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131 amortizing a discount on bonds payable a increases interest expense b increases 4295597

 

 

131.Amortizing a discount on bonds payable: 
 
 

A.Increases interest expense.

 

B.Increases periodic cash payments to bondholders.

 

C.Decreases interest expense.

 

D.Decreases periodic cash payments to bondholders.

 

 

 

 

132.Premium on bonds payable: 
 
 

A.Is an asset account.

 

B.Increases the carrying value of the liability.

 

C.Is a contra-asset account.

 

D.Is disclosed by a footnote.

 

 

 

 

133.Amortizing a premium on bonds payable: 
 
 

A.Increases interest expense.

 

B.Increases periodic cash payments to bondholders.

 

C.Decreases interest expense.

 

D.Decreases periodic cash payments to bondholders.

 

 

 

 

134.On February 28, 2015, $5,000,000 of 6%, 10-year bonds payable, dated December 31, 2014, are issued. Interest on the bonds is payable semiannually each June 30 and December 31. If the total amount received (including accrued interest) by the issuing corporation is $5,060,000, which of the following is correct? 
 
 

A.The bonds were issued at a premium.

 

B.The amount of cash paid to bondholders on the next interest date, June 30, 2015, is $300,000.

 

C.The amount of cash paid to bondholders on the next interest date, June 30, 2015, is $50,000.

 

D.The bonds were issued at a discount.

($5,060,000 – ($5,000,000 × 6% × 2/12)) – $5,000,000 = $10,000 premium

 

 

 

Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2015. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.

 

135.Refer to the information above. The entry made by Webster Company to record issuance of the bonds payable at December 31, 2015, includes: 
 
 

A.A debit to Cash of $1,000,000.

 

B.A debit to Discount on Bonds Payable of $30,000.

 

C.A credit to Bonds Payable of $970,000.

 

D.A credit to Bond Interest Payable of $30,000.

$1,000,000 – ($1,000,000 × .97) = $30,000

 

 

 

136.Refer to the information above. Webster's entry at June 30, 2016, to record the first semiannual payment of interest and amortization of discount on the bonds includes a: 
 
 

A.Debit to Bond Interest Expense of $30,000.

 

B.Credit to Cash of $33,000.

 

C.Debit to Discount on Bonds Payable of $3,000.

 

D.Debit to Bond Interest Expense of $33,000.

($1,000,000 × 3%) + ($30,000/10) = $33,000

 

 

 

137.Refer to the information above. The amount of bond interest expense recognized by Webster Company in 2016 with respect to these bonds is: 
 
 

A.$60,000.

 

B.$63,000.

 

C.$120,000.

 

D.$66,000.

($1,000,000 × .06) + [2($30,000/10)] = $66,000

 

 

 

138.Refer to the information above. The carrying value of this liability in Webster Company's December 31, 2016, balance sheet is: 
 
 

A.$1,000,000.

 

B.$970,000.

 

C.$976,000.

 

D.$967,000.

$970,000 + $6,000 = $976,000

 

 

 

Trego Company issued, on December 31, 2015, $1,000,000 face value, 4%, 5-year bonds. Interest will be paid semiannually each June 30 and December 31. The bonds sold at a price of 102; Trego uses the straight-line method of amortizing bond discount or premium.

 

139.Refer to the information above. The entry made by Trego Company to record issuance of the bonds payable at December 31, 2015, includes: 
 
 

A.A debit to Cash of $1,000,000.

 

B.A credit to Premium on Bonds Payable of $20,000.

 

C.A credit to Bonds Payable of $1,020,000.

 

D.A credit to Bond Interest Payable of $20,000.

$1,000,000 – ($1,000,000 × 1.02) = $20,000 premium

 

 

 

140.Refer to the information above. Trego's entry at June 30, 2016, to record the first semiannual payment of interest and amortization of discount/premium on the bonds includes a: 
 
 

A.Debit to Bond Interest Expense of $20,000.

 

B.Credit to Cash of $22,000.

 

C.Credit to Premium on Bonds Payable of $2,000.

 

D.Debit to Bond Interest Expense of $18,000.

$1,000,000 × 2% – $20,000/10 = $18,000

 

 

 

 

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