141. Refer to the above data. Over the 15-year life of the mortgage, the total amount Bradley will pay for interest charges is:
A. $232,000.
B. $360,000.
C. $200,000.
D. $432,060.
$432,000 - $200,000 = $232,000
142. Refer to the above data. The portion of the second monthly payment made on January 31, Year 2, which represents repayment of principle is:
A. $400.
B. $404.
C. $2,400.
D. $1,996.
$2,400 - (1% ? $199,600) = $404
143. On October 1, 2009, Master's Co. borrows $500,000 from its bank for five years at an annual interest rate of 10%. According to the terms of the loan, the principal amount will not be due for five years. Interest is to be paid monthly on the first day of each month, beginning November 1, 2009. With respect to this borrowing, Master's December 31, 2009, balance sheet included only a long-term note payable of $500,000. As a result:
A. The December 31, 2009, financial statements are accurate.
B. Liabilities are understated by $12,500 accrued interest payable.
C. Liabilities are understated by $4,167 accrued interest payable.
D. Liabilities are understated by the amount of interest for the five-year term of the note that has not yet been paid.
$500,000 ? 10% ? 1/12 = $4,167
144. At the end of 2010 it is discovered that the accountant for Gower Company failed to record $60,000 of interest payable which had accrued since the last interest payment date. The current ratio, quick ratio and debt ratio, as well as the financial statements, had already been computed using the erroneous data. Correction of the accounting records will have which of the following effects?
A. Net income as formerly computed will not be affected by the correction of the error.
B. The interest coverage ratio as formerly computed will not change as a result of the correction.
C. The debt ratio as formerly computed will decrease as a result of the correction.
D. The quick ratio as formerly computed will decrease as a result of the correction.
On April 1, year 1, Cricket Corporation issues $60 million of 12%, 10-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.
145. Refer to the above data. The amount of cash paid to bondholders for interest during Year 1, is:
A. $6,600,000
B. $5,400,000
C. $3,600,000
D. $1,800,000
$60,000,000 ? .06 = $3,600,000
146. Refer to the above data. Interest expense on this bond issue reported in Cricket's year 1, income statement is:
A. $2,400,000
B. $4,800,000
C. $5,400,000
D. $7,200,000
$60,000,000 ? 12% ? 9/12 = $5,400,000
147. Refer to the above data. The adjustment necessary at December 31, Year 1 (if any), related to this bond issue involves:
A. Recognition of interest expense of $3,600,000.
B. Recognition of interest expense of $1,800,000.
C. Payment of cash of $1,800,000.
D. There is no adjustment necessary.
$60,000,000 ? 12% ? 3/12 = $1,800,000
148. Refer to the above data. With respect to this bond issue, Cricket Corporation's balance sheet at December 31, Year 1, will include:
A. Bonds payable of $61,800,000.
B. Bonds payable of $63,600,000.
C. Bonds payable of $60 million, as well as interest payable of $1,800,000.
D. Bonds payable of $60 million, as well as interest payable of $3,600,000.
On April 1, year 1, Greenway Corporation issues $20 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.
149. Refer to the above data. The journal entry to record the first cash payment to bondholders on October 1, year 1, will include:
A. A credit to Cash of $2,000,000.
B. A debit to Bonds Payable of $1,000,000.
C. A debit to Interest Expense of $1,000,000
D. A credit to Interest Payable of $1,000,000.
$20,000,000 ? 10% ? 6/12 = $1,000,000
150. Refer to the above data. The adjusting entry (if any) required on December 31, Year 1, related to this bond issue involves:
A. Recognition of interest expense of $1,000,000.
B. Recognition of interest expense of $500,000.
C. A credit to Interest Payable of $2,000,000.
D. A credit to Cash of $500,000.
$20,000,000 ? 10% ? 3/12 = $500,000