Question 1

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $10,900.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond premium.After the first interest payment on June 30,2014,what was the bond carrying amount?

Accepted Answer

B) Calculations: $10,000 + ($900 - $90) = $10,810

Question 2

The balance in the Bonds payable is a credit of $50,000.The balance in the Premium on bonds payable is a credit of $900.The balance sheet will report the bond balance as $49,100.

Accepted Answer

The balance sheet will report the bond balance as $50,900 because the premium on bonds payable ($900) is added to the bonds payable ($50,000), not subtracted.

Question 3

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $10,900.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond premium.On June 30,2014,when Mahoney makes the first payment to bondholders,how much will they report as interest expense?

Accepted Answer

A) Calculations: ($10,000 × 4% × 6/12) - ($900/5 × 6/12) = $110

Question 4

The balance in the Bonds payable account is a credit of $50,000.The balance in the Discount on bonds payable account is a debit of $1,500.How much is the bond carrying amount?

Accepted Answer

D) Calculation: $50,000 - $1,500 = $48,500

Question 5

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $10,900.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond premium.Immediately after issue of the bonds,the ledger balances appeared as follows:  After the first interest payment on June 30,2014,what was the balance in the premium account?

Accepted Answer

D) Calculations: $900 - ($900/5 × 6/12) = $810

Question 6

Discount on bonds payable is considered to be additional interest expense of the company that issues the bond.

Accepted Answer

Discount on bonds payable represents the difference between the face value of the bond and the amount paid by the investor. As the company has to pay back the face value of the bond at maturity, the discount is amortized over the life of the bond and considered as additional interest expense.

Question 7

Premium on bonds payable is considered to be additional interest expense of the company that issues the bond.

Accepted Answer

Premium on bonds payable is actually an amount paid over the face value of the bonds, which effectively reduces the interest expense over the life of the bonds because it is amortized and offsets the interest payments.

Question 8

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.Immediately after issue of the bonds,the ledger balances appeared as follows: 
- After the first interest payment on June 30,2014,what was the balance in the discount account?

Accepted Answer

A) Calculations: $600 - (600/5 × 6/12) = $540

Question 9

On December 31,2013,Peterson Sales has a bonds payable balance of $40,000 and a premium on bonds payable of $900.On the balance sheet,how will this information be shown?

Accepted Answer

D) Calculations: $40,000 + $900 = $40,900

Question 10

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.On June 30,2014,when Mahoney makes the first payment to bondholders,how much will they report as interest expense?

Accepted Answer

B) Calculations: ($10,000 × 4% × 6/12) + ($600/5 × 6/12) = $260

Question 11

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.After the first interest payment on June 30,2014,what was the bond carrying amount?

Accepted Answer

C) Calculations: $10,000 - ($600 - $60) = $9,460

Question 12

On January 1,2013,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at a premium,for a total of $20,750.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On June 30,2013,how much is the total amount paid to bondholders?

Accepted Answer

B) Calculations: $20,000 × 8% × 6/12 = $800

Question 13

On December 31,2013,Peterson Sales has a Bonds payable balance of $40,000 and a Discount on bonds payable of $2,100.On the balance sheet,how will this information be shown?

Accepted Answer

A) Calculations: $40,000 - $2,100 = $37,900

Question 14

On January 1,2013,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On June 30,2013,how much is the total amount paid to bondholders?

Accepted Answer

D) Calculations: $20,000 × 8% × 6/12 = $800

Question 15

The balance in the Bonds payable account is a credit of $50,000.The balance in the Premium on bonds payable account is a credit of $900.How much is the bond carrying amount?

Accepted Answer

B) Calculation $50,000 + $900 = $50,900

Question 16

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.After the second interest payment on December 31,2014,what was the bond carrying amount?

Accepted Answer

A) Calculations: $10,000 - ($600 - $120) = $9,520

Question 17

On January 1,2013,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On June 30,2013,how much are the total interest payments made to bondholders?

Accepted Answer

A) Calculations: $20,000 × 8% × 6/12 = $800

Question 18

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at discount,for a total of $19,000.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will be which of the following?

Accepted Answer

C) Calculations: $20,000 only

Question 19

On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses straight-line method to amortize bond discount.Immediately after issue of the bonds,the ledger balances appeared as follows: 
- After the second interest payment on December 31,2014,what was the balance in the discount account?

Accepted Answer

C) Calculations: $600 - ($600/5) = $480

Question 20

On January 1,2012,Davie Services issued $20,000 of 8% bonds that mature in five years.They were sold at a premium,for a total of $20,750.On January 1,2017,when the bonds mature,Davie Services will make the final principal payment.That entry will include which of the following?

Accepted Answer