195.A bond discount must
a.always be amortized using straight-line amortization.
b.always be amortized using the effective-interest method.
c.be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.
d.be amortized using the straight-line method if it yields annual amounts that are materially different than the effective-interest method.
a
196.When the effective-interest method of bond discount amortization is used,
a.the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date.
b.the carrying value of the bonds will decrease each period.
c.interest expense will not be a constant dollar amount over the life of the bond.
d.interest paid to bondholders will be a function of the effective-interest rate on the date the bonds are issued.
a
197.When the effective-interest method of bond premium amortization is used, the
a.amount of premium amortized will get larger with successive amortization.
b.carrying value of the bonds will increase with successive amortization.
c.interest paid to bondholders will increase after each interest payment date.
d.interest rate used to calculate interest expense will be the contractual rate.
a
198.Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually.
What amount of discount (to the nearest dollar) should be amortized for the first interest period?
a.$14,089
b.$6,815
c.$9,096
d.$4,548
a
199.Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually.
The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a
a.debit to Bond Interest Expense for $30,000.
b.credit to Cash for $34,548.
c.credit to Discount on Bonds Payable for $4,548.
d.debit to Bond Interest Expense for $40,000.
a
200.Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used.
How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?
a.$34,639
b.$34,548
c.$34,457
d.$30,000
a
201.On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of
a.$274,500.
b.$285,500.
c.$258,050.
d.$255,000.
a
202.On January 1, Cleopatra Corporation issued $3,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $3,216,288. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for
a.$360,000.
b.$376,473.
c.$385,955.
d.$420,000.
a 203.On January 1, Martinez Inc. issued $3,000,000, 9% bonds for $2,817,000. The marketrate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond discount. At the end of the first year, Martinez should report unamortized bond discount of:
a.$164,700.
b.$171,300.
c.$154,830.
d.$153,000.
a 204.On January 1, Polk Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $2,197,080. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for:
a.$120,000.
b.$153,796.
c.$131,825.
d.$263,650.
205.Which of the following statements regarding the effective-interest method of accounting for bonds characteristics is
false?
a.GAAP prefers the use of the effective-interest method.
b.The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective-interest method is used.
c.Over the life of the bonds, the carrying value increases for discounted bonds when using the effective-interest method.
d.The effective-interest method applies a constant percentage to the bond carrying value to compute interest expense.