| | d. Bonds Payable 311,000 Cash 311,000 | Question 2. When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by | | a. multiplying the face value of the bonds by the face interest rate. | | | | | b. adding the amount of premium amortization for the period to the amount of cash paid for interest during the period. | | | | | c. deducting the amount of premium amortization for the period from the amount of cash paid for interest during the period. | | | | | d. multiplying the carrying value of the bonds by the effective interest rate. Question 3. When bonds payable are converted into stock, the carrying value of the bonds should be | | a. debited to Retained Earnings. | | | | | b. credited to contributed capital accounts. | | | | | c. debited to Loss on Conversion of Bonds. | | | | | d. credited to Retained Earnings. Question 4. Russell Corporation issued $224,000 of 12 percent bonds (at face value) one month after the last semi-annual interest date. Which of the following is the entry to record the issuance? | | a. Cash 226,240 Bonds Payable 226,240 | | | | | b. Cash 226,240 Bonds Payable 224,000 Bond Interest Expense 2,240 | | | | | c. Cash 212,800 Bond Interest Expense 11,200 Bonds Payable 224,000 | | | | | d. Cash 235,200 Bonds Payable 224,000 Bond Interest Expense 11,200 | Question 5. When bonds are sold at face value between interest dates, the result is a debit to the Cash account that | | a. is less than face value. | | | | | b. depends on the circumstances. | | | | | | | d. exceeds face value. Question 6. The total interest cost on forty-six (46), ten-year, 6 percent, $1,000 bonds that are issued at 98 is | | | True or False Section 1. The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period. | a. True | | | b. False 2. If a 20-year bond pays interest of 8 percent semiannually, the present value of the bond is calculated based upon 4 percent and 20 periods. | 3. If the face interest rate at the date of bond issuance exceeds the market interest rate, the bond will probably be sold at a premium. | 4. As the interest coverage ratio declines, the risk for creditors also declines. | 5. The entry to record the issuance of bonds at a discount includes a credit to the Unamortized Bond Discount account. | 6. The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period. | | | | | | | | | | |
