(Multiple Choice) Questions 14 use the following data: Sunny Day Company sells $400,000 of 13%, 10-year bonds for 97 on April 1, 2012. The market

(Multiple Choice)

Questions 1–4 use the following data:

Sunny Day Company sells $400,000 of 13%, 10-year bonds for 97 on April 1, 2012. The market rate of interest on that day is 13.5%. Interest is paid each year on April 1.

1. The entry to record the sale of the bonds on April 1 would be as follows:

2. Sunny Day Company uses the straight-line amortization method. The amount of interest expense for each year will be
a. $60,000.
b. $53,200.
c. $54,000.
d. $52,000.
e. none of these.

3. Write the adjusting entry required at December 31, 2012.

4. Write the journal entry required at April 1, 2013.

5. McPherson Corporation issued $400,000 of 10%, 20-year bonds payable on January 1, 2012, for $295,000. 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, 2012. Using the effective-interest amortization method, how much interest expense will McPherson record on
July 1, 2012?
a. $28,000
b. $20,500
c. $14,750
d. $20,650
e. $20,000

6. Using the facts in the preceding question, McPherson’s journal entry to record the interest expense on July 1, 2012, will include a
a. debit to Bonds Payable.
b. credit to Interest Expense.
c. credit to Discount on Bonds Payable.
d. debit to Premium on BondsPayable.

a. Cash 388,000 Bonds Payable 388,000 b. Cash 400,000 Discount on Bonds Pavable Bonds Payable 12,000 388,000 388,000 12,000 c. Cash Discount on Bonds Payable Bonds Payable 400,000 d. Cash 400,000 Bonds Payable 400,000