Accounting Midterm Exam ACG-2011: Question 103

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 95. What is the gain or loss on this retirement?

	$5,000 gain.
	$5,000 loss.
	$0 gain or loss.
→	$500 gain.
	$500 loss.

Par value	$100,000
Unamortized discount	4,500
Carrying value of bonds	$ 95,500
Retirement price	95,000
Gain on retirement	$   500

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Accounting Midterm Exam ACG-2011: Question 104

Adidas issued 10-year, 11% bonds with a par value of $300,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adidas received $318,696 in cash proceeds. Which of the following statements is True?

	Adidas must pay $300,000 at maturity and no interest payments.
	Adidas must pay $318,696 at maturity plus 20 interest payments of $16,500 each.
	Adidas must pay $300,000 at maturity plus 20 interest payments of $15,000 each.
	Adidas must pay $300,000 at maturity plus 20 interest payments of $16,500 each.
	Adidas must pay $318,696 at maturity and no interest payments.

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Accounting Midterm Exam ACG-2011: Question 90

Amortizing a bond discount:

	Allocates a portion of the total discount to interest expense each interest period.
	Decreases the Bonds Payable account.
	Decreases interest expense each period.
	Increases cash flows from the bond.
	Increases the market value of the Bonds Payable.

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Accounting Midterm Exam ACG-2011: Question 92

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

	$45,297.
	$5,033.
	$63,000.
	$9,000.
	$57,330.

$9,000 x 5.0330= $45,297

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Accounting Midterm Exam ACG-2011: Question 96

A company must repay the bank a single payment of $21,000 cash in 2 years for a loan it entered into. The loan is at 10% interest compounded annually. The present value factor for 2 years at 10% is 0.8264. The present value of the loan (closest to) is:

	$17,354.
	$25,200.
	$16,800.
	$21,000.
	$18,900.

$21,000 × 0.8264 = $17,354

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Accounting Midterm Exam ACG-2011: Question 86

A company issues at par 9% bonds with a par value of $100,000 on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash received on July 1 by the bond holder(s) is:

	$6,000.
	$1,500.
	$7,500.
	$3,000.
→	$4,500.

$100,000 x .09 x 1/2 year = $4,500

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Accounting Midterm Exam ACG-2011: Question 88

Which of the following statements is True?

	Bonds always increase return on equity.
	Bonds do not have to be repaid.
	Interest on bonds is not tax deductible.
	Dividends to stockholders are tax deductible.
	Interest on bonds is tax deductible.

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