Bond Theory Multiple Choice Topic 11

When bonds are sold for more than the face amount, this means that the:

  1. Maturity value will be greater than the face amount
  2. Bonds are sold at a discount
  3. Coupon rate of interest is more than the market rate of interest
  4. The company will not have to record interest expense on the bond
  5. The cash interest payment will be less than interest expense each period

Bond Issue Prices Topic 11

A company issued $300,000, 6%, nine year bonds on January 1. The market rate of interest was 5%. Interest on these bonds is payable annually on December 31.

  1. Was this bond issued at a premium or a discount?
  2. Determine the selling price of the bond.
  1. Premium
  2. 321,320

Note: I used four decimals for my PV factors. If you used three, you'll get a slightly different answer (something like 321,444).
Ask what your professor expects you to use, before the test.

Coupon and Market Rates Multiple Choice Topic 11

If Elonu Corporation issued $1,000,000 of 10-year, 9% bonds payable on January 1 at 95, market interest rates were

  1. less than 9%
  2. greater than 9%
  3. equal to 9%
  4. not enough information to determine

Bond Amortization Topic 11

A Corporation issued $450,000 face value, 4% 10-year bonds on January 1, Year 1 for $383,063. This price resulted in an effective interest rate of 6% on the bonds. Interest is payable semi-annually on June 30 and December 31.

  1. Prepare the journal entry to record the first payment of interest on June 30, Year 1.
  2. Determine carrying value on December 31, Year 1, after the interest payments has been made
  1. Journal entry:
    Journal Entry 1
    Interest Expense 11,492
    Discount 2,492
    Cash 9,000
  2. The carrying value is 388,122

Bond Retirement Topic 11

On January 1, a company retired $800,000 face value bonds at a call price of 103. The bonds were originally issued for $848,000. On the retirement date the bonds had an unamortized premium of $28,352. The entry to retire the debt would include a

  1. debit to bonds payable for $828,352
  2. credit to cash for $853,203
  3. credit to gain for $4,352
  4. credit to premium for $28,352
  5. debit to loss for $52,203