151. Refer to the above data. In Year 2, Greenway's income statement will report interest expense arising from this bond issue of:
A. $1,000,000.
B. $2,000,000.
C. $500,000.
D. $1,500,000.
$20,000,000 ? 10% = $2,000,000
152. Refer to the above data. On April 1, Year 1, the journal entry to record issuance of the bonds will include:
A. A credit to Interest Payable of $1,000,000.
B. A debit to Cash of $20,000,000.
C. A credit to Bonds Payable of $2,100,000.
D. A debit to Cash of $21,000,000.
153. Refer to the above data. With respect to this bond issue, Greenway's balance sheet at December 31, Year 1, will include:
A. Bonds payable of $20,500,000.
B. Bonds payable of $19,500,000.
C. Bonds payable of $20 million, as well as interest payable of $1,500,000.
D. Bonds payable of $20 million, as well as interest payable of $500,000.
Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year 1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each June 30 and December 31.
154. Refer to the above data. The total amount of cash received by Austin Corporation upon issuance of the bonds on April 30, Year 2, is:
A. $6,000,000.
B. $6,200,000.
C. $6,150,000.
D. $6,300,000.
$6,000,000 + ($6,000,000 ? 10% ? 4/12) = $6,200,000
155. Refer to the above data. The entry to record the issuance of bonds payable on April 30, Year 2, includes:
A. A credit to Premium on Bonds Payable of $200,000.
B. A debit to Cash of $150,000.
C. A debit to Bond Interest Expense of $200,000.
D. A credit to Bond Interest Payable of $200,000.
156. Refer to the above data. The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:
A. A debit to Bond Interest Expense of $300,000.
B. A debit to Bond Interest Payable of $100,000.
C. A debit to Bond Interest Expense of $100,000.
D. A debit to Bond interest Expense of $200,000.
157. Refer to the above data. The amount of Austin's interest expense on this bond issue during year 2 amounts to:
A. $400,000.
B. $450,000.
C. $360,000.
D. $600,000.
$6,000,000 ? 10% ? 8/12 = $400,000
Salem Co. has outstanding $100 million of 7% bonds, due in 7 years, and callable at 104. The bonds were issued at par and are selling today at a market price of 94.
158. Refer to the above data. If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:
A. A $600,000 gain.
B. A $500,000 loss.
C. An unrealized gain.
D. None of the above; neither gains nor losses are recognized on early retirements of debt.
$10,000,000 - $9,400,000 = $600,000
159. Refer to the above data. If Salem Co. calls $10 million of these bonds it will report:
A. A $700,000 gain.
B. A $400,000 loss.
C. An unrealized gain.
D. None of the above; neither gains nor losses are recognized on early retirements of debt.
$10,000,000 - $10,400,000 = ($400,000)
160. Refer to the above data. If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:
A. A $600,000 cash receipt from operating activities.
B. A $9.4 million cash payment for operating activities.
C. A $600,000 cash receipt from financing activities.
D. A $9.4 million cash payment for financing activities.
The current balance sheet of Apex reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Apex is considering several financing possibilities in order to expand operations. Each question based on this data is independent of any others.