.$2,000,000. d.$2,400,000. d52.On January 1, MAX issued ten-year bonds with a face amount of $1,000,000 and a stated interest rate of 8 percent payable annually each January 1. The bonds were priced to yield 10 percent. The total issue price (rounded) of the bonds was
a.$1,000,000. b.$980,000. c.$920,000. d.$880,000. d53.During the year, Hancock Corporation incurred the following costs in connection with the issuance of bonds: Printing and engraving $ 30,000 Legal fees 160,000 Fees paid to independent accountants for registration information 20,000 Commissions paid to underwriter 300,000 The amount recorded as a deferred charge to be amortized over the term of the bonds is a.$0. b.$30,000. c.$300,000. d.$510,000. d54.On January 1, 2002, Lisbon Corp. issued 2,000 of its 9 percent, $1,000 bonds at 95. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2012. Lisbon paid bond issue costs of $80,000, which are appropriately recorded as a deferred charge. Lisbon uses the straight-line method of amortizing bond discount and bond issue costs. On Lisbon's December 31, 2002, balance sheet, how much would be shown as the carrying amount of the bonds payable? a.$2,110,000 b.$2,090,000 c.$1,982,000 d.$1,910,000 d55.On October 1, 2002, Westridge Inc. issued, at 101 plus accrued interest, 800 of its 10 percent, $1,000 bonds. The bonds are dated July 1, 2002, and mature on July 1, 2012. Interest is payable semiannually on January 1 and July 1. At the time of issuance, Westridge would receive cash of
a.$800,000. b.$808,000. c.$820,000. d.$828,000.
a.$3,900 b.$4,500 c.$5,100 d.$5,700
b56.On January 1, 2002, Matlock Inc. issued its 10 percent bonds in the face amount of $1,500,000. They mature on January 1, 2012. The bonds were issued for $1,329,000 to yield 12 percent, resulting in bond discount of $171,000. Matlock uses the effective-interest method of amortizing bond discount. Interest is payable July 1 and January 1. For the six months ended June 30, 2002, Matlock should report bond interest expense of a.$75,000. b.$79,740. c.$83,550. d.$85,260.
a59.On February 1, 2000, Lantern Corp. issued 12 percent, $2,000,000 face value,ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 1999, and interest is payable on May 1 and November 1 Lantern reacquired all of these bonds at 102 on May 1, 2003, and retired them. Unamortized bond premium on that date was $156,000. Ignoring the income tax effect, what was Lantern's gain on the bond retirement? a.$116,000 b.$194,000 c.$234,000 d.$236,000
d57.On July 1, 2002, TJR issued 2,000 of its 8 percent, $1,000 bonds for $1,752,000. The bonds were issued to yield 10 percent. The bonds are dated July 1, 2002, and mature on July 1, 2012. Interest is payable semiannually on January 1 and July 1. Using the effective-interest method, how much of the bond discount should be amortized for the six months ended December 31, 2002? a.$15,200 b.$12,400 c.$9,920 d.$7,600
d60.Laker, Inc. had outstanding 10 percent, $1,000,000 face value, convertible bonds maturing on December 31, 2005. Interest is paid December 31 and June 30. After amortization through June 30, 2002, the unamortized balance in the bond premium account was $30,000. On that date, bonds with a face amount of $500,000 were converted into 20,000 shares of $20 par common stock. Recording the conversion by using the carrying value of the bonds, Laker should credit Additional Paid-In Capital for a.$0. b.$85,000. c.$100,000. d.$115,000.
c58.On July 1, 2001, Houston Company purchased as a long-term investment Essex Company's ten-year, 9 percent bonds, with a face value of $100,000 for $95,200. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2005. Houston uses the straight-line method of amortization. What is the amount of interest revenue that Houston should report in its income statement for the year ended December 31, 2001?
c61.On July 1, 1999, Cooper Corporation issued for $960,000 one thousand of its 9 percent, $1,000 callable bonds. The bonds are dated July 1, 1999, and mature on July 1, 2009. Interest is payable semiannually on January 1 and July 1. Cooper uses the straight-line method of amortizing bond discount. The bonds can be called by the
issuer at 101 at any time after June 30, 2004. On July 1, 2005, Cooper called in all of the bonds and retired them. Ignoring income taxes, how much loss should Cooper report on this early extinguishment of debt for the year ended December 31, 2005? a.$50,000 b.$34,000 c.$26,000 d.$10,000 b62.On June 30, 2002, Country Inc. had outstanding 10 percent, $1,000,000 face amount, 15-year bonds maturing on June 30, 2007. Interest is paid on June 30 and December 31, and bond discount and bond issue costs are amortized on these dates. The unamortized balances on June 30, 2002, of bond discount and bond issue costs were $55,000 and $20,000, respectively. Country reacquired all of these bonds at 96 on June 30, 2002, and retired them. Ignoring income taxes, how much gain or loss should Country record on the bond retirement? a.Loss of $15,000 b.Loss of $35,000 c.Gain of $5,000 d.Gain of $40,000 b63.Woods, Inc. holds an overdue note receivable of $1,600,000 plus recorded accrued interest of $128,000. As a result of a court-imposed settlement on December 31, 2002, Woods agreed to the following restructuring arrangement: Reduce the principal obligation to $1,200,000. Forgive the $128,000 accrued interest. Extend the maturity date to December 31, 2004. Annual interest of $120,000 is to be paid to Woods on December 31, 2002 and 2003. On December 31, 2002, Woods must recognize a loss from structuring of a.$0.
b.$288,000. c.$408,000. d.$528,000.
a64.During 2002, Daly Company experienced financial difficulties and is likely to default on a $500,000, 15 percent, three-year note dated January 1, 2001, and made payable to Summit Bank. On December 31, 2002, the bank agreed to settle the note and unpaid interest of $75,000 for 2002. The settlement amount is $410,000 cash payable on January 31, 2003. Ignoring income taxes, what amount should Daly report as a gain from the debt restructuring in its 2002 income statement? a.$165,000 b.$90,000 c.$75,000 d.$0 c65.Hull Company is indebted to Apex under a $500,000, 12 percent, three-year note dated December 3, 2000. Because of Hull's financial difficulties developing in 2002, Hull owed accrued interest of $60,000 on the note at December 31, 2002. Under a troubled debt restructuring, on December 31, 2002, Apex agreed to settle the note and accrued interest for a tract of land having a fair value of $450,000. Hull's acquisition cost of the land was $360,000. Ignoring income taxes, on its 2002 income statement Hull should report as a result of the troubled debt restructuring Other Income Extraordinary Gain a. $200,000 $0 b. $140,000 $0 c. $90,000 $110,000 d. $0 $200,000
d66.White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds? a.$175,078 b.$211,283 c.$215,902 d.$227,183 b67.White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 12 percent, what will be the issuance price of the bonds? a.$114,699 b.$177,059 c.$190,079 d.$224,926 b68.On January 1, 2003, $50,000 of 20-year, 6 percent debentures were issued for $56,275.20. Interest payment dates on the bonds are January 1 and July 1. The amount of premium to be amortized on July 1, 2003, when using the straight-line method is a.$313.76. b.$156.88. c.$776.50. d.$93.11.
d69.The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be a.$190,000. b.$195,000. c.$200,000. d.$210,000.
b70.The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately a.7.5 percent. b.7.8 percent. c.8.0 percent. d.8.2 percent. b71.On January 1, 2003, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much cash was paid for interest in 2003? a.$44,250 b.$50,000 c.$53,100 d.$60,000 c72.Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be a. $26,750. b.$27,500. c.$28,250. d.$29,500. d73.The annual interest expense on a $50,000, 15-year, 10 percent bond issued for $45,650 plus accrued interest 6 months after authorization, assuming straight-line amortization, would be a.$4,975. b.$5,000. c.$5,025. d.$5,300. c74.On January 1, 2003, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effectiveinterest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, how much
interest expense should be recorded on June 30, 2003? a.$11,935.14 b.$12,500.00 c.$13,896.06 d.$14,729.82 d75.A $50,000 bond with a carrying value of $52,000 was called at 103 and retired. In recording the retirement, the issuing company should a.record no gain or loss. b.record a $1,500 loss. c.record a $2,000 gain. d.record a $500 gain. b76.On January 1, 2003, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effectiveinterest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, approximately how much discount will be amortized on December 31, 2003? a.$2,230 b.$1,480 c.$1,396 d.$987 b77.Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1,2003, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts. How much premium or discount should be amortized on June 30, 2003? a.$2,790 b.$2,280 c.$2,000 d.$1,970
c78.Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1,2003, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts. How much interest expense should Kiyabu record on December 31, 2003? a.$25,000.00 b.$23,810.15 c.$22,628.80 d.$19,920.10 c79.Foster Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2001, for $112,000. Foster uses the straightline method of amortization. On April 1, 2004, Foster reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Foster recognize on the retirement of the bonds? a.$2,000 loss b.$3,900 gain c.$6,100 gain d.$8,200 loss a80.If a $1,000, 9 percent, 10-year bond was issued at 96 plus accrued interestone month after the authorization date, how much cash was received by the issuer? a.$967.50 b.$960.00 c.$1,007.50 d.$992.50 a81.Bonds that were authorized on January 1, 2003, and that pay interest on January 1 and July 1 of each year were issued on October 1, 2003. If the issuer's accounting year ends on December 31, how many months would any discount or premium be amortized in 2003? a.3 months b.6 months
c.9 months
d.12 months
a82.If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive? a.$1,037.50 b.$1,030.00 c.$1,007.50 d.$992.50 c83.RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2003, with interest payable on January 1 and July 1 of each year. If the bonds were issued on April 1, 2003, the amount of accrued interest on the date of sale is a.$20,000. b.$10,000. c.$5,000. d.$2,500. c84.RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2003, with interest payable on January 1 and July 1 of each year. If the bonds were issued at 97 onApril 1, 2003, plus accrued interest, the amount of cash received by RCM Corporation would be a.$200,000. b.$194,000. c.$199,000. d.None of the above. b85.RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2003, with interest payable on January 1 and July 1 of each year. If the bonds were issued at 97 on April 1, 2003, the amount of the discount amortized on July 1 (using the straight-line method) would be approximately a.$25.
b.$76. c.$67. d.$152.
c86.If a $6,000, 10 percent, 10-year bond was issued at 104 plus accrued interest two months after the authorization date, how much cash was received by the issuer? a.$6,000 b.$6,240 c.$6,340 d.$6,600 b87.ABC Corporation is authorized to issue $500,000 of 6 percent, 10-year bonds dated July 1, 2003, with interest payments on December 31 and June 30. When the bonds are issued on November 1, 2003, ABC Corporation receives cash of $515,000, including accrued interest. The journal entry to record the issuance of the bonds would include a.$15,000 bond premium. b.$5,000 bond premium. c.$15,000 bond discount. d.no bond premium or discount. b88.On January 1, 2002, Williams Company lent $17,800 cash to Stone Company. The promissory note made by Stone for $20,000 did not bear explicit interest and was due on December 31, 2004. No other rights or privileges were exchanged. The prevailing interest rate for a loan of this type was six percent. Assume that the present value of $1 for two periods at six percent is .89. Stone should recognize interest expense in 2002 of a.$0. b.$1,068. c.$1,100. d.$1,200. b89.Johnson Corporation bought a new machine and agreed to pay for it in equal
annual installments of $6,000 at the end of each of the next five years. Assume the prevailing interest rate for this type of transaction is 12%. Assume the present value of an ordinary annuity of $1 at 12% for five periods is 3.60. The future amount of an ordinary annuity of $1 at 12% for five periods is 6.35. The present value of $1 at 12% is 0.567. How much should Johnson record as the note payable on the balance sheet if financial statements were prepared today? a.$17,010 b.$21,600 c.$30,000 d.$38,100 d90.On December 31, 2002, Carlton Corporation's current liabilities total $50,000 and long-term liabilities total $150,000. Working capital at December 31, 2002, is equal to $80,000. If Carlton Corporation's debt-to-equity ratio is .32 to 1, total longterm assets must equal a.$625,000. b.$745,000. c.$825,000. d.$695,000.
a91.On December 31, 2002, Roberts Corporation's current liabilities total $60,000 and long-term liabilities total $160,000. Working capital at December 31, 2002, is equal to $90,000. If Roberts Corporation's debt-to-equity ratio is .40 to 1, total longterm assets must equal a.$620,000. b.$770,000. c.$550,000. d.$680,000. b92.On December 31, 2002, Anderson Company's current liabilities total $55,000
and long-term liabilities total $155,000. Working capital at December 31, 2002, is equal to $85,000. If Anderson Company's debt-to-equity ratio is .30 to 1, total longterm assets must equal a.$910,000. b.$770,000. c.$700,000. d.$825,000.
