41) On July 1, 2010, Cargo Corporation issues $4,000,000 of 10-year bonds dated July 1, 2010, at 100 1/2 when the market rate of interest was 8%. Cargo Corporation uses the effective-interest method of amortization. Interest is paid each June 30 and December 31. The entry to record the first semi-annual interest payment on December 31, 2010, will include a:
A) debit to Premium on Bonds Payable for $321,600
B) credit to Premium on Bonds Payable for $320,000
C) debit to Interest Expense for $160,800
D) credit to Interest Payable for $160,000
42) Arrowplan Inc. issued $800,000 of 7.5%, 15-year bonds dated March 1, 2011, on May 1, 2011, at 97 1/2 plus accrued interest. If Arrowplan Inc. uses the straight-line method of amortization, the entry to retire the bonds on the maturity date would include a:
A) debit to Bonds Payable for $780,000
B) credit to Cash for $800,000
C) credit to Discount on Bonds Payable for $20,000
D) debit to Premium on Bonds Payable for $20,000
43) The carrying amount of bonds issued at a premium is calculated by:
A) adding
Premium on Bonds Payable
to
Bonds Payable
B) subtracting
Interest Payable
from
Bonds Payable
C) adding
Interest Payable
to
Bonds Payable
D) subtracting
Premium on Bonds Payable
from
Bonds Payable
44) Restructured Corp has just made the interest payment on its $4,000,000 of outstanding bonds. The bonds are callable at 101 5/8 and the unamortized premium is currently $167,400. Restructured decides to retire one-half of the outstanding bond issue. The entry to retire one-half of the bonds would include a:
A) debit to Premium on Bonds Payable for $167,400
B) credit to Cash for $2,000,000
C) credit to Gain on Retirement of Bonds Payable for $51,200
D) debit to Loss on Retirement of Bonds Payable for $52,500
45) When using the effective-interest method of amortizing a discount or premium, interest expense is calculated by multiplying the:
A) contract interest rate by the face value of the bonds
B) effective-interest rate by the face value of the bonds
C) contract interest rate by the carrying value of the bonds
D) effective-interest rate by the carrying value of the bonds
46) When the discount on bonds payable is amortized, the carrying value of the bonds:
A) will always remain unchanged
B) will increase
C) will decrease
D) may increase or decrease depending on the face value of the bonds
47) Which is the preferred method to use when amortizing a bond discount or premium?
A) straight-line method of amortization
B) market-interest rate method of amortization
C) effective-interest method of amortization
D) straight-line or market interest rate method of amortization
48) Amortizing the discount on a bond payable:
A) increases the face value of the bonds
B) decreases the face value of the bonds
C) increases the carrying amount of the bonds
D) decreases the carrying amount of the bonds
49) The discount on bonds payable:
A) reduces interest expense on the income statement
B) increases interest expense on the income statement
C) increases the amount of cash paid to bondholders over the stated rate of interest
D) decreases the amount of cash paid to bondholders over the stated rate of interest
50) The premium on bonds payable:
A) reduces interest expense on the income statement
B) increases interest expense on the income statement
C) increases the amount of cash paid to bondholders over the stated rate of interest
D) decreases the amount of cash paid to bondholders over the stated rate of interest