Accounting Midterm Exam ACG-2011: Question 82

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

	Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
	Debit Notes Payable $11,250; credit Cash $11,250.
	Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
	Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
	Debit Notes Payable $32,136; credit Cash $32,136.

Interest expense = $125,000 x 9% = $11,250
Principal reduction = $32,136 - $11,250 = $20,886

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Accounting Midterm Exam ACG-2011: Question 83

A bond sells at a discount when the:

	Contract rate is below the market rate.
	Bond has a short-term life.
	Bond pays interest only once a year.
	Contract rate is above the market rate.
	Contract rate is equal to the market rate.

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Accounting Midterm Exam ACG-2011: Question 74

Secured bonds:

	Have specific assets of the issuing company pledged as collateral.
	Are backed by the issuer's bank.
	Are subordinated to those of other unsecured liabilities.
	Are called debentures.
	Are the same as sinking fund bonds.

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Accounting Midterm Exam ACG-2011: Question 76

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

	Callable bonds.
	Coupon bonds.
	Serial bonds.
	Convertible bonds.
	Registered bonds.

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Accounting Midterm Exam ACG-2011: Question 77

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is (closest to):

	$94,013.13.
	$197,810.00.
	$75,137.13.
	$375,137.13.
	$300,000.00.

$75,137.13 x 3.9927 = $300,000

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Accounting Midterm Exam ACG-2011: Question 81

Bonds can be issued:

	At par.
	At a premium.
	At a discount.
	Between interest payment dates.
	All of these.

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Accounting Midterm Exam ACG-2011: Question 72

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

	$1,000 gain.
	$3,700 gain.
	$2,700 gain.
	$1,000 loss.
	$2,700 loss.

Par value	$100,000
Unamortized premium	2,700
Carrying value of bonds	$102,700
Retirement price	99,000
Gain on retirement	$   3,700

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