On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, an
ID: 2562098 • Letter: O
Question
On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:
Multiple Choice
$400,000.
$399,800.
$400,200.
$395,800.
$396,200.
On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the second interest payment is:
Multiple Choice
$400,000.
$399,800.
$396,400.
$395,800.
$396,200.
On January 1, a company issues bonds dated January 1 with a par value of $600,000. The bonds mature in 3 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The bonds are sold for $564,000. The journal entry to record the first interest payment using straight-line amortization is:
Multiple Choice
Debit Interest Payable $21,000; credit Cash $21,000.
Debit Interest Expense $21,000; credit Cash $21,000.
Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000.
Debit Interest Expense $15,000; debit Discount on Bonds Payable $6,000; credit Cash $21,000.
Debit Interest Expense $21,000; credit Premium on Bonds Payable $6,000; credit Cash $15,000.
Investments in trading securities:
Multiple Choice
Include only equity securities.
Are reported as current assets.
Include only debt securities.
Are reported at their cost, no matter what their market value.
Are long-term investments.
Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include:
Multiple Choice
A debit to Long-Term Investments-AFS $300,000.
A debit to Short-Term Investments-Trading $300,000.
A debit to Long-Term Investments-HTM $300,000.
A debit to Short-Term Investments-AFS $300,000.
A debit to Cash $300,000.
Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:
Multiple Choice
Debit Long-Term Investments-HTM $300,000; credit Cash $300,000.
Debit Cash $300,000; credit Interest Revenue $300,000.
Debit Cash $300,000; credit Long-Term Investments-HTM $300,000.
Debit Cash $300,000; credit Interest Receivable $300,000.
Debit Cash $300,000; credit Bonds Payable $300,000.
On January 1, 2017, Boston Enterprises issues bonds that have a $3,400,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.
1. How much interest will Boston pay (in cash) to the bondholders every six months?
2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment on December 31, 2017.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.
Explanation / Answer
Ans 1: E) $396,200.
Carrying value of the bonds immediately after the first interest payment is
=Sale Proceed + Amount of Discount amortized
= $396000+(400000-396000)/20 periods
= $ 396200
Ans 2: C) $396,400.
Carrying value of the bonds immediately after the second interest payment is:
= Carrying value of the bonds immediately after the first interest payment ++ Amount of Discount amortized
= $ 396400
Ans 3: Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000
Journal Entry: Interest Expenses Dr 27000
To Discount on Bonds Payable 6000 [i.e (600000-564000)/6 periods]
To Cash 21000
Ans 4: Are reported as current assets.
Will be shown as current asset as it could readily converted into cash as and when required, unless other wise reported.