16. SIR SUMBONG KITA KAY MAMA CO. failed to amortize discount on outstanding 10- year bonds payable. What is the effect of the failure to record amortization on interest expense, profit, and bond carrying value, respectively? * a. understate, overstate, understate O b. overstate, understate, overstate c. understate, overstate, overstate O d. overstate, understate, understate

16. SIR SUMBONG KITA KAY MAMA CO. failed to amortize discount on outstanding 10- year bonds payable. What is the effect of the failure to record amortization on interest expense, profit, and bond carrying value, respectively? * a. understate, overstate, understate O b. overstate, understate, overstate c. understate, overstate, overstate O d. overstate, understate, understate

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Amortizing the discount on bonds payablea. increases the recorded amount of interest expense.b. reduces the semiannual cash payment for interest.c. reduces the carrying value of the bond liability.d. is necessary only if the bonds were issued at more than face value
When a company uses the the effective-interest method to amortize a bond discount amortization, the interest expense is equal to a) the market rate multiplied by the beginning-of-period carrying amount of the bonds. b) the market rate of interest multiplied by the face value of the bonds. c) the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d) the stated (nominal) rate of interest multiplied by the face value of the bonds.
Problem 5-12 (AICPA Adapted) Zola Company had the following long-term debt: Bonds maturing in installments, secured by machinery Bonds maturing on a single date, secured by realty Collateral trust bonds 1,000,000 1,800,000 2,000,000 1. What is the total amount of debenture bonds? a. 2,000,000 b. 1,000,000 с. 1,800,000 d. 0. 2. What is total amount of secured bonds? a. 4,800,000 b. 2,800,000 c. 3,800,000 d. 3,000,000 190
9.An entity uses the effective interest method in amortizing bond premium. Which of the following is incorrect regarding the bond premium amortization? Amortization increases over the life of the bonds. Periodic interest expense is greater than periodic interest payments. Periodic interest expense decreases over the life of the bonds The carrying amount of the bonds decreases over the life of the bonds
____ 60. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be a. debit Bonds Payable, credit Cash b. debit Cash and Discount on Bonds Payable, credit Bonds Payable c. debit Cash, credit Premium on Bonds Payable and Bonds Payable d. debit Cash, credit Bonds Payable ____ 61. When using the Cost Method of accounting for equity Investments, the receipt of cash dividends a. decreases the amount of the Dividend Revenue b. increases the amount of the Dividend Revenue c. decreases the amount of the Investment account d. increases the amount of the Investment account
1. If bonds are sold at a discount and the straight-line method of amortization is used, interest expense in earlier years will: (A) Exceed what is would have been had the effective interest rate method of amortization been used. (B) Be less than what it would have been had the effective interest rate method of amortization been used. (C) Be the same as it would have been had the effective interest rate method of amortization been used. (D) None of the above.
Accounting Bonds Payable has a balance of $957,000 and Discount on Bonds Payable has a balance of $9,570. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption? a. $14,355 loss b. $9,570 gain c. $14,355 gain d. $9,570 loss
15. When bonds are sold at a premium, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of premium is: A. Higher than the effective interest amount in the early years and less than the effective interest amount in the later years. B. Less than the effective interest amount in the early years and more than the effective interest amount in the later years. C. Higher than the effective interest amount every year. D. Less than the effective interest amount every year. -3-
q12. BTS Company failed to amortize discount on outstanding 10-year bonds payable. What is the effect of the failure to record amortization on interest expense, profit and bond carrying value, respectively?A. understate, overstate, understateB. overstate, understate, overstateC. understate, overstate, overstateD. overstate, understate, understate
T or F - Zero-interest bonds sell at a significant discount that provides an investor with a total interest payoff at maturity. -Bond issuance costs must be reported separately as deferred charges and charged to expense over the life of the bond issue. -According to PAS 37, restructuring is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity; or the manner in which that business is conducted -Provisions are presented in the statement of financial position as part of the line item “Trade and other payables.”
Reporting Issuance and Retirement of Long-Term Debt On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the statement of cash flows, assuming no gain or loss on retiring the bonds: ACCOUNT Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 300,000 2 Retire bonds 60,000 240,000 June 30 Issue bonds 180,000 420,000 ACCOUNT Discount on Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit Jan. 1 Balance 13,500 2 Retire bonds 4,800 8,700 June 30 Issue bonds 12,100 20,800 Dec. 31 Amortize discount 1,040 19,760 Item Section of Statement of Cash Flows Added or Deducted Amount Retire bonds $fill in the blank 3 Issue bonds $fill in the blank 6…
Which method gives higher interest expense in the last year when the bonds are issued for more than par? Multiple Choice None of the other alternatives are correct effective interest method of accounting for interest expense on bonds straight-line method of accounting for interest expense on bonds declining balance method of accounting for interest expense on bonds All the three statements about bonds are correct