Multiple Choice Questions
1. A bond with a face amount of $10,000 has a current price quote of 104.885. What is the bonds price?
a. $10,488.50
b. $1,048,850
c. $1,048.85
d. $10,104.89
2. McPartlin Corporation issued $300,000 of 10%, 10-year bonds payable on January 1, 2010, for $236,370. The market interest rate when the bonds were issued was 14%. Interest is paid semiannually on January 1 and July 1. The first interest payment is July 1, 2010. Using the effective-interest amortization method, how much interest expense will McPartlin record on July 1, 2010?
a. $15,500
b. $15,000
c. $14,500
d. $21,000
e. $16,546
3. Using the facts in the preceding question, McPartlins journal entry to record the interest expense on July 1, 2010 will include a
a. Debit to Bonds Payable.
b. Credit to Discount on Bonds Payable.
c. Credit to Interest Expense.
d. Debit to Premium on Bonds Payable.
4. Amortizing the discount on bonds payable
a. Reduces the semiannual cash payment for interest.
b. Is necessary only if the bonds were issued at more than face value.
c. Reduces the carrying value of the bond liability.
d. Increases the recorded amount of interest expense.
5. The journal entry on the maturity date to record the payment of $500,000 of bonds payable that were issued at a $50,000 discount includes
a. A debit to Bonds Payable for $500,000.
b. A credit to Cash for $550,000.
c. A debit to Discount on Bonds Payable for $50,000.
d. All of the above.
6. Is the payment of the face amount of a bond on its maturity date regarded as an operating activity, an investing activity, or a financing activity?
a. Financing activity
b. Investing activity
c. Operating activity