INTERMEDIATE ACCOUNTING 2 Pre-finals 3
MULTIPLE CHOICE - SELECT THE BEST ANSWER
1 Which type of bond is unsecured?
A. Debenture bond C. Serial bond
B. Mortgage bond D. Common bond
2 A P 100,000 bond priced at 103.5 can be bought or sold for
A. P 100,000 plus interest C. P 103,500
B. P 3,500 D. P 103,000 plus P 500 interest
3 Which interest rate on a bond determines the amount of the semi-annual interest payment?
A. Market rate C. Semi-annual rate
B. Effective rate D. Stated rate
4 The final journal entry to record bond payable is
A. Interest expense xx C. Bonds payable xx
Cash xx Cash xx
B. Cash xx D. Discount on BP xx
Bonds payable xx Interest expense xx
5 A Corporation's bonds payable carry a stated interest of 7%, and the market rate of interest
is 8%. The price of A Corporation's bonds will be at a:
A. Premium C. Par value
B. Discount Stated interest <Market rate D. Maturity value
6 Bonds issued at a premium always have
A. Interest expense less than the interest payments
B. Interest expense greater than the interest payments
C. Interest expense equal to the interest payments
D. None of the above
7 Imported cars of United Auctioneers, Inc. has $500,000 of 10-year bonds payable
outstanding. These bonds had a discount of $40,000 at issuance, which was five years
ago. The company uses the straight-line amortization method. The carrying amount of
Imported cars bonds payable is:
A. $ 460,000 B. $ 480,000 C. $ 500,000 D. $ 520,000
Computation:
8 Imported cars of United Auctioneers, Inc. issued its 8% bonds payable at a price of
$ 440,000 (maturity value is $ 500,000) The market interest rate was 10% when the
company issued its bonds. The company uses the effective interest method for the bonds.
Interest expense for the first year is
A. $ 35,200 B. $ 40,000 C. $ 44,000 D. $ 50,000
Computation:
9 M Corporation issued bonds payable on August 1. M's bonds were dated July 1.
Which statement is true of M's journal entry to record issuance of the bonds?
A. M must pay one month's accrued interest
B. M will collect one month's accrued interest in advance
C. M will collect five month's accrued interest in advance
D. M will pay five month's interest on the next interest date
10 B Company retired P 100,000 of its bonds payable, paying cash of P 103,000. On the
retirement date, the bonds payable had a discount of P 2,000. The bond retirement
created a
A. Gain of P 3,000 C. Gain of P 5,000
B. Loss of P 2,000 D. Loss of P 5,000
Computation:
10/10
PROBLEM SOLVING:
A. Compute the price of the following 8% bonds:
1. P 100,000 quoted at 92.6
2. P 100,000 quoted at 102.5
3. P 100,000 quoted at 77.75
4. P 100,000 quoted at 110.375
B. S Magazine, Inc. includes the following selected accounts in its general ledger at
December 31, 2018
Notes payable. Long term 100,000
Bonds payable 350,000
Interest payable (due next year) 7,000
Accounts payable 19,000
Discount on bonds payable (all long term) 6,000
Required: Prepare the liabilities section pf S Magazine, Inc.'s balance sheet
at December 31, 2018, to show how the company would report these
items.
How much is the total current liabilities? How much is the total LTL?
Solution:
10/10
